Dow Jones futures fell Thursday morning, along with S&P 500 futures and Nasdaq futures, but well off premarket lows. Nvidia (NVDA) and AMD stock fell overnight, dragging down semiconductors after they said that the U.S. government has imposed export restrictions on certain chip sales to China.
The stock market rally made a brief, feeble rebound attempt Wednesday, with the major indexes hitting resistance at the 50-day moving average before reversing lower.
China EV startups such as Nio released August sales on Thursday morning.
AMD, Nvidia Stock Fall On China Curbs
Nvidia stock sank 4% in premarket trade. The chip giant said in an SEC filing Wednesday night that the U.S. government has imposed new license requirements that bar certain advanced data-center chip sales to China and Russia. Nvidia said the U.S. cites concerns about “military end use.” Nvidia, which does not currently sell products into Russia, said the restrictions could affect $400 million in sales to China.
The U.S. government is increasingly imposing curbs on high-end chip technology to China. Beijing responded to the new export curbs, saying the U.S. is attempting to impose a tech blockade on China.
Nvidia rival Advanced Micro Devices (AMD) reported a similar U.S. notice over selling China various GPUs with AI uses. AMD stock fell more than 2% in early trade. Taiwan Semiconductor Manufacturing (TSM), which makes Nvidia chips, declined nearly 3%.
The SMH ETF, of which all three chipmakers are a major part, slid almost 2%. Several other chip stocks fell modestly in the wake of the Nvidia and AMD news.
Pure Storage (PSTG) headlined earnings overnight. PSTG stock jumped on better-than-expected earnings as well as revenue guidance. Shares fell 1.8% to 28.97 on Wednesday, closing just above the 200-day line. PSTG stock may test a 31.62 buy point from a cup-with-handle base.
China EV Sales
Early Thursday, Chinese EV startups Nio (NIO), Li Auto (LI) and XPeng Motors (XPEV) will report August delivery data. EV and battery giant BYD (BYDDF) will likely report Friday or Saturday. Nio stock, along with shares of Li Auto, Xpeng, BYD and EV giant Tesla (TSLA) are struggling right now.
The new U.S. ban on certain Nvidia and AMD chip sales possibly could have an impact on Chinese EV makers, especially those with self-driving or driver-assist efforts.
Dow Jones Futures Today
Dow Jones futures fell 0.2% vs. fair value. S&P 500 futures sank 0.35% and Nasdaq 100 futures declined 0.6%, with AMD and Nvidia stock and chips overall weighing on the S&P 500 and Nasdaq futures. But futures are well off overnight lows.
The 10-year Treasury yield rose 7 basis points to 3.2%.
Crude oil lost more than 1% and copper sank nearly 2%.
Meanwhile, Chengdu, capital of the Sichuan province in SW China, is locking down its 21 million residents over Covid cases.
With the market rally so weak, investors should be wary of new buys and acting to reduce exposure. But they should be looking for potential leaders for their watchlists.
Stock Market Rally
The stock market rally tried to rebound Wednesday morning, but the major indexes quickly backed off, closing at session lows.
The Dow Jones Industrial Average lost 0.9% in Wednesday’s stock market trading. The S&P 500 index declined 0.8%. The Nasdaq composite and small-cap Russell 2000 pulled back 0.6%.
U.S. crude oil futures fell 2.3% to $89.55 a barrel.
The 10-year Treasury yield rose 2 basis points to 3.13%.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) dipped 0.4%. The iShares Expanded Tech-Software Sector ETF (IGV) and VanEck Vectors Semiconductor ETF (SMH) fell 0.7%. TSM, Nvidia and AMD stock are major SMH holdings.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) nudged down 0.1% while ARK Genomics ETF (ARKG) climbed 1.3%. Tesla stock is a major holding across Ark Invest’s ETFs. Cathie Wood’s Ark also owns some Nio and BYD stock.
China EV Sales
Nio, Li Auto and XPeng reported August deliveries before Thursday’s open.
Nio delivered 10,677 vehicles in August, up 82% vs. year earlier and up 6% vs. July. That includes some ES8 SUVs, which started deliveries on Aug. 28.
Nio stock fell 2% before Thursday’s open. Shares edged up 0.6% to 19.95 on Wednesday, hovering below the 50-day line. Nio is working on a 24.53 bottoming base buy point that would involve getting above the 200-day line.
LI stock delivered just 4,577 hybrid SUVs, down 56% vs. July and 52% vs. a year earlier. Upcoming vehicles may have sapped demand for the existing Li One hybrid SUV. The L9 hybrid SUV began deliveries on Aug. 30, with the L8 coming in November.
Li Auto sank 2% before the open. Shares dipped 0.1% to 28.77 on Wednesday, again hitting 200-day line resistance.
XPeng deliveries came in at 9,578, up 96% vs. a year earlier but down 17% vs. July. Xpeng will have new SUV, the G9, out in Q4. XPEV stock slid 2% on Thursday. Shares rose 1.4% on Wednesday to 18.52, after hitting a 22-month low on Tuesday.
Meanwhile, BYD will likely report August sales on Friday or Saturday. July sales of EVs and plug-in hybrids surged 222% vs. a year earlier to 162,350. There are indications that BYD will set another record in August.
On Monday, BYD reported first-half earnings tripled vs. a year earlier, with sales up 60%. That sent shares modestly higher.
But BYD stock plunged 7.8% on Tuesday, followed by a loss of 4.35% to 30.75 on Wednesday. Shares of the EV and battery giant have knifed below the 200-day line after hitting a record 43.61 on June 28.
Warren Buffett’s Berkshire Hathaway (BRKB) disclosed Tuesday that it sold 1.33 million H-shares on Aug. 24 in Hong Kong, less than 1% of its big BYD stock stake. Berkshire still owns slightly less than 8% of BYD, but investors worry that it’ll keep selling shares.
Tesla doesn’t break out China sales, but a trade official suggested Shanghai production hit a near-record 77,000 in July. Industry data suggest local sales topped 30,000 in August, excluding exports to Europe and elsewhere. More complete industry data for Tesla will come later in September.
Shares fell 1% before the open, near the 50-day line. Tesla stock dipped 0.75% to 275.61 on Wednesday. Shares are falling from the 200-day and 21-day moving averages.
Market Rally Analysis
The stock market rally isn’t showing much fight. The major indexes rose Wednesday morning, but quickly hit a wall at the 50-day moving average. They backed off, ultimately closing at session lows.
The Russell 2000 and S&P 400 MidCap retreated to just above their 50-day line, though they finished slightly under their 10-week averages.
Getting back above the 50-day line is important for the The Nasdaq, but it certainly wouldn’t be an all-clear signal for bulls. On the other hand, it wouldn’t take much of a decline to push the teetering market rally into a correction.
The U.S. ban on certain Nvidia and AMD chip sales will hit the semiconductor sector Thursday. Software names, especially highly valued growth, is under pressure as Okta (OKTA), MongoDB (MDB) and Veeva (VEEV) tumbled more than 10% following earnings.
What To Do Now
The market rally remains under pressure for now, but the weakness is obvious. Investors should be looking to take profits and cut losses instead of adding exposure.
Work on your watchlists. Continue to look for possible setups, but make sure to keep track of quality stocks with high relative strength, even if the charts aren’t ripe yet. But stocks can outperform in a weak market until they suddenly falter. And relative winners can still be absolute losers.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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