The Dow Jones Industrial Average failed to bounce with other market indexes into Thursday's noon hour. Investors debated Fed Chair Jerome Powell's data-driven comments about interest rates and the economic outlook while gold took off, testing historic resistance. Investors eagerly awaited Apple's report, which will compete for attention with Friday's closely-watched April jobs report.
S&P Regional Bank ETF plummeted 6% to a 2-1/2 year low after Pacific Western Bank disclosed it is "mulling strategic options, including a sale."
PACW stock fell nearly 50% to an all-time low, sending shock waves through the regional banking sector. Too-big-too-fail wealth manager Charles Schwab dumped 3% and tested March's bank contagion low in the low 40s. First Horizon crashed more than 35% and tested the March 2020 Covid low.
The regional bank bellwether broke down from a six-week descending triangle pattern Tuesday and added to losses after the Fed raised rates by a quarter point Wednesday afternoon.
Powell and central bank governors altered policy language, making room for the long-anticipated interest rate hikes "pause." But Powell made it clear during his news conference that rate cuts were not on the table in 2023. Rather, he reiterated the Federal Reserve's commitment to 2% inflation, and doing whatever it takes to achieve that lofty goal. Odds for a June rate cut fell to 7.9% on CME FedWatch after the news.
Despite Powell's commitment, the fate of regional banks will strongly influence central bank policy decisions. KRE has fallen nearly 15% in the last four sessions and 38% so far this year, reigniting bank contagion fears. There's little that Powell can do right now to stop this runaway train.
Royal Caribbean Beats Estimates; Raises Guidance
Cruise ship operator Royal Caribbean joined Norwegian Cruise Line, reporting surprise Q1 results that could signal better times for this industry group in 2024. NCLH guided 2023 earnings above consensus last week.
These travel giants took on massive debt to stay afloat during the Covid pandemic and issued numerous secondary offerings.
RCL stock beat Q1 earnings estimates by 46 cents and guided Q2 above expectations., even though it lost 23 cents in the March-ended quarter. Annual earnings are expected to grow by 75% in 2024.
Rival Norwegian is forecast to perform even better next year, growing an impressive 107%. However, RCL stock has booked stronger returns in recent months, lifting the Relative Strength Rating to 92, compared to NCLH's meager 35 rating.
Gold Probes Historic Breakout
The gold futures contract rallied to a 14-month high at $2,083 overnight and tested 2020 and 2022 resistance up to $2,100. Gold bugs love this rally, which could signal a major breakout above 12-year resistance. At $3,000, gold will mark the natural upside target if the breakout succeeds.
Gold mining stocks continue to make IBD leadership lists.
Alamos Gold is the top performer in IBD's Mining-Gold/Silver/Gems industry group, which ranks a lofty No. 3 on IBD's list of 197 industry groups. Alamos' 2023 earnings are expected to grow a phenomenal 72%. AGI shares remain about eight points below 2010's all-time high at 21.49 but have rallied more than 30% so far this year. AGI stock rose 2.0% into midday Thursday.
Dow Jones Tech Giant Apple Reports Ahead Of Payrolls
Dow Jones component Apple is expected to report a Q1 profit of $1.43 per share after the closing bell, lower than last year's $1.53. In addition, earnings are forecast to trend lower through the September-ending quarter.
Analysts are looking for the Cupertino, Calif., tech icon to report Q1 revenue of $92.84 billion, building on recovering China iPhone sales.
However, they also expect slowing world economies to take their toll, dropping sales about $8 billion in the second quarter. AAPL stock fell 1.2% in early Thursday trading.
Dow Jones By The Numbers
Weekly unemployment claims rose 13,000 to 242,000, just below the consensus forecast. Continuing claims fell by 38,000. Nonfarm payrolls are forecast to fall to 195,000 in April from March's 236,000. A big beat could change Powell's thinking about an interest rate hike pause.
The Dow Jones Industrial Average lost 1.2% in the first half while the S&P 500 shed 0.9%. The Russell 2000 small-cap index dumped 1.8% and is vulnerable to a test of April and May lows. The Nasdaq composite held up better than blue chips, falling 0.6%, as buyers went on strike ahead of Friday's nonfarm payrolls report.
Growth stocks got sold in the risk-off environment, dropping Innovator IBD 50 ETF 0.8%.
NYSE volume surged nearly 50% above Wednesday levels while Nasdaq volume fell slightly, highlighting regional bank volatility. European markets lost ground, with the exception of the U.K.'s FTSE 100, which traded a bit higher. Japan's Nikkei dumped more than 1.5% while Chinese markets traded quietly mixed.
The 10-year Treasury eased toward weekly support, trading at 3.32%. Bitcoin ran in place under new resistance at $30,000.
The Nasdaq, S&P 500 and Dow Jones remain above their 50-day and 200-day moving averages but distribution days have taken a severe toll, supporting IBD's more cautious "market under pressure" outlook.
The Russell 2000 index and small-cap red flags continue to proliferate, with the index slumping below major benchmarks and threatening to test bear market lows.
New Themes In First-Quarter Earnings
FactSet analysts noted that Q1 earnings have produced new themes that could persist through 2023.
These include "corporate pricing power, particularly for consumer staples names, efficiency and cost-savings initiatives, easing supply chain pressures, elevated but moderating input price pressures, better guidance/revision trends, housing market rebound, industrial strength, weakness in areas such as freight and consumer electronics, macro headwinds on enterprise spending, and mixed China recovery read-throughs."
IBD 50 components reported mixed to positive first quarter results.
Lantheus Holdings soared nearly 16%, rocketing off the 10-week line after the maker of medical imaging products beat Q1 top and bottom-line estimates and raised fiscal year guidance.
Beigene fell nearly 4% despite a better-than expected Q1 loss. Revenue rose 43% to $448 million. The Chinese IBD 50 component is developing new cancer drugs.
Also in the IBD 50, Quanta Services slid 1.9% after beating earnings and sales views. It offered in-line 2023 guidance. PWR stock traded just below the 168.85 flat-base buy point.
On the Nasdaq 100, Covid superstar Moderna rallied 4.5% after an upbeat report, while Qualcomm dumped nearly 6% after sharply lowering fiscal Q3 earnings and sales guidance.
Last but not least, Shopify soared 27% to a 52-week high after beating Q1 profit estimates, reporting a 25.2% revenue surge to $1.51 billion, beating estimates.
Follow Alan Farley on Twitter at @msttrader.
