Dow Jones futures rose modestly overnight, along with S&P 500 futures and Nasdaq futures, with Adobe reporting earnings after the close. The stock market plunged to new lows Thursday, wiping out Wednesday’s initial Fed-led rally and then some as recession fears mount.
New reports out Thursday pointed to a rapidly cooling economy, but the Federal Reserve is focused on hot inflation that will be hard to bring down.
Investors should stay out of harm’s way, but remain engaged, continuing to look for promising stocks. Exxon Mobil (XOM), Northrop Grumman (NOC), Dollar General (DG), World Wrestling Entertainment (WWE) and China EV giant and Tesla rival BYD (BYDDF) all have relative strength lines at or near highs.
Tesla (TSLA) CEO Elon Musk held a town hall with Twitter (TWTR) employees Thursday after weeks of disparaging the social media firm and giving the impression that he wants to get out of the $44 billion deal or renegotiate a much-lower price. Musk did not explicitly say he’s committed to the Twitter deal. But he said he wants to vastly expand the number of users to 1 million, but also charge fees, in part to discourage fake accounts. He also hinted at Twitter job cuts.
Twitter stock fell 1.55% to 37.40. That’s well below Musk’s takeover price of $54.20 per TWTR share.
Tesla stock plunged 8.5% to 639.30. Tesla early Thursday announced widespread U.S. price hikes, amid soaring materials costs.
TSLA stock, unlike the major indexes and most megacaps, has not undercut recent lows. But shares are just above the May 24 low of 620.57.
After the close, Adobe (ADBE) reported Q2 earnings and sales that barely beat estimates. But the software giant guided lower on full-year earnings and revenue.
ADBE stock fell modestly overnight. Adobe stock sank 3.1% on Thursday to an 89.59 close, a fresh two-year low.
Dow Jones Futures Today
4Dow Jones futures were up 0.6% vs. fair value. S&P 500 futures climbed 0.65%. Nasdaq 100 futures rose 0.75%. ADBE stock is an S&P 500 and Nasdaq 100 component.
The 10-year Treasury yield sank 4 basis points to 2.27%. The 2-year yield edged up 2 basis points to 2.18%.
U.S. crude oil prices fell slightly.
Bitcoin traded below $21,000, just above an 18-month low of $20,087.90 set earlier this week.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Stock Market Thursday
The stock market sold off hard at the open and extended losses, with all the key indexes hitting 52-week lows. The Dow Jones Industrial Average slumped 2.4% in Thursday’s stock market trading. The S&P 500 index plunged 3.25%. The Nasdaq composite dived 4.1%. The small-cap Russell 2000 crumbled 4.6%.
U.S. crude oil prices rose 2% to $117.58 a barrel, amid fresh U.S. sanctions vs. Iran’s petrochemical industry.
The 10-year Treasury yield skidded 8 basis points to 3.31%. The 2-year yield tumbled 12 basis points to 3.16%. Treasury yields have swung wildly in recent days, with investor focus shifting back and forth between inflation and recession risks.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) skidded 5.8%, while the Innovator IBD Breakout Opportunities ETF (BOUT) slumped 3.55%. The iShares Expanded Tech-Software Sector ETF (IGV) retreated 4.4%. The VanEck Vectors Semiconductor ETF (SMH) tumbled 5.9%.
SPDR S&P Metals & Mining ETF (XME) shed 4.3% and the Global X U.S. Infrastructure Development ETF (PAVE) 4.9%. U.S. Global Jets ETF (JETS) descended 5.9%. SPDR S&P Homebuilders ETF (XHB) plunged 6.6%. The Energy Select SPDR ETF (XLE) lost 5.6% and the Financial Select SPDR ETF (XLF) fell 2.5%. The Health Care Select Sector SPDR Fund (XLV) shed 1.5%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) sold off 6.2% and ARK Genomics ETF (ARKG) 3.55%. Tesla stock is still a major holding across Ark Invest’s ETFs, with fund manager Cathie Wood buying up shares once again in recent weeks. ROKU stock also is a major Ark holding. Ark also owns some BYD stock.
