Dow Jones Futures: Meta Soars, But Megacaps Can't Hide Market Woes; First Republic Crashing

Dow Jones futures are little changed in the after-hours session, while S&P 500 and Nasdaq Futures are rising. Meta Platforms (META), and ServiceNow (NOW), headlined yet another major earnings night.

On Wednesday, the stock market closed with a mixed result, with Microsoft (MSFT), which soared 7% in earnings and also boosted cloud software, some AI, and other plays. The market elsewhere was generally negative.

First Republic Bank (FRC), a California-based bank, and its regulators are trying to avoid a seizure of the bank. However, this has had little positive impact on FRC investors.

ServiceNow (ALGN), Meritage Homes MTH, and Impinj PI were all reported on late Wednesday.

Meta shares rose late, while NOW rose slightly. PI shares plummeted, while Meritage was inactive.

IBD Leaderboard includes Meta Stock and Meritage Homes. IBD 50 includes Mobileye, MTH and Meritage Homes. MBLY is also listed on the IBD Big Cap 20.

Dow Jones Futures Today

Dow Jones futures were unchanged compared to fair value. S&P futures increased by 0.25%. Nasdaq 100 futures rose 0.6%.

Commerce Department will announce its first estimate of the GDP for the first quarter at 8:30 am on Thursday. Economists predict a 2% increase in annual growth. The report will also include Q1 data on inflation, which will provide strong signals for Friday's PCE Price Gauge for March.

The Labor Department releases weekly data on jobless claims at 8:30 am.

Keep in mind that overnight trading in Dow futures or elsewhere may not necessarily translate to actual trading during the next regular session of the stock market.

Meta Earnings

Meta earnings easily surpassed views with revenue increasing for the first quarter in four. The social giant also forecast higher Q2 revenue.

Meta stock surged after-hours. In the regular session on Wednesday, shares rose by 0.9% to 209,40 as tech megacaps surged after Microsoft's results. Meta, however, closed below the 21-day trendline and near session lows.

Other Key Earnings

ServiceNow's earnings were the most anticipated, and the software giant is also forecasting higher. NOW stock gained 1% overnight. On Wednesday, shares rose 2.7% to 454.03, regaining the 50% line. However, only a small portion of Tuesday's 6.5% drop was recovered. ServiceNow's stock has a buy-point of 485.68 cups-with-handles.

Meritage Homes' earnings were the highest viewed. MTH is not currently active in extended trading. The shares fell 2.5% on Wednesday to 121.85, but are still near the all-time high 130.68 of April 20. The Meritage stock consolidation entry is 117.32, and the 5% buying zone extends to 123.19.

Align's earnings exceeded expectations, with the Invisalign manufacturer guiding higher on Q2 revenues. In late trading, the ALGN stock dropped nearly 6%. On Wednesday, shares rose 0.9% to 354.55. MarketSmith says that Align stock has a buy point of 368.97.

Impinj's earnings were below expectations, and the company also gave a low forecast for the current quarter. Overnight, PI shares crashed. Shares dropped 0.5% to 135.32. Impinj has been working towards a consolidation, with a buy point of 145.

MBLY is also near a handle buying point ahead of Thursday's earnings announcement. LLY pulled back around a 375.35 purchase point, while Mastercard, Merck and ABBV retreated under official entries. CROX is technically within the buy range but has been extended from both an early entry line and a 50-day line.

Stock Market Rally

Microsoft was the catalyst for the initial stock market rise, which continued throughout the session. The rally ended mixed with negative breadth.

In Wednesday's stock exchange trading, the Dow Jones Industrial Average dropped 0.7%. S&P 500 index fell 0.4%. The Nasdaq composite ended up 0.5%. Russell 2000, a small-cap index, fell 0.9%.

The U.S. crude price fell 3.6%, to $74.30 per barrel. This is a new four-week low.

The yield on the 10-year Treasury note rose by 3 basis points, to 3.43%.

ETFs

The Innovator IBD ETF (FFTY), which is a growth ETF, fell by 0.75%. The iShares Expanded Tech Software Sector ETF (IGV), which holds Microsoft stock and NOW, rose 0.3%. VanEck Vectors Semiconductor ETF SMH rose by 0.7%.

