Dow Jones futures were little changed early Thursday, along with S&P 500 futures and Nasdaq futures. The stock market rally struggled Wednesday as weak economic data raised recession fears for a second straight session.
The major indexes still don't look too bad, with the Nasdaq sliding but the Dow Jones rising.
But once again, declining stocks decisively beat winners. Once again, many of those losers fell hard. But on Wednesday, a lot of more of those big losers were leading stocks, such as On Holding, MarketAxess and PagerDuty. C3.ai sold off for a second session, with the AI stock now staging a massive, outside week to the downside.
Others, including many chip names, declined solidly, now showing more chart damage after relatively modest retreats Tuesday.
Tesla skidded for a third straight day, triggering the automatic sell rule.
Megacap techs such as Apple, Microsoft, Google parent Alphabet, Meta Platforms and Nvidia all fell.
Meanwhile, bank stocks came under more pressure. Western Alliance Bancorp plunged, leading a retreat in regional banks, though they pared losses in the afternoon. Charles Schwab hit a two-year closing low. While bank deposits may be relatively safe, the bigger issue now may be long-term bank profitability as well as lending curbs that rapidly slow the economy.
Medical names are looking relatively strong, along with other defensive growth or defensive plays.
ONON stock, Meta and Nvidia are on IBD Leaderboard. Microsoft and Google stock are on the IBD Long-Term Leaders list. ONON stock is on the IBD 50.
Despite relatively benign action in the major indexes, the weakness in growth and other leading stocks is concerning. Investors should be looking to protect profits and cut losses.
Costco Sales Weak
Costco same-store sales fell 1.1% in March vs. a year earlier, the first decline in nearly three years. U.S. comps slid 1.5%. Excluding gasoline and currency effects, comps rose 2.6% or 0.9% in the U.S. E-commerce comps tumbled 11.6%. COST stock fell modestly.
Dow Jones Futures Today
Dow Jones futures rose 0.1% vs. fair value. S&P 500 futures edged higher and Nasdaq 100 futures declined 0.2%.
The Labor Department will release weekly jobless claims at 8:30 a.m. ET. That follows unexpectedly weak February job openings and the March ADP Employment Report. Labor will release the March jobs report on Friday morning, but U.S. markets will be closed.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally
The stock market rally had a generally negative session, despite the mixed action on the major indexes.
The ADP Employment Report showed private payrolls rose much less than expected in March, a day after a big drop in February job openings. The March ISM services index fell more than expected, signaling rapidly slowing growth.
The Dow Jones Industrial Average rose 0.2% in Wednesday's stock market trading. The S&P 500 index dipped 0.25%. The Nasdaq composite retreated 1.1%. The small-cap Russell 2000 gave up 1%.
U.S. crude oil prices dipped 0.1% to $80.61 a barrel.
The 10-year Treasury yield declined 5 basis points to 3.285%. That's the lowest point in nearly seven months. The 2-year Treasury yield sank 7 basis points to 3.76%, off 34 basis points in the past four sessions.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF shed 1.9%, while the Innovator IBD Breakout Opportunities ETF gave up 0.65%. The iShares Expanded Tech-Software Sector ETF slipped 1.3%. Microsoft stock and a few other heavyweights dominate IGV, while more-speculative software names like PagerDuty suffered bigger losses. The VanEck Vectors Semiconductor ETF gave up 1.75%, with NVDA stock a major holding.
Reflecting more-speculative story stocks, ARK Innovation ETF slumped 3.6% and ARK Genomics ETF shed 1.8%. TSLA stock is the top holding across Ark Invest's ETFs. Some Ark funds also own PD stock.
SPDR S&P Metals & Mining ETF retreated 1.15% and the Global X U.S. Infrastructure Development ETF 1.7%. U.S. Global Jets ETF and SPDR S&P Homebuilders ETF descended 1.5%. The Energy Select SPDR ETF climbed 1.5% and the Health Care Select Sector SPDR Fund rallied 1.7% to its best level since Feb. 14.
Bank Stocks
The Financial Select SPDR ETF edged down 0.1%, with SCHW stock a top 10 holding. The SPDR S&P Regional Banking ETF, which includes WAL stock, sank 1% but finished off lows.
