Dow Jones futures were little changed overnight, along with futures for the S&P 500 and futures for the Nasdaq. Delta Air Lines earnings and more economic data are available.
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The stock market rally receded on Wednesday as the Federal Reserve saw the banking crisis spark a recession.
Recently released minutes from the March 21-22 Federal Reserve meeting showed that Fed staff had forecast “a mild recession beginning later this year.” Policymakers expected bank stress to “weigh on economic activity, hiring and inflation,” the Fed minutes showed. Members, however, remained “very vigilant” about inflation risks. While several policymakers considered holding rates steady, they ultimately voted for a quarter-point rate hike to 4.75-5%.
Before the open, the consumer price index came in less than expected, with the CPI inflation rate falling a full percentage point to 5%. But core inflation, which excludes food and energy, rose to 5.6%, as expected.
The odds of a Fed rate hike in early May were barely reduced, to around 70%.
China’s stocks were hit hard after Berkshire Hathaway (BRKB) CEO Warren Buffett noted his concern over geopolitical tensions, particularly China and Taiwan. alibaba (SLIME), jd.com (J.D.), PDD shares (PDD) and Tencent holdings (TCEHY) everything fell hard.
BABA shares continued to fall overnight on a report that SoftBank was planning to sell much of its stake in the Chinese e-commerce giant.
Shares of TSLA hit resistance at a key level and continued to consolidate ahead of tesla (TSLA) earnings next week.
Shopify (TRADE), service now (NOW), cloud flare (NET), crocodiles (CROX) and Merck (MRK) are trading close to potential entries.
delta airlines (DAL) reports earnings early Thursday, kicking off results for carriers. DAL shares fell 2.4% on Wednesday, below its 200-day line, after american airlines (AAL) gave preliminary first-quarter results that were slightly above its January guidance, but below analyst consensus. AAL shares fell 0.2% to a three-month low.
ServiceNow and CROX stocks are on SwingTrader. NOW stock and Crocs are also at IBD 50. Shopify was Wednesday’s IBD Stock Of The Day.
Dow Jones Futures Today
Dow Jones futures fell 0.1% against fair value. S&P 500 futures sank 0.1% and Nasdaq 100 futures were flat.
The Labor Department will release the March Producer Price Index and weekly unemployment claims at 8:30 am ET.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading at the next regular stock market session.
Join IBD experts as they discuss actionable actions in the stock market rally on IBD Live
stock rally
The stock market rally initially opened solidly higher on the CPI inflation report, receded and then faltered until the Fed’s recessionary fears took hold.
The Dow Jones industrial average was down 0.1% in trading on Wednesday. The S&P 500 index fell 0.4%. The Nasdaq Composite plunged 0.85%. The small-cap Russell 2000 shed 0.7%.
US crude prices rose 2.1% to $83.26 a barrel, the highest closing in nearly five months.
The 10-year Treasury yield fell 1 basis point to 3.42% after hitting 3.34% shortly after the open. The two-year yield fell 9 basis points to 3.97%. The yield on the 3-month Treasury bill fell just 2 basis points to 5.01%.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) fell 0.7%, while the Innovator IBD Breakout Opportunities ETF (BOUT) rose 0.1%. The iShares Expanded Technology Software (IGV) Sector ETF fell 0.2%, with NOW stocks a significant component. The VanEck Vectors Semiconductor (SMH) ETF fell 1.8%.
Reflecting more speculative story stocks, the ARK Innovation ETF (ARKK) plunged 2.9% and the ARK Genomics ETF (ARKG) fell 2.3%. Tesla stock is the #1 holding among Ark Invest ETFs, with Shopify in the top 10. Cathie Wood’s Ark also owns a small stake in BYD stock.
SPDR S&P Metals & Mining ETF (XME) fell 0.8% and the Global X US Infrastructure Development ETF (PAVE) rose 0.4%. US Global Jets ETF (JETS) fell 3.1%, with large components of Delta and AAL stocks. SPDR S&P Homebuilders ETF (XHB) fell 0.1%. The Energy Select SPDR ETF (XLE) rose 0.1% and the Health Care Select Sector SPDR Fund (XLV) finished slightly higher.
The Financial Select SPDR ETF (XLF) fell 0.2%. The SPDR S&P Regional Banking ETF (KRE) fell 1.1%.