ARK Innovation ETFs (ARKK) and ARK Genomics ETFs (ARKG) both fell 1.9%, reflecting the more speculative stories stocks.

Global Jets (JETS) fell 1%. SPDR S&P Homebuilders ETF XHB has lost 1.4%. Energy Select SPDR Fund (XLE), a SPDR ETF, fell 1.3%. Health Care Select Sector SPDR Funds (XLV) also declined 1.4%. All three are significant holdings in XLV: Merck, AbbVie and LLY. ALGN is also in XLV.

First Republic and Other Bank Stocks are Hit

FRC shares fell 30% to 5.63 on Wednesday, reaching new all-time highs. They had fallen 49% Tuesday after First Republic Bank revealed massive deposits flight in Q1. California-based First Republic Bank was seeking banking giants that would buy its assets above market prices. What was the pitch? The pitch? Buy these assets above market prices to prevent the FDIC from taking over First Republic, and charging big banks heavy fees to offset losses. You may need government incentives or guarantees to sell assets or First Republic outright.

FDIC might be hesitant to protect all First Republic Deposits because it includes the $30 billion injection by JPMorgan Chase and other giants in last month. In the event that First Republic fails, a widespread deposit run would be likely if FDIC did not protect all First Republic deposits.

First Republic may issue additional shares at a lower price if an asset is sold.

PacWest Bancorp (PACW), however, jumped 7.5% in response to the disclosure that its deposits had stabilized or even risen slightly over the last few weeks.

Regional banks in general grew Wednesday, while the banking giants declined.

The SPDR S&P Regional Banking ETF KRE rose by 0.6%, after falling Tuesday to its lowest level since the end of 2020. FRC stock, PacWest and PacWest are all components of the KRE.

Financial Select SPDR ETF, dominated by the financial giants, fell 0.95% for a fifth consecutive session. JPM, which is still near its highs, dropped 1.8% on Wednesday to 135.23, testing its 50-day level.

Market Rally Analysis

The rally in the stock market went into "uptrend with pressure" on Wednesday, and that didn't change much.

The Nasdaq Composite, driven by Microsoft, recovered from its 50-day level but met resistance at the 21 day. The Nasdaq fell 2% on Tuesday, closing below its low from March 29. This is a negative sign for the recent market rally.

After quickly reaching the 21-day resistance line, the S&P 500 fell modestly and was close to the 50-day level. Dow Jones also fell through the 21 day line and is close to the 50 day.

Russell 2000 is not far below its six-month lows, and it's also well below all of its moving averages.

Microsoft was not the only stock that rose on Wednesday, but it certainly felt like it. Microsoft's comments and results lifted Amazon.com (AMZN), several cloud software companies, Nvidia (NVDA), and Arista Networks. META and ServiceNow both saw modest gains.

The market still has a weak breadth, with losers continuing to outpace winners.

The Nasdaq's advance/decline was lower on Tuesday than recent lows. The NYSE's advance/decline line looks better but has also weakened in the last couple of weeks.

First Trust Nasdaq 100 Equal Weighted Index ETF QQEW fell by 0.75% on Tuesday after falling below its 50-day level. Invesco's S&P500 Equal Weight ETF lost 1% after it closed just below Tuesday's key level.

Merck, Eli Lilly and other drugmakers retreated on Wednesday. Money flowed into Microsoft and cloud related names on Wednesday. Is this a one-day blip, or is it something else?

Chipmakers recovered, but only a small fraction of their losses from Tuesday and the recent days.

Meritage, CROX, and homebuilders, such as Meritage, are still in good shape.

What to Do Now

Microsoft's mixed bounce is hard to be excited about, especially with the market rally being under pressure. The breadth of the market is weak, and sector rotation continues. In any case, not many stocks showed buy signals on Wednesday.

Investors should reduce their recent purchases and maintain a modest level of exposure.

If the earnings season is successful over the next couple of days, and if the Fed meeting takes place next week and the market responds positively, then the rally in the stock market could be revived and there will be plenty of buying opportunities. Investors must be ready for any other scenario, including further weakness or volatile markets.

Stay on top of your watchlists, but have exit strategies at the ready. Stay flexible and engaged during a rally that is struggling and amid a huge news cycle.

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