Western Alliance stock plunged as much as 19.4% after releasing some financial metrics but not disclosing deposits. Shares came off their lows as the California-based bank disclosed deposits fell 11% on March 31 vs. the end of 2022, not as bad as some feared. Still, WAL stock closed down 12.4%.
Financial regulators have strongly signaled that they'll protect all deposits in any bank that buckles, though investors in bank stocks may not fare well. The bigger worry may be that banks will be far less profitable, as they have to pay more for deposits going forward. More broadly, lending is likely to be constrained, especially from regional banks. That suggests a much-faster economic slowdown than previously expected.
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Leading Stocks Dive
Here are just a few examples of leading stocks selling off Wednesday.
ONON stock plunged 9.7% to 29.35 as a Baird analyst downgraded it to neutral. On Tuesday, the upscale athletic shoe maker cleared a rare short-stroke pattern, a few weeks after blasting out of a base on strong Q4 results and 2023 guidance.
PD stock, which only lost a fraction Tuesday to close right around a buy point, tumbled 6.1% Wednesday to 31.78.
MKTX stock plummeted 13.9% to 337.74, diving below a 389.67 buy point and the 50-day line. MarketAxess plunged after releasing March trading metrics. Tradeweb Markets, which also released March data, skidded 7.6% to undercut a buy point as well.
Meanwhile, AI stock skidded 15.5% to 21.09. On Tuesday, C3.ai crashed 26%. After skyrocketing 33% last week, AI stock has already managed to stage an outside, downside week, off 37% so far.
Megacap Techs
Apple stock fell 1.1% and Microsoft 1%, not minimizing the big-cap indexes' pain on Wednesday. Still, both are in buy zones. META stock retreated 1.5%, still slightly extended. Nvidia stock gave up 2.1%, still greatly extended. Google stock reversed from near a buy point, closing down just 0.2%.
Tesla stock retreated 3.7% to 185.52, dropping below its 50-day moving average, bringing its weekly loss to 10.6% so far. That follows Q1 delivery figures on Sunday. Shares fell more than 7%-8% below the 200.76 cup-with-handle buy point, triggering the automatic sell rule. TSLA stock could forge a new handle in a few days with a 207.89 buy point. The 200-day moving average, currently near 215, looms large as possible resistance.
Market Rally Analysis
Investors should track the health of a stock market rally via the major indexes and leading stocks. On Wednesday, the major indexes closed mixed, but that masked weakness in leaders.
The Nasdaq composite fell for a third straight day, back below the 12,000 level, but still seems like a healthy pause. The S&P 500 looks similar.
The Dow Jones rose slightly on medical stocks as well as consumer staples such as Walmart.
The Russell 2000 looks the weakest, trading below all its moving averages, with banks a big negative.
Losers trumped winners by 2-to-1 on the Nasdaq and 3-to-2 on the NYSE.
On Tuesday, steel, building materials and construction- and manufacturing-related groups generally were the hardest hit. Many of these stocks kept falling Wednesday, but growth plays and other leaders were the big losers.
Software names such as PagerDuty, which held up or even rallied Tuesday, skidded Wednesday.
Chips, which lost ground Tuesday but generally looked healthy, were roughed up Wednesday.
ONON stock, MarketAxess and some other leaders tumbled.
On the plus side, homebuilders are holding up, with mortgage rates coming down significantly in recent weeks. However, manufactured homebuilder Skyline Champion fell 2.3%, down 9% for the week.
The broad medical sector is stepping up, including Medical products, drugmakers, large-cap biotechs and now health insurers are coming on. Medicals are defensive growth plays, offering steady or sometimes strong growth that's relatively insulated from the economy due to government and private insurance covering most costs.
As for straight-up defensive plays, consumer staples such as Walmart and Hershey are doing well. Utilities and REITs are also moving up.
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What To Do Now
The stock market rally is struggling right now. The major indexes look fine, but leading stocks increasingly do not. Worse, the sell-offs have often been fierce. As leaders showed Wednesday, some stocks will do well on any given bad day, only to crumble later on.
Investors should be cutting exposure, even if that's not the express goal. Cutting losers and taking at least partial profits in winners will help you scale back overall.
Some stocks are heavily damaged. Others just need one or two good days to set up again. Still others, such as medicals, are already moving toward being actionable. So it's important to stay engaged and flexible. Have your watchlists and your exit strategies ready.
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.