Five best Chinese stocks to watch now
Buffett wary of tensions in China
Warren Buffett said Wednesday on CNBC that he believes China’s electric vehicle giant BYD (BYDDF) is “extraordinary” while Taiwan Semiconductors (TSM) is a “fabulous company.” But that didn’t stop Berkshire from substantially trimming its stakes in both companies.
Buffett made a big bet on TSM in the third quarter, but then cut the position 86% in the fourth quarter. He said he “reassessed” the tensions between China and Taiwan, not the business or the management.
Berkshire, meanwhile, has roughly halved its large long-term stake in BYD starting in August, with the latest share reduction revealed earlier this week.
TSM shares fell 2.7% on Wednesday, trading below the 50-day line. BYD shares sank 3.9%, back below 50 days.
But many of China’s internets suffered higher losses. BABA fell 5.9%, chipping away at its 50-day line within a cup-handle base. SoftBank plans to sell most of its stake in Alibaba, the Financial Times reported on Wednesday night. Alibaba fell slightly overnight, from early post-close lows.
JD’s shares fell 7.65% to their worst level since their October lows. PDD shares fell 5.2%, starting to lose sight of their 200-day line. TCEHY shares lost 5.4%, falling below its 50-day mark.
The Krane CSI China Internet ETF (KWEB) fell 4.5% to 28.62, below its 200-day line. It reached a 52-week high of 36.19 on January 26 after more than doubling its October low.
Actions near points of purchase
SHOP shares rose 1.2% on Wednesday to 45.30, but pulled away from an intraday high of 48.75. Investors could use 48.36 as early entry. JMP Securities upgraded Shopify’s shares to a buy rating on Wednesday.
NOW’s shares rose 0.3% to 471.43, but were also off session highs. ServiceNow stock now has a handle on its cup base, giving it a buy point of 482.43.
Net shares rose 3.9% to 63.04. Intraday, the shares surpassed an early entry of 63.19 in a consolidation.
CROX shares fell 1.5% to 126.19. The shares are working on an official buy point of 143.60. But investors could use 130.90 as an early entry, which would wipe out most of the trading since January 18.
MRK shares rose 1.1% to 113.75. The stock is close to a consolidation buy point of 115.59. Drug giant Dow Jones has been accommodating in recent days, without creating much of a shakeup.
Tesla Stock
Tesla shares fell 3.35% to 180.54. reversing lower from near the 50-day moving average. The shares are still within a cup-handle basis with a buy point of 217.75, according to MarketSmith analysis. The bottom formed below the 200-day line, which has dropped to around 214. Investors may want to use a decisive offset from the 200-day line as an entry.
Tesla will cut prices on some Model 3 and Y models in Hong Kong on April 15, the Hong Kong Economic Times reported on Wednesday, including a 14% reduction for the Model 3 Performance variant.
TSLA shares fell 10.8% last week as Tesla slashed EV prices in the US and Australia following record first-quarter deliveries that missed sights.
Tesla’s earnings are due April 19, with gross margins in focus.
Market recovery analysis
The stock market rally went up and down on Wednesday, taking a more decisive downward trend from mid-afternoon. It’s not just the Fed staff forecasting a recession, it’s the markets seeing policymakers still raising rates, for the last time.
Bearish external reversals are never a good sign, but the major indices haven’t changed their character significantly yet.
The Nasdaq, for the third session in a row, fell below the 12,000 level, but is still above its 21-day level. The tech index has suffered three days of distribution in the last five sessions, something to keep in mind.
The S&P 500 briefly surpassed its early April highs before fading. The Dow Jones fell from its best levels in nearly two months.
The Russell 2000 fell below its 21-day line again.
Some leading stocks turned in gains. But many others pulled back lower from opening gains.
The Nasdaq, S&P 500 and many growth stocks are close to breaking above key levels. But they are also not far from breaking below major support.
Time the Market with IBD’s ETF Market Strategy
What to do now
This is not a giddy stock rally. The major indices have moved sideways in recent months, with large swings across sectors and leaders at various points. So while investors should be on board, this is not a time to be super aggressive.
How exposed should it be? If your stocks perform, your exposure could be 40%, 50% or more, depending on your risk tolerance. If you’ve run out of stocks or had to weed out a series of losers, your exposure could be quite a bit less.
Either way, if and when conditions improve, you can gradually make new purchases and increase your exposure. Stay committed and remain flexible. Have your watchlists and exit strategies in place.
Read The Big Picture every day to stay in sync with market direction and major stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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