Dow Jones futures were little changed after hours, along with S&P 500 futures and Nasdaq futures. crowdstrike (CRWD) rallied at the bottom of earnings while AI Play SoundHound slumped.
X
The stock market rally posted heavy losses after Fed chief Jerome Powell said policymakers are “prepared to increase the pace of rate hikes.” The S&P 500 broke above its 21-day moving average and undermined its 50-day line.
tesla (TSLA) fell below a key level, but that could still be constructive action. technological titans Apple (AAPL), Microsoft (MSFT) and father of Google Alphabet (GOOGL), which posted modest gains on Monday, gave up those gains on Tuesday.
Many leaders held up reasonably well, though others took more damage. delta airlines (DAL), new relic (New and canadian solar power (CSIQ) flirted with buy signals as their respective groups did well.
Investors should be wary of very short-term new purchases and may want to reduce overall exposure a bit.
The video embedded with this article discussed Tuesday’s market action and looked at shares of DAL, Canadian Solar, and Freeport-McMoRan.
DAL shares are in IBD Big Cap 20. New Relic was IBD’s stock of the day on Tuesday.
Powell, head of the Federal Reserve
Citing stronger economic data, Fed chief Jerome Powell said that “the final level of rates is likely to be higher than anticipated.” Markets had already priced rates higher than the Federal Reserve’s late-2022 forecast of a top rate of around 5.1%.
But Powell also signaled that he is open to re-accelerating the Fed’s rate hikes. “If the totality of the data indicates that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
That puts even more pressure on Friday’s February jobs report, as well as next week’s CPI inflation report.
The odds of a 50 basis point Fed rate hike on March 22 shot up to 70.5%, up from 31% on Monday and 24% the week before.
key gains
CRWD shares rose solidly after they outpaced CrowdStrike earnings and the cybersecurity game turned bullish. CrowdStrike shares fell 2.1% in the Tuesday session to 124.93, a sharp rise in the past two months but still well below the 200-day line. okta (OKTA), Palo Alto Networks (PANW) and fortinet (FTNT) have been looking stronger.
SoundHound AI (SOUN) fell sharply on a lower-than-expected fourth-quarter loss and narrowly topping revenue growth. The AI game gave online revenue guidance for 2023. SOUN shares rose 2.15% to 3.33 on Tuesday. SoundHound shares are working on a buy point of 5.04 from a consolidation that forms mostly above the 200 day line.
Dow Jones Futures Today
Dow Jones futures rose against fair value. S&P 500 futures were flat and Nasdaq 100 futures edged lower.
Investors will receive the ADP Employment Report at 8:15 am ET, which provides an estimate of private payrolls in February. But the ADP report has a mixed record of forecasting the Labor Department’s jobs report. The February jobs report is due Friday.
The JOLTS survey at 10 am ET will reveal job openings beginning in January.
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 started slightly higher Tuesday but fell sharply on hawkish testimony from Fed chief Powell at 10 am ET.
The Dow Jones industrial average fell 1.7% in trading on Tuesday. The S&P 500 index fell 1.5%. The Nasdaq Composite lost 1.25%. The small-cap Russell 2000 fell 1.2%.
Apple shares fell 1.45%, essentially erasing Monday’s gain. On Monday intraday, AAPL shares hit 156.30, nearly breaking a buy point. Microsoft sank 1.1%, more than making up for Monday’s small 0.6% advance. Apple and Microsoft stocks are components of the Dow Jones, S&P 500, and Nasdaq.
Shares of the S&P 500 and the giant Nasdaq GOOGL fell 1.4%, back to their 50-day line.
The 10-year Treasury yield actually fell 1 basis point to 3.97%. But yields soared for shorter-dated Treasuries, which are more closely tied to Fed policy. The 2-year yield jumped 12 basis points to 5.01%. The yield on six-month Treasury bills rose 17 basis points to 5.29%.
Meanwhile, the US dollar soared on hawkish testimony from Powell and broader Treasury yields, hitting its highest level since late November.
