Dow Jones futures rose slightly overnight, as were S&P 500 futures and Nasdaq futures, with the Fed rate decision looming. AMD led key earnings reports overnight, with bank stocks and crude oil prices continuing to fall sharply.
The stock market rally suffered solid losses Tuesday, with the major indexes tumbling back from near 2023 highs, though they did find support.
Banks sold off — especially regionals such as PacWest Bancorp, Western Alliance Bancorp and Comerica — as investors fear further bank failures following the collapse and sale of First Republic Bank to JPMorgan Chase.
Regional banks kept sliding early Wednesday.
Energy stocks plunged Tuesday with crude oil prices, which also kept falling Wednesday.
Arista Networks became the latest big earnings loser, in a bad sign for tech hardware.
Advanced Micro Devices, Super Micro Computer, Livent and Starbucks reported late Tuesday. AMD and SBUX stock retreated solidly while SMCI stock and Livent jumped.
Wingstop and Yum Brands are on tap early Wednesday.
Meanwhile, Eli Lilly reported Wednesday that its Alzheimer's drug donanemab significantly slowed progression of the disease, according to phase three trial data. Lilly stock jumped. Biogen, which has competing Alzheimer's treatments, fell solidly.
SMCI stock and AMD are on the IBD 50. AMD and ANET stock are on the IBD Big Cap 20.
Dow Jones Futures Today
Dow Jones futures were up 0.1% vs. fair value. S&P 500 futures climbed 0.2% and Nasdaq 100 futures rose 0.2%. AMD stock is a notable Nasdaq component.
Crude oil futures fell 3% to below $70 a barrel.
The 10-year Treasury yield slipped 3 basis points to 4.41%.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
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Fed Rate Decision
The Federal Reserve is a near lock to raise rates at 2 p.m. ET Wednesday, even with the banking crisis, spurred in large part by rapid Fed tightening that is far from over. A quarter-point move would bring the fed funds rate to 5%-5.25%. The real question is what the Fed meeting statement and Fed chief Jerome Powell say about monetary policy going forward. Markets currently expect the Fed to pause. But Powell will likely want to preserve Fed flexibility with inflation stubbornly high.
Bank Stocks
Bank stocks plunged Tuesday, accelerating from solid to sharp losses on Monday, though they did bounce from intraday lows. PACW dived 28%, setting a new record close. WAL stock gave up 15%.
Superregionals also tumbled. Comerica stock sank 12%, Keycorp lost 9.4% and Truist fell 7.6%. PNC Financial Services shed 2.3% and set a new multiyear closing low.
Charles Schwab gave up 3.3%. Banking giants also struggled. Bank of America and Wells Fargo lost 3% and 3.8% respectively, not yet at recent lows but not that far off either. JPMorgan stock, which flirted with a breakout Monday on its deal to buy First Republic, fell 1.6%.
The First Republic failure and sale clearly did not mark the end of banking fears. PacWest last week disclosed stabilizing deposits, but it's among the hardest-hit bank stocks this week.
Investors fear further bank failures that leave them with nothing. That could become a self-fulfilling prophecy, as plunging bank stocks spur people to pull deposits at a faster rate. While regulators have made it clear that they'll protect all deposits, it just takes a few clicks to shift funds to a "safe" bank.
Longer term, bank profitability and stocks may struggle. Regional banks especially will likely have to pay far more for deposits or funding, crimping profitability, both absolutely and relatively vs. giants such as JPMorgan. Meanwhile, the FDIC will end up charging hefty fees to banks, especially giants, to cover the cost of ongoing failures.
The Financial Select SPDR ETF — dominated by financial giants such JPM stock, BofA and Wells Fargo — gave up 2.3%. The SPDR S&P Regional Banking ETF — which holds PACW stock, Western Alliance, Comerica and many others — tumbled 6.3% to a 30-month low.
Losses continued early Wednesday, led PACW stock and Western Alliance but throughout superregionals.
Key Earnings
AMD stock tumbled 8% in extended action, signaling a move sharply below the 50-day line. AMD earnings topped Q1 views, but the chip giant's Q2 revenue and gross margin guidance were below consensus at the midpoint. CEO Lisa Su said "a mixed demand environment." Shares edged up 0.25% to 89.91 in Tuesday's regular session. AMD stock had been finding support at the 50-day line, right around a prior buy point. A bullish move from current levels would offer a buying opportunity.
SMCI stock jumped over 8% in premarket trade after Super Micro earnings fell short, but the server maker guided up on fiscal Q4. Shares edged down 0.65% on Tuesday. SMCI stock tumbled last week as the server maker issued weak preliminary results, mostly due to component shortages. But shares are back above their 50-day line in a messy range since late March.
