Dow Jones futures edged higher Thursday night, along with S&P 500 futures and Nasdaq futures. The stock market rally suffered heavy losses Thursday after Fed chief Jerome Powell didn’t seem too concerned about rising Treasury yields and gave no hints about a policy “twist” to cool long-term rates.
Broadcom (AVGO) reported earnings after the close.
The Dow Jones, S&P 500, Nasdaq and Russell 2000 broke below recent lows Thursday, the latest battering for an ailing stock market rally. Treasury yields jumped.
Tesla sold off hard, while Taiwan Semiconductor (TSM) dived below its 50-day line. Nvidia (NVDA) and ServiceNow (NOW) plunged to long-term support levels. Tesla stock, perhaps the most important stock over the past year, has a long way to go before hitting clear support levels.
But there were few safe havens in the stock market Thursday. Mining stocks, which have been big winners amid a shift to “real economy” names, were big losers. Freeport McMoRan tumbled 6.6%. Rising Treasury yield spreads are good news for financials, but JPMorgan Chase (JPM) fell 1.5%. Flagstar Bancorp (FBC), which flashed an early buy signal Wednesday and briefly broke out Thursday morning, reversed lower for a 4.1% loss.
Fed Chief Powell Spurs Market Moves
Fed chief Powell said in a Thursday midday speech that recent bond action “caught my attention,” adding that “we would be concerned by disorderly conditions in financial markets.” But he didn’t say that recent stock and bond market swings meet that threshold. He also didn’t give clear guidance about what the Federal Reserve might do in response. Specifically, Powell didn’t broach the idea of reviving “Operation Twist,” in which the Fed buys longer-term debt and sells short-term debt to try to bring down long-term rates.
The next Fed meeting is on March 16-17, so policymakers may take action then or provide more guidance about what moves they might make.
More broadly, Powell said monetary policy remains very accommodative. He also didn’t sound concerned about higher inflation. Policymakers have been signaling they want more inflation, even willing to see price increases top 2% for an extended period, with reviving employment its main concern.
Consumer inflation remains tame, but commodity prices, from crude oil to copper to agricultural goods, have been soaring. Crude oil futures shot up 4.2% to 63.83 a barrel on Thursday as OPEC+ agreed to keep current production cuts at least through April.
Broadcom earnings topped views and the tech giant guided modestly higher for current-quarter revenue. AVGO stock fell modestly in extended trade. Broadcom declined 4% on Thursday, undercutting its 50-day line. The chip giant had held up better than many other tech leaders but is now starting to buckle with the market.
Nvidia, Taiwan Semiconductor, Microsoft and Tesla are on IBD Leaderboard. Microsoft stock is on IBD Long-Term Leaders. Google stock is on the IBD Big Cap 20. Google, Nvidia and AVGO stock are on the IBD 50. Vale stock was Thursday’s IBD Stock Of The Day. FBC was Wednesday’s Stock Of The Day while FIVE stock was back on Feb. 25.
Dow Jones Futures Today
Dow Jones futures rose 0.1% vs. fair value. S&P 500 futures climbed 0.1%. Nasdaq 100 futures edged higher.
Coronavirus cases worldwide reached 116.15 million. Covid-19 deaths topped 2.57 million.
Coronavirus cases in the U.S. have hit 29.50 million, with deaths above 533,000.
Stock Market Rally
The stock market rally was up and down in the morning, turning decisively lower following Fed chief Powell’s comments. The major indexes did rebound from intraday lows but closed in the lower half of their ranges.
This is an important day to read The Big Picture.
The Dow Jones Industrial Average lost 1.1% in Thursday’s stock market trading, finally giving way after the Nasdaq began its post-Powell afternoon sell-off. The Dow closed just below its 50-day line. The S&P 500 index sank 1.3%, clearly below the 50-day. The Nasdaq composite retreated 2.1% to a fresh 2021 low. The Russell 2000 lost 2.7%, closing right at its 50-day.
The 10-year Treasury yield jumped 7 basis points to 1.54%. While not topping last week’s intraday peak above 1.6%, that’s the highest settlement for the 10-year yield since February 2020.
