Dow Jones futures were little changed after hours, along with S&P 500 futures and Nasdaq futures.
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The stock market rally reversed lower on Wednesday, with the S&P 500 and Dow Jones cutting or testing key levels amid surprisingly weak economic data and Fed officials are hawkish.
Apple (AAPL), Microsoft (MSFT), parent company of Google Alphabet (GOOGLE) and Tesla (TSLA) all hit resistance at key levels on Wednesday. There are no mega-caps near the buy point.
Some of the top stocks struggled, such as poison (CELH), while others fell modestly with some moving higher.
Alcoa reports earnings after closing. The aluminum giant reported a quarterly loss while sales fell short. AA stock fell sharply in extended trading. Stocks have been up since late September, having recently regained their 200-day line.
Netflix (NFLX) the title of the fifth income statement. NFLX stock fell on Wednesday, not far from a multi-month high. Netflix earnings, subscriber results and tutorials will also be important for streams like Disney (dis).
Dow Jones Futures Today
Dow Jones futures are down a fraction of their fair value. S&P 500 and Nasdaq 100 futures edged higher.
Remember that action overnight in future index and other places that don’t necessarily translate into actual transactions the next time stock market meeting.
Join IBD experts as they analyze stocks that could act in the stock market rally on IBD Live
Stock market recovers
The stock market rally started Wednesday with modest to solid gains, but quickly dropped sharply as investors reviewed economic data and Fed comments.
Before the market opened, producer price indexes, retail sales and industrial production all showed significant declines in December, more than expected. Cooling inflation and a rapid deceleration in the economy have bolstered expectations the Fed will raise interest rates more slowly and haltingly in the near term, but also fueled fears of a recession.
Fed President St. Louis James Bullard and Cleveland Fed President Loretta Meister both said they expect the central bank to raise interest rates above 5%. That is in line with the Fed’s forecast for a “terminal rate” of 5.1% but slightly above current market expectations.
Then the Fed’s Beige Book report predicts ‘small growth’ in the coming months. Some Fed counties reported slowing inflation, but only a few noticed a weaker labor market.
Dow Jones Industrial Average declines
The Dow Jones Industrial Average slipped 1.8% on Wednesday stock market trading. The S&P 500 index fell 1.6 percent. The Nasdaq composite fell 1.4%. The Russell 2000 small-cap index fell 1.6 percent.
Apple stock fell 0.5% to 135.11 but fell back from an intraday high of 138.61, just below the 50-day moving average. MSFT stock moved above its 50-day moving average for the day but closed down 1.9% at 235.81. Earlier Wednesday, Microsoft said it would cut 10,000 jobs, or 5% of its employees. AAPL and Microsoft are components of the Dow Jones, S&P 500, and Nasdaq.
Google stock fell 0.2 percent after hitting resistance at the 50-day line for the third straight session, but found support at the 21-day line.
Tesla lost 2.1% to 128.78 after hitting 136.66 on Wednesday morning. Shares are back below the 21-day line after gaining 7.4%. TSLA stock hit a bear market low of 101.81 on January 6 but rallied back that day and beyond. Tesla recovered on hopes that sweeping price cuts would boost demand, but profit growth looks set to slow in 2023.
The yield on the 10-year Treasury note fell 16 basis points to 3.37%, its lowest level in four months. The yield on the two-year Treasury note, more closely aligned with Fed policy, fell to 4.11%, hitting its lowest level since early October.
Markets essentially locked in the Fed rate hike by a quarter point on Feb. Investors strongly favor another 1/4 point rate hike in late March, bringing the federal funds rate to 4.75%-5%. But now there is a 25% chance of not moving after that.
U.S. crude oil prices fell 0.9% to $79.48 a barrel, reversing lower from $82.38 on the day. Natural gas fell 7.7%. Copper prices cut their intraday gains to close just 0.3% higher, but up 13% in a nine-day streak of gains.
