The Dow Jones Industrial Average fell after Fed Gov. Lael Brainard spoke out on interest rates. Treasury Secretary Janet Yellen issued a plea as the U.S. hit its debt limit. Tesla slipped despite a bullish analyst call, while UnitedHealth was a top blue chip. Roblox dived on a downgrade.
A trio of stocks were holding near buy points despite the negative action. Valero Energy, Exxon Mobil and HDFC Bank all flexed their muscles.
The yield on the benchmark 10-year Treasury note rose 2 basis points to 3.4%. West Texas Intermediate crude oil rose 1.3% to $80.47 per barrel.
Fed Member Brainard Speaks; Yellen Issues Plea
Brainard gave a speech at the Chicago Booth School of Business Thursday where she said it is important that the central bank "stays the course" despite recent positive signs on inflation.
"Even with the recent moderation, inflation remains high, and policy will need to be sufficiently restrictive for some time to make sure inflation returns to 2% on a sustained basis," she said.
Brainard is one of the three most important members of the Federal Open Market Committee alongside Federal Reserve Chair Jerome Powell and New York Fed President John Williams. Despite tough talk from officials, the market continues to think bankers will fall short of a projected 5.1% peak fed funds rate.
One ray of light was the fact she highlighted recent weaker retail sales and wage data. She also stated she doubts we are seeing a wage-price spiral similar to the 1970s. Watchers are keen to see bankers take account of changing conditions.
Her speech came after the latest initial unemployment claims report showed a drop to 190,000 vs. 205,000 in the previous week. Claims had been expected to rise to 215,000, according to analysts polled by Econoday. Continued strength in the labor market could embolden Federal Reserve hawks.
Meanwhile, Yellen warned that her department is taking extraordinary measures after the U.S. hit its debt limit Thursday.
In a letter to congressional leaders, she urged Congress to raise the debt ceiling "without condition."
Nasdaq Dives As Small Caps Lag
The Nasdaq saw a late rally attempt fail as it closed down 1%. Solar stock Enphase Energy lagged as it plunged 10.9%.
The S&P 500 also closed with a whimper as it dipped 0.8%. Generac was among the losers here as it fell 7.5%.
The S&P 500 sectors were mostly negative. Energy and communication services were the best performers, while consumer discretionary and industrials fell hardest.
Small caps had a tough session, with the Russell 2000 losing 1%.
Growth stocks lagged badly, with the Innovator IBD 50 ETF plunging 2.3%.
Dow Jones Today: UnitedHealth, Chevron Stock Lead
The Dow Jones Industrial Average saw an attempt to fight back go awry as it closed down 252 points, or 0.8%.
UnitedHealth was the Dow stock that fared best as it powered 1.7% higher.
Chevron benefited from encouraging action among energy stocks. It closed up 1% and continues to form a base. Merck bounced off its 50-day line and added 1%.
Home Depot and 3M fared worst on the Dow Jones today. HD fell 4% while MMM dipped 3.5%.
Tesla Stock Fights Back Amid Bullish Call
Tesla got punched by the bears after it clawed its way to just below break-even. It closed down 1.3%. The EV giant struggled to make progress despite a bullish Wall Street call.
Piper Sandler analyst Alexander E. Potter reiterated his outperform rating on the stock.
"Tesla took longer than expected to cut prices, but now that pricing adjustments have been made, and now that the valuation has reset, we think investors should be proactively buying TSLA," he said in a note to clients.
The note comes a day after a fraud trial began over tweets made by CEO Elon Musk in 2018 in which he said he had a deal to take Tesla private.
Tesla stock remains rooted below its major moving averages, MarketSmith analysis shows. It is down more than 40% since Musk bought Twitter, which has been cited as a possible distraction.
Roblox Stock Gets Socked
IPO stock Roblox was punched lower after it was handed a downgrade.
Morgan Stanley analyst Matthew Cost downgraded shares to underweight from equal weight due to recent strong performance, signaling that it could be extended beyond the buy zone. He also lowered his price target to 24 from 27.50.
"Following the significantly stronger than expected December results, RBLX is now up 28% year to date and we believe the (first half of 2023) reacceleration is now fully priced in, with more mixed catalysts ahead," he said in a note to clients.
Shares in the video game company soared on Tuesday after its December 2022 metrics report showed revenue came in between $430 million and $439 million for the month. This marks a 17% to 20% increase year over year.
The analyst expects growth to slow in the second half of 2023.
Roblox stock, which went public in March 2021 at 45 a share, closed down 6.6%. It lost ground on its 200-day line in the process but remains above its 50-day moving average. RBLX remains up 17% so far this month.
Futures: Market Rally Breaks Key Levels
These 3 Stocks Near Entries Show Strength
Even as indexes reverse, it's important to keep an eye on promising stocks when the market is in a confirmed uptrend.
Valero Energy is showing impressive relative strength as it sits just below a cup buy point at 142.26.
All-around performance is excellent, with its IBD Composite Rating a near-perfect 98. With earnings due in seven days, this is one to add to your watchlist.
Exxon Mobil was also flexing its muscles as it eyes a flat-base buy point of 114.76. This is an early stage pattern. It is in the top 8% of stocks over the past 12 months. It is one to watch with earnings due in 12 days.
An approach highlighted by Investor's Business Daily is to use options as a strategy to reduce risk around earnings. It's a way to capitalize on the upside potential of a stock's move around earnings, while reducing the downside risk.
HDFC Bank is closing in on a flat-base buy point of 70.87. The India-based bank has strong earnings and stock-price performance.
The company posted earnings on Jan. 13. EPS grew 8% to 83 cents per share. Full-year EPS is seen rising 5% in 2023 before popping 15% in 2024.
Please follow Michael Larkin on Twitter at @IBD_MLarkin for more analysis of growth stocks.