LTHM stock leapt nearly 9% in extended action after the lithium producer comfortably beat views and raised full-year guidance. Livent stock edged up 0.6% to 21.02 on Tuesday, below key moving averages. Albemarle, which reports Wednesday, is more exposed to falling spot lithium prices. ALB stock rose slightly late.
SBUX stock declined 5%, despite Starbucks earnings beating views on strong same-store sales worldwide. Shares dipped 0.1% on Tuesday to 114.46, holding in buy range from a 110.93 cup-base buy point, according to MarketSmith analysis. But SBUX stock could test that buy point Wednesday.
WING stock edged up 0.3% Tuesday, also holding in buy range. YUM stock nudged 0.5% higher and is slightly extended.
Stock Market Rally
The stock market rally opened lower and accelerated losses until late morning. The major indexes then pared losses somewhat.
The Dow Jones Industrial Average fell 1.1% in Tuesday's stock market trading. The S&P 500 index slid 1.2%. The Nasdaq composite declined 1.1%. The small-cap Russell 2000 tumbled 2.1%.
U.S. crude oil prices plunged 5.3% to $71.66 a barrel.
The 10-year Treasury yield fell nearly 14 basis points to 3.44%. The two-year Treasury tumbled 16 basis points to 3.98%. But the three-month T-bill rate nudged higher to 5.24%.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF slumped 2.2%, with some new big earnings losers. The Innovator IBD Breakout Opportunities ETF fell 0.85%. The iShares Expanded Tech-Software Sector ETF lost 1.4%. The VanEck Vectors Semiconductor ETF shed 0.9%. AMD stock is a big SMH holding.
Reflecting stocks with more speculative stories, the ARK Innovation ETF gave up 2.35% and ARK Genomics retreated 3.2%.
The SPDR S&P Metals & Mining ETF dipped 0.2%. U.S. Global Jets descended 0.8%. SPDR S&P Homebuilders stepped down 0.4%. The Energy Select SPDR ETF plunged 4.35% and the Health Care Select Sector SPDR Fund slipped 0.4%.
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Market Rally Analysis
The stock market rally hit resistance at 2023 highs, selling off significantly intraday, though it did come off lows. Bank stocks were the big driver, but energy plays were big losers as well. Arista Networks became the latest leading stock near a buy point to tank on results.
The Nasdaq composite, with not much exposure to financials or energy, found support at the 21-day moving average. The Nasdaq 100, which includes the 100 largest nonfinancial Nasdaq stocks, only dropped 0.9%.
The S&P 500 and Dow Jones also found support at the 21-day line.
The Russell 2000 tumbled to hit its worst levels since the 2023 low on March 24.
The stock market rally remains under pressure. The major indexes are struggling to break above 2023 highs. That's not terrible, but the indexes look better than the broader market.
Market breadth was terrible Tuesday, with the small uptick late last week seemingly just a blip.
The First Trust Nasdaq 100 Equal Weighted Index ETF fell 1.2%, back below its 50-day line. The Invesco S&P 500 Equal Weight ETF tumbled 1.5%, below its 50-day and ending just below the 200-day line.
Restaurants have been looking strong — including Wingstop, Starbucks and Yum Brands — heading into their earnings reports.
Drugmakers and biotech giants are acting well, along with medical products. It's a good time for defensive and defensive growth names.
Hotels look interesting, with Marriott Worldwide breaking out on earnings Tuesday. Several other hotels are on tap this week, along with travel leader Booking Holdings.
Gold stocks are doing well, but that's usually not a great sign for the overall market or economy.
But market leadership is narrow.
Chips have been struggling over the past month outside of Nvidia. AMD stock's overnight slide signals further weakness in chips.
The fact that the Fed has kept raising rates during a bank crisis amid already-slowing economic growth shows how policymakers are boxed in. Powell knows that bank woes are a warning sign for the financial system and the economy, but fears that holding fire on inflation will be even worse ultimately.
The market reaction to the Fed meeting Wednesday obviously will be important. Of course, Apple earnings are due Thursday night, with the April jobs report coming Friday.
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What To Do Now
It's not a great environment for adding exposure. Just when the market rally starts to hint at gaining momentum and breadth, the indexes pull back, with fierce losses in many individual stocks due to earnings and sector rotation.
Investors who are in the right stocks could have nice gains in 2023. Even then, knowing when to take partial or full profits has often been important.
A heavy cash position is the prudent choice, especially heading into the Fed rate decision and other big news. Investors need to remain flexible. A couple of good days could sent the market to new highs and trigger a number of buying opportunities. A few bad days could signal a push to the sidelines.
So have your watchlists up to date and your exit strategies ready.
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