ETFs
Among the growth ETFs, the Innovator IBD 50 ETF (FFTY) sank just over 1%. iShares Expanded Tech-Soft Sector Sector ETF (IGV) rose 1.25%, with MSFT stock being the main holding. VanEck Vectors Semiconductor ETF (SMH) decreased by 0.6%.
Reflecting stocks with more speculative stories, the ARK Innovation ETF (ARKK) decreased by 2.9% and ARK Genomics (ARKG) decreased by 1.6%. TSLA stock remains a large holding on Ark Invest ETFs. Cathie Wood’s Ark has been loaded onto Tesla in recent weeks.
SPDR S&P Metals & Mining ETF (XME) fell 1.7%, with AA stock being a notable component. US Global Jets (jet plane) decreased by 1.4%. SPDR S&P Home Builder (XHB) decreased by 1%. Energy Select SPDR ETF (XLE) yielded 1.8% and the Financial Select SPDR ETF (XLF) lost 1.9%. SPDR Foundation for healthcare sector (XLV) down 1.4%
The five best Chinese stocks to watch right now
Analysis of market recovery
The stock market rally reversed to the downside on Wednesday after a mixed session on Tuesday.
The S&P 500 has fallen below the 200-day moving average and just above the 50-day moving average. The Dow Jones fell below the 21-day and 50-day lines after regaining those levels on January 6.
The Russell 2000 moved even closer to a late 2022 high on Wednesday but reversed lower for the second day in a row, this time with a more substantial swing.
The Nasdaq composite, which had rallied for seven sessions, fell slightly again. But it’s still on the 50-day line.
While the market cheered cooler inflation data and slower wage and job growth, they weren’t concerned about an actual recession. So while investors initially celebrated the sharp drop in producer prices, they were alarmed by the Fed’s belligerent comments due to noticeably weak retail sales and industrial production data. surprised.
The stock market rally is attributed to a retracement in any case. It would have been nice if the S&P 500 held the 200-day line and the Dow Jones found support at the 50-day line, but they haven’t decisively broken lower.
The question now is whether Wednesday’s retreat is just a healthy pause or something more serious. A clear break below the 50-day line would be more worrisome for the S&P 500.
Unsurprisingly, when the S&P 500 hit resistance, big-cap names like Apple, Microsoft, Google, and Tesla fell back from key levels.
Leading stocks generally retreated. Several buy points have recently been tested or cut, such as CELH stock. But degrees Celsius, which fell 9.6% and closed below the 50-day moving average, was unusually hard hit.
Many other leaders looking for expansion need a pause in the market to form a handle or a return to the moving averages.
Meanwhile, Chinese stocks are falling again this week after a strong rebound on reopening.
Market Timing with IBD’s ETF Market Strategy
What to do now
Just as the stock market rally was starting to gain momentum, Wednesday’s drop was in. But after a strong rally that began on January 6, the major indexes and leading stocks have generally given up only a fraction of their recent gains. That contrasts with recent months, in which the indexes would have had a strong day or two quickly recovering.
However, this is why you need to be patient, increasing your exposure gradually and only when the market attracts you. Don’t buy renewed shares and don’t get too focused on a particular stock, sector, or topic.
If you’ve modestly added visibility over time in the past several sessions, you’re probably doing fine. But if you went from 30% to full investment by Tuesday afternoon to Wednesday morning, you could have taken some significant losses by the end of Wednesday.
Ideally, the market retracement would be modest and create new, safer buying opportunities. But be wary of new purchases until this market action wears off. Use this time to update your watchlist, looking for new setups.
Keep in mind that earnings season can fuel a market rally, and especially individual stocks. Netflix earnings are on Thursday night, with oilfield services giant SLB (SLB) is due on Friday morning. Microsoft and Tesla have earnings next week, with Apple and Google the following week, among hundreds of other companies.
Read Big picture every day to stay in sync with market trends and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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