The selling that took place on Friday carried over yesterday coming off the three-day weekend. It was a retreat paced by the mega-cap stocks and small-cap stocks, and it was a retreat rooted in the notion that many stocks had gotten ahead of themselves and are due for a pullback.
That notion is still intact this morning with several growth stocks issuing disappointing guidance in conjunction with reporting their latest quarterly results.
Palo Alto Networks (PANW) is the standard bearer in that respect. It is down 25% in pre-market trading and is acting as a drag on other cybersecurity stocks such as CrowdStrike Holdings (CRWD), which is down 11%, and Fortinet (FTNT), which is down 7%.
Other guidance offenders included Keysight Technologies (KEYS), Teledoc Health (TDOC), RingCentral (RNG), and SolarEdge Technologies (SEDG). They are all down sharply in pre-market trading.
Currently, the S&P 500 futures are down 14 points and are trading 0.3% below fair value, the Nasdaq 100 futures are down 108 points and are trading 0.6% below fair value, and the Dow Jones Industrial Average futures are down 78 points and are trading 0.2% below fair value.
The guidance from Palo Alto Networks clearly took investors by surprise. The stock has been a star performer for some time, but failing to live up to the high growth expectations has created some nervous energy in front of NVIDIA’s (NVDA) earnings report after the close.
There is a lot of bullish sentiment (and hefty gains) wrapped up in NVIDIA’s stock, so the market’s reaction to the report will be just as important as what the AI leader reports.
Notably, Bloomberg reports that the positioning in the options market ahead of the report implies a nearly 11% move in the stock following earnings. There is no way such a move — up or down — won’t have a ripple effect on the broader market, which is why there is some hesitation (and some profit taking) ahead of the report.
NVDA is down 2.0% in pre-market trading, crossing around $680 per share or roughly 6% lower than Friday’s closing price.
Again, that report is after the close, but there are some other important items the market will have to process before the close. That includes the news that Amazon.com (AMZN) is going to be replacing Walgreens Boots Alliance (WBA) in the Dow Jones Industrial Average while Uber Technologies (UBER) will be replacing JetBlue Airways (JBLU) in the Dow Jones Transportation Average. Those changes will take place prior to the open on February 26.
It also includes word that the Mortgage Bankers Association’s mortgage applications index declined 10.6% week-over-week, a $16 billion 20-yr bond auction at 1:00 p.m. ET, and the release of the FOMC Minutes for the January 30-31 meeting at 2:00 p.m. ET.
Based on comments from Fed officials since that meeting, and the repricing seen in the fed funds futures market, there is an awareness that the minutes are likely to convey a more hawkish-minded position with respect to the policy rate. What could be more interesting in these minutes is any discussion pertaining to the Fed pulling back on its quantitative tightening efforts.
At the moment, buyers are pulling back on their efforts, recognizing that yesterday didn’t produce a buy-the-dip victory and that today is very much a wait-and-see kind of day in several respects, the most important of which won’t reveal itself until after the close.
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Originally Posted February 21, 2024 – Nervous energy in front of NVIDIA earnings report
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