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Stocks To Watch
XOM stock fell 3.7% to 91.39 on Thursday, but found support at the 50-day/10-week moving averages. Technically, Exxon stock is in range from a cup-with-handle base’s 89.90 buy point. But investors, if they choose to buy any stocks in the current climate, might want to wait for a stronger bounce from the 50-day line.
Northrop stock dropped 2.1% to 449.02, hitting resistance at the 50-day line but holding up relatively well. A breakout from an unusual cup-with-handle base quickly fizzled earlier this month. Technically, the 477.36 handle buy point is still valid. A strong rebound above the 50-day line could offer an early entry. One concerns: Other defense stocks have struggled more than Northrop.
Dollar General stock closed down 2 cents at 232.23, right around the 50-day line. As of Thursday’s close, DG stock has a handle to go with its cup base, giving it a new 240.07 buy point. Fellow dollar store Dollar Tree (DLTR) also has acted well, while closeout retailer Ollie’s Bargain Outlet (OLLI) is in a buy zone.
WWE stock fell 3.4% to 64.87, but still not far below a 68.82 buy point in a long cup-with-handle base, according to MarketSmith analysis. World Wrestling Entertainment previously cleared a flat base and is technically in range from the 63.81 entry.
BYD stock sank 4.9% to 36 on Thursday, just above its 21-day line, after retreating 4.4% on Wednesday. Shares of the China EV and battery giant could be working on a handle for its 48%-deep cup base after surging over the prior five weeks. A handle should appear on a weekly chart after Friday, offering a 39.81 buy point. Ideally, BYD would form a long handle, perhaps long enough to be its own shallow base, letting the major averages catch up. Other China EV stocks have rebounded in recent weeks, with Li Auto (LI) racing up the right side of a very deep consolidation.
BYD trades over the counter in the U.S., so BYDDF volume by itself is rather light. But BYD is listed in Hong Kong and Shenzhen, so its actual trading volume is high.
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The stock market rebounded on Wednesday following the big Fed meeting, then sold off hard Thursday, erasing the day’s gains and then some. The major indexes tumbled to fresh lows in heavy volume, killing a nascent market rally attempt.
Second-day reversals of the initial market reaction to a Fed meeting are quite common. This week’s rally and sell-off is similar to the market action following the May 3-4 Fed meeting. The major indexes rallied powerfully on May 4, but then plunged the next session.
Concerns are growing that the Fed will have to push the economy into recession to control inflation. Plunging housing starts and a negative Philly Fed manufacturing index reading on Thursday followed a surprise drop in retail sales earlier this week, signaling the economy is rapidly cooling already.
But slower growth may not do much to rein in energy prices, with gasoline and especially diesel in such short supply. Crude oil and gasoline futures rising Thursday on such a bad market day underscores that dynamic.
So curbing headline inflation — and inflation expectations — will be a challenge. A mild recession with cooling but still uncomfortably high inflation may be the best-case scenario now for the economy and the stock market.
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Of course, the market reaction is what matters ultimately, not the news. At some point the stock market will discount the negative news and look ahead to a brighter future.
One possible area of support is the pre-Covid peak. For the Nasdaq, that was 9,838.37, just below the 10,000 level. The Dow Jones and S&P 500 also are moving toward their pre-Covid highs.
Of course, the bear market doesn’t have to bottom at those levels. The Russell 2000 has already undercut its pre-Covid peak.
Very few stocks are holding up in the current furious selling. Even energy stocks are pulling back. Some, such as XOM stock, are trying to find support at the 50-day line or other key levels.
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What To Do Now
Investors should be on the sidelines right now. It’s a terrible environment. Yes, the market could have a relief rally for a day or two, but that wouldn’t signal a fundamental shift.
After so much selling in recent days, weeks and months, even stocks with strong relative strength lines might have heavily damaged charts right now. But still watch them.
Stay engaged, keep your powder dry and keep identifying potential leaders.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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