Dow Jones futures rose Thursday morning, along with the S&P 500 and Nasdaq, but blue chip stocks came off premarket highs after a rally fizzled Wednesday. China electric-vehicle stocks such as Li Auto (LI), Xpeng (XPEV) and Nio (NIO) were among the early leaders on the strongest signals yet that the Chinese government will extend EV subsidies past 2022.
The stock market rally attempt is not yet confirmed, though a follow-through day could potentially occur Thursday.
Li Auto stock is signaling a breakout from a long, deep consolidation. China EV and battery giant BYD (BYDDF), which is not yet trading, could clear a cup-with-handle base.
Extended EV subsidies in China would help Tesla (TSLA) as well. Tesla stock edged higher Thursday morning, despite Chief Executive Elon Musk saying the company’s new Austin and Berlin factories are “gigantic money furnaces,” burning through billions of dollars right now.
Meanwhile, Facebook parent Meta Platforms (META) will continue to invest heavily in the metaverse, CEO Mark Zuckerberg told CNBC’s Jim Cramer. META stock nudged higher before the open, but that’s after hitting a two-year low on Wednesday.
Dow Jones Futures Today
Dow Jones futures rose 0.3% vs. fair value. S&P 500 futures climbed 0.5% and Nasdaq 100 futures advanced 0.7%.
The 10-year Treasury yield declined 6 basis points to 3.1%. The benchmark yield tumbled 15 basis points on Wednesday.
Crude oil prices edged lower.
Copper futures fell nearly 3%, after slumping 3% on Wednesday.
Initial jobless claims fell 2,000 to 229,000 in the latest week, the Labor Department said. That was slightly higher than expected. Claims have been trending slowly higher as labor markets start to ease, but remain historically low. The Federal Reserve would like to see a lot more weakness in job markets.
Stock Market Rally
On Wednesday, the major averages opened sharply lower, then rebounded solidly higher before fizzling out to end with slim losses as investors tried to assess the testimony of Federal Reserve Chair Jerome Powell before the Senate Banking Committee.
The Dow Jones Industrial Average fell 0.15% in Wednesday’s stock market trading. The S&P 500 index dipped 0.1%. The Nasdaq composite gave up 0.15%. The small-cap Russell 2000 dipped 0.2%.
China EV Subsidies
A high-level government meeting indicated that China will extend EV subsidies past Dec. 31. Chinese Premier Li Keqiang led an executive meeting of the State Council on Wednesday, saying the country will study extending the exemption of purchase tax for EVs and plug-in hybrids, according to a CCTV report Wednesday night.
Several local governments have already boosted subsidies for EV or hybrid sales, including Shenzhen and Shanghai. The Chinese government will encourage affordable EV and hybrid sales in rural areas.
More broadly, China President Xi Jinping vowed to use “more forceful” tools to achieve 2022 economic targets. Xi was speaking at the start of the BRICS — Brazil, Russia, India, China and South Africa — business forum. Private forecasts are much-lower than government goals for economic growth.
China EV Stocks
Li Auto stock jumped 6% to 39 before the open. That signals a move above a 37.75 buy point from a long and very deep consolidation. But LI stock has doubled from May 10 and is greatly extended from moving averages. On the plus side, Li Auto’s relative strength line has surged to 52-week highs.
Nio stock climbed nearly 3% and XPEV stock jumped almost 6%. Both are moving toward their 200-day moving averages after reclaiming their 50-day lines earlier this month.
BYD stock, which trades over the counter in the U.S., is not active in premarket trading after dipping to 38.30 on Wednesday. BYDDF is close to a 39.81 buy point from a deep cup-with-handle base that dipped 48%.
Tesla Factories Are ‘Money Furnaces’
Tesla CEO Musk said “Berlin and Austin factories are gigantic money furnaces right now.” That was from part of a May 31 interview with the Tesla Owners Silicon Valley in Austin, Texas, that was released Wednesday night.
“It’s really like a giant roaring sound, which is the sound of money on fire,” Musk said. The new car factories in Texas and Berlin are “losing billions of dollars right now. There’s a ton of expense and hardly any output.”
Musk blamed battery and supply chain shortages for the weak output. Tesla production from those factories was supposed to ramp up slowly, yet still appears weak.
The Tesla Shanghai plant will suspend production for couple weeks near the start of July, Reuters reported Wednesday, citing an internal company memo. That will allow Tesla to upgrade equipment and perhaps ultimately boost plant production capacity.
But it’s another challenge for Tesla to rebound to record production and deliveries in the third quarter, after Covid-related shutdowns severely affected the Shanghai plant in the second quarter.
Still, Tesla stock edged higher in premarket trading. Shares edged lower on Wednesday, back below their 21-day moving average, but after rebounding 9.35% on Tuesday.
Market Rally Analysis
Thursday marks day four of a stock market rally attempt on the S&P 500 and Nasdaq. So investors can start looking for a follow-through day. The Dow Jones is only on day three of its rally attempt.
But with the major indexes hitting resistance at their 10-day moving averages, and well below more-substantial moving averages and resistance levels, investors should be skeptical of the current rally for now. However, even if a follow-through day does confirm a new uptrend in the near future, investors should remain cautious about adding exposure.
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