Dow Jones futures fell Monday morning, along with S&P 500 futures and Nasdaq futures after Moody's downgraded the U.S. sovereign debt rating on Friday.
The stock market rally had a powerful week as the U.S-China trade de-escalated and AI spending fears returned to optimism. All the major indexes cleared their 200-day lines decisively.
The S&P 500 and Nasdaq have now entered a power trend, signifying an especially strong market rally. A power trend is not a buy signal by itself, but it's time to be especially invested and more willing to hold aggressive growth plays.
Broadcom, Construction Partners, Meta Platforms and Sprouts Farmers Market are setting near buy points.
Nvidia CEO Jensen Huang gave the keynote address overnight at Taiwanese electronics show Computex, where he touted plans to sell semicustom artificial intelligence systems that use chips from rivals.
Dow Jones Futures Today
Dow Jones futures fell 0.6% vs. fair value. S&P 500 futures lost 1% and Nasdaq 100 futures declined 1.45%.
The 10-year Treasury yield surged to 4.55%. The 30-year Treasury yield hit 5.02%, the highest since November 2023.
Crude oil futures fell about 1%.
Overnight, China reported April economic data, with some likely impact from U.S. tariffs. Retail sales rose 5.1% vs. a year earlier, down from March's 5.9% and estimates for 6%. Industrial production grew 6.1% vs. April 2024, down from March's 7.7% but slightly beating views for 5.9%. Year-to-date fixed asset investment increased 4% below estimates for 4.2%
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
Moody's Downgrades U.S. Sovereign Credit Rating
However, Moody's Investors Service downgraded the U.S. government credit rating from the top-level Aaa to Aa1, saying this "reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns."
That comes more than a year after Moody's lowered its outlook on the U.S. debt rating to negative. Fitch Ratings and S&P Global Ratings had already stripped the U.S. government of their top credit ratings.
Treasury Secretary Scott Bessent, speaking on NBC's Meet The Press on Sunday, said "Moody's is a lagging indicator." He blamed the Biden administration for the current fiscal challenges, adding that "We are determined to bring the spending down."
The GOP-led Congress is working on a huge tax-and-spending bill that is expected to significantly add to federal deficits that are already high and set to keep soaring.
The Moody's downgrade is clearly a warning that America's long-deteriorating fiscal picture could ultimately have serious consequences.
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Stock Market Rally
The stock market rally had big weekly gains again. Much of the advance came early in the week, but the indexes and leading stocks showed little desire to pause, let alone pull back.
The U.S. and China slashed tariffs on Monday. On Friday, President Donald Trump said the U.S. would set tariff rates on other trading partners "over the next two to three weeks," saying the administration lacks the capacity to reach deals with all of them.
The Dow Jones Industrial Average rose 3.4% in last week's stock market trading. The S&P 500 index jumped 5.3%. The Nasdaq composite surged 7.15%. The small-cap Russell 2000 gained 4.5%.
The Dow Jones moved clearly above its 200-day moving average, even with UnitedHealth being a huge drag. S&P 500 and Nasdaq vaulted above that key level. More leading stocks broke out or flashed buy signals, with earlier movers continuing to climb.
The 10-year Treasury yield rose six basis points to 4.44%, backing off a four-month closing high above 4.5%.
U.S. crude oil futures or rose 2.4% to $62.49 a barrel last week.
Stock Market Power Trend
A power trend has begun on the S&P 500 and Nasdaq, meeting all four criteria.
- The low is above the 21-day exponential moving average for at least 10 days.
- The 21-day EMA is above the 50-day simple moving average for at least five days.
- The 50-day line is in an uptrend.
- The market closes up for the day.
A power trend will usually end with the 21-day line crossing back below the 50-day.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF ran up 5.6% last week. The iShares Expanded Tech-Software Sector ETF popped 5.5%. The VanEck Vectors Semiconductor ETF surged 10.3%. Broadcom stock is a big SMH member.
ARK Innovation ETF spiked 13.4% last week and ARK Genomics ETF gained 3.3%.
SPDR S&P Metals & Mining ETF advanced 1.8% last week. The Global X U.S. Infrastructure Development ETF rallied 5.6%. U.S. Global Jets ETF ascended 4.3%. SPDR S&P Homebuilders ETF bounced 4.7%. The Energy Select SPDR ETF climbed 3.7% and the Health Care Select Sector SPDR Fund edged up 0.3%.
The Industrial Select Sector SPDR Fund was up 5.6%. The Financial Select SPDR ETF climbed 3.5%.
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Stocks Near Buy Points
Broadcom stock jumped 9.8% to 228.61 last week, its fourth straight advance and fifth out of the last six. AVGO stock is working toward a 251.88 buy point. Shares have paused for the past few days, perhaps working on a handle that would lower the buy point. The pause is happening just below some resistance at the 238 level.
Broadcom is riding an AI hardware rally, after the broad sector plunged starting in late January on DeepSeek-spurred spending fears. Nvidia last week will sell more than 18,000 advanced processors to Saudi Arabia, one of several positive AI catalysts.
Construction Partners stock climbed 5.6% to 101.14, just below a 103.69 cup-base buy point. ROAD stock peeked above that entry on Tuesday but didn't close in a buy zone. Earnings are strong with sales growth accelerating for the past two quarters to 54% in the March-ended Q2.
Meta stock popped 8.1% to 640.34 last week, but has started to forge a potential handle. For now, shares have a 740.91 buy point on a 35%-deep cup base, according to MarketSurge.
Sprouts stock bounced 4.3% to 168.68, reversing higher from a 10-week line test. On Friday, shares rose back above their 21-day line and broke the downtrend of a handle, offering an early entry. SFM stock has a 178.16 cup-with-handle buy point. The natural foods grocer boasts several quarters of accelerating earnings and sales growth.
S&P 500 Giants, Tesla's Main Rival Lead 5 Stocks Near Buy Points
What To Do Now
The stock market rally has now triggered a power trend. It's a time to be heavily or perhaps fully invested, more willing to buy aggressive growth stocks and trying to hold them for longer gains.
Don't be reckless. Don't chase after extended stocks. The risks of a pullback would be high. Besides, there are still a lot of quality stocks in buy areas or setting up like Broadcom and Meta stock. So bulk up your watchlists.
Earnings season continues, with Snowflake, TJX Cos. and Trip.com among the software, retail and China travel plays near buy points on tap.
Broadcom stock is on the IBD Leaderboard watchlist. Sprouts stock is on the IBD 50. Both are on the IBD Big Cap 20. Construction Partners was Friday's IBD Stock Of The Day.
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