US crude prices fell 3.6% to $77.58 a barrel. Concerns about the Fed’s rate hike, the strength of the dollar and the weakness of Chinese imports weighed on crude oil. Copper prices fell 2.8% for similar reasons.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) fell 0.6%. The iShares Expanded Technology Software (IGV) Sector ETF fell 1%, with MSFT shares a major holding. The VanEck Vectors Semiconductor (SMH) ETF fell 1.2%
Reflecting stocks from more speculative stories, ARK Innovation ETF (ARKK) lost 1.7% and ARK Genomics ETF (ARKG) 1.1%. Tesla stock remains a major holding in Ark Invest ETFs.
SPDR S&P Metals & Mining ETF (XME) fell 2.85%. The US Global Jets ETF (JETS) rose 0.65%, with DAL shares a notable holding. SPDR S&P Homebuilders ETF (XHB) was down 1%. The Energy Select SPDR ETF (XLE) sank 1.7% and the Financial Select SPDR ETF (XLF) slid 2.6%. The SPDR Select Health Care Sector Fund (XLV) lost 1.6%.
Five best Chinese stocks to watch now
Tesla Stock
Tesla shares fell 3.15% to 187.71, again below its 21-day moving average and its lowest close in a month. The EV giant has an aggressive buy point of 217.75, but investors should probably wait for a decisive move above the 200-day line. The 200-day line is around 220 and is moving lower. An extended pause would bring the 200-day line to recent consolidation and allow the 50-day line to catch up.
On Tuesday, electric vehicle registration data in China showed an increase in Tesla sales there for the second week in a row. But Tesla’s China deliveries are still on track to fall in the first quarter versus the fourth quarter, despite big price cuts.
Market recovery analysis
The stock market rally did not react well to hawkish remarks by Fed chief Jerome Powell and the prospect of faster and higher rate hikes.
The S&P 500 dipped below its 21-day moving average and barely above its 50-day line. The Nasdaq Composite fell through its 21-day line.
The Dow Jones, which hit resistance at the 50-day line on Monday, fell sharply on Tuesday.
Tuesday’s losses followed a generally negative session on Monday. Large-cap indices erased gains that day but held up relatively well, thanks to shares in Apple, Google and Microsoft. But the losers outnumbered the winners almost 2 to 1.
The Russell 2000, which fell below its 21-day line on Monday, plunged just above its 50-day line on Tuesday. The small-cap index had its worst close since late January.
Most of the leading stocks have fallen along with the broader market. Stocks that looked promising on Monday morning have come back quite a bit.
Miners like FCX shares stumbled on Tuesday on the strength of the dollar and worries about China’s economy. But overall, the leading stocks haven’t taken too much damage yet.
DAL and other airline shares look healthy, along with many general travel names. CSIQ shares are hovering at a buy point with several solar names trying to shine. NEWR stock is consolidating very well. Tesla stock could use a longer hiatus, but it’s still doing relatively well.
With the 10-year Treasury yield hovering near 4%, short-term rates topping 5%, and the dollar surging, it’s understandable that the stock market rally is having some problems.
Friday’s jobs report and next week’s CPI inflation report could bolster expectations of a half-point Fed rate hike this month. As Tuesday’s sell-off showed, it’s the market reaction that matters, not the news.
The S&P 500 is barely holding the 50-day line and is not that far from testing its 200-day line once again. The Nasdaq and Russell 2000 could also easily break below the main levels. On the upside, moving above the intraday highs on Monday would break short-term trend lines for the S&P 500, Nasdaq, and Russell.
Time the Market with IBD’s ETF Market Strategy
What to do now
Just when the stock market rally appears to be gaining momentum, negative news topples it. Is this a short-term pause within a trading range or the start of something more serious? It wouldn’t take much to trigger serious weakness or renewed strength.
Therefore, investors must be prepared and ready to act.
It’s probably best to postpone buying until there’s more clarity. In any case, not many stocks showed new buy signals on Tuesday. Instead, investors may want to consider exiting or cutting recent positions if they aren’t working out.
Keep working on your watchlists. The cap market is tricky to play, but there are also many new bases and bullish pullbacks taking shape.
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.
YOU MAY ALSO LIKE:
Why this IBD tool simplifies the search for the best stocks
Catch the next big winning stock with MarketSmith
Do you want to make quick profits and avoid big losses? Try SwingTrader
The best growth stocks to buy and watch
IBD Digital: Unlock IBD’s Premium Stock Listings, Tools & Analytics Today
The 200-day average: the last support line?