Taiwan Semi retreated 5.9% to 115.59, knifing through its 50-day line. ServiceNow stock slid 4.9% and Nvidia 3.4%, both undercutting recent lows but finding support around their 200-day lines.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) tumbled 5.2%, while the Innovator IBD Breakout Opportunities ETF (BOUT) plunged 5.75%. The iShares Expanded Tech-Software Sector ETF (IGV) retreated 2.8%. Microsoft and NOW stock are key IGV holdings. The VanEck Vectors Semiconductor ETF (SMH) skidded 4.85%, with TSM stock, Broadcom and Nvidia big components.
Reflecting more-speculative story stocks, Ark Innovation ETF sank 5.5% and Ark Genomics ETF 5.8%.
Tesla stock sold off 4.9% to 621.44, undercutting last week’s low and setting new intraday low of 600.00. It’s now 31% below the Jan. 25 peak of 900.40. Perhaps Tesla will find support around 600. But if that doesn’t hold, TSLA stock’s next level of support could be the top of its prior base around 500. The 200-day moving average is now around 472.
Why does Tesla matter for the stock market?
Tesla stock was a huge winner in 2020, and still boasts a massive market cap of $593 billion.
It’s the leader in the fast-growing electric vehicle space, which had been a red-hot market sector last year. Now EV stocks are selling off hard.
More broadly, Tesla is the symbol of highly valued or speculative growth names. (Unlike many speculative names, Tesla does boast strong profit growth — helped by some special factors — but analysts’ price targets do make heroic assumptions about its long-term growth and market share.)
If Tesla is doing well, its market weight and iconic status are a catalyst for richly valued growth.
As the biggest holding across ARK Investments’ ETFs, a big sell-off in Tesla stock is bad news for Cathie Wood’s ETFs. With other big ARK holdings also tumbling and investor withdrawals picking up, ARK could be forced to liquidate many of its positions, though not necessarily Tesla. With many investors taking their cue from ARK Funds, which discloses many of its buys and sells each day, that could spur much-wider losses.
Bulls can argue that Tesla stock has suffered much-bigger corrections in its amazing run from late 2019, and that’s absolutely correct. As long as it doesn’t truly crash — perhaps only after stunningly bad company news — investor enthusiasm likely will remain strong in the stock and perhaps speculative growth as well.
Stocks To Watch
Google stock rose 1.1% to 2,033.93, holding support at its 21-day exponential moving average. It still has a three-weeks-tight entry of 2145.24, just above the all-time high. The relative strength line for GOOGL stock is at a record high. Unlike many story stocks, Google is more of a steady-eddy in terms of earnings growth and share performance. In a hot bull market, Google stock may be ho hum. But in a less frothy market uptrend, this FANG stock may perform well.
Microsoft stock edged down 0.4% to 226.73. That’s slightly below its 50-day moving average. A 232.96 buy point is still valid for MSFT stock. Getting above that level would also likely break a downtrend and top the 21-day line. However, Microsoft’s RS line has been trending lower.
Vale stock retreated 2.1% to 17.50, just above its 50-day line and holding up much better than other miners Thursday. Vale has an 18.57 cup-with-handle buy point.
Five Below sank 4.8% to 183.19, closing pennies below its 50-day line. FIVE stock is in a somewhat messy flat base, with a 198.20 buy point.
Polaris stock dipped 0.2% to 122.51, working on a flat base with a 129.10 buy point, according to MarketSmith analysis. The flat base is part of a base-on-base formation, which is especially bullish in weak markets. Its RS line is at a 52-week high, making it a MarketSmith blue dot special on a weekly chart. The ATV maker is benefiting from an outdoor push now as well as its EV plans.
What To Do Now
In the current market environment, investors should be playing defense. If you’re still in a number of growth stocks, it’s past time to be cut exposure. As Thursday’s action showed, real economy stocks might hold up better, but that doesn’t mean they won’t also fall.
Investors should be substantially in cash.
Build up your watch list, focusing heavily on stocks with rising or high relative strength lines. Keep in mind that stocks may hold up for a time, then finally give way. As recently as Monday, TSM stock was flashing early buy signals. So just because Google rose Thursday doesn’t mean that it’ll lead when market conditions are truly favorable.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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