Dow Jones futures rose slightly Wednesday morning, along with S&P 500 futures and Nasdaq futures. Palo Alto Networks and Wingstop rose on overnight earnings with chip giant Nvidia due Wednesday night.
The stock market rally lost more ground, with the Dow Jones breaking below a key level while the S&P 500 and Nasdaq retreated toward major support. The 10-year Treasury yield continued to race higher, closing in on the 4% level again amid stronger-than-expected economic data as well as disappointing Home Depot guidance.
Investors should be taking a more defensive stance for at least the short term.
Palo Alto Networks and Toll Brothers reported earnings late Tuesday. So did three big Ark Invest holdings: Exact Sciences, Crispr Therapeutics and Coinbase.
Baidu released Q4 results before Wednesday's open, along with Wingstop and TJX Cos..
Nvidia earnings loom Wednesday night, a key report for the chip sector and the overall market rally.
In other news, Intel slashed its dividend by 66%.
WING stock is on IBD Leaderboard and the IBD 50.
The video embedded in the article reviews Tuesday's market sell-off and analyzes Autoliv, Lamb Weston and Wingstop.
Dow Jones Futures Today
Dow Jones futures rose 0.1% vs. fair value. S&P 500 futures advanced 0.2% and Nasdaq 100 futures climbed 0.3%.
The 10-year Treasury yield fell 2 basis points to 3.93%.
Futures turned higher and yields fell as St. Louis Fed President James Bullard, a go-big hawkish policymaker, spoke early Wednesday, though those shifts have faded somewhat. He told CNBC that he wants the fed funds rate at 5.375%. But markets in recent days have largely priced in a 5.25%-5.5% peak range, which would mean three more quarter-point fed rate hikes. Bullard, a non-voting FOMC member in 2023, said he thinks the central bank can get inflation down even with a strong labor market. At 2 p.m. ET, the Fed will release minutes from the Jan. 31-Feb. 1 meeting.
Crude oil futures fell slightly. Copper prices edged lower.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
Key Earnings
PANW stock jumped 10% early Wednesday after Palo Alto earnings topped fiscal Q2 views but guidance was mixed. Palo Alto stock fell 1.4% to 166.89 on Tuesday, pulling back toward the 200-day line. A decisive move above last week's high of 177.60 would clear resistance going back several months, offering an entry.
TOL stock rose slightly in premarket trade as fiscal Q1 earnings topped views. Toll Brothers stock retreated 2.6% on Tuesday to 55.70, approaching the 50-day and 10-week lines. After nearly doubling from last October to Feb. 2, shares have pulled back as Treasury yields have rebounded. But TOL stock has a 62.71 cup-with-handle buy point.
EXAS stock were slightly higher in overnight trade after Exact Sciences topped Q4 views but gave in-line guidance for 2023. Exact Sciences stock could test the 50-day line Wednesday after sliding 3.5% to 61.26 on Tuesday.
CRSP stock increased slightly in extended action. Crispr reported a smaller-than-expected Q4 loss and said it's on track to finish its FDA submission by the end of Q1 for its gene-edited therapy to treat sickle cell disease and transfusion-dependent beta thalassemia. Crispr stock sank 4.8% on Tuesday to 62.07, knifing below the 50-day line.
COIN stock rose modestly before the open as Coinbase reported a slightly smaller-than-expected Q4 loss as revenue plunged 75%. COIN stock tumbled 8.4% to 46.63 on Tuesday, back toward 200-day and 21-day lines. Investors could view a decisive bounce from these levels as some sort of aggressive entry.
Baidu stock jumped early Wednesday, back above the 21-day line, as the search engine, AI and autonomous driving firm beat views and announced a $5 billion buyback. BIDU stock dipped 0.6% on Tuesday to 140.82, below the 21-day line but above the 50-day line.
TJX stock was little changed as earnings were in line while sales topped. The off-price retail giant announced a 13% dividend hike and plans for a $2 billion-$2.5 billion buyback. On Tuesday, TJX stock retreated 1.3% to 78.82, slightly below the 50-day line in a 6%-deep flat base. The official buy point is 83.23, but a strong move above the 50-day line would also break a trendline entry.
WING stock rebounded sharply early Wednesday morning, signaling a move back above a buy point. Wingstop earnings easily beat while strong sales growth slightly topped. WING stock fell 4.2% to 166.21 in heavy volume on Tuesday, skidding below a 169.04 cup-with-handle buy point cleared last week, according to MarketSmith analysis.
Nvidia stock fell 3.4% to 206.55 on Tuesday, just below its 21-day line. Microsoft announced that its Xbox games will be on Nvidia's clouding gaming service. NVDA stock is extended from a bottoming base but has a three-weeks-tight pattern with a 230.59 buy point. At Wednesday's close, the chip giant will likely have a handle on a daily chart with that same entry, for a consolidation going back to April. But Nvidia stock would still be extended from the 50-day/10-week lines.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally
The stock market rally opened lower Tuesday, with selling soon accelerating on S&P Global's flash reading of the U.S. economy, with the overall index and services gauge both moving above the break-even 50 level.
The Dow Jones Industrial Average slumped 2.1% in Tuesday's stock market trading. The S&P 500 index gave up 2%. The Nasdaq composite fell 2.5%. The small-cap Russell 2000 tumbled 2.9%.
U.S. crude oil prices dipped 0.2% to $76.16 a barrel, extending last week's sharp losses. Natural gas futures plunged 8.9% on Tuesday and 19% over the last four sessions.
Copper prices rebounded 2.9%.
The 10-year Treasury yield leapt 13 basis points to 3.95%. That's the highest since November and up 62 basis points from the Feb. 2 low. Some of this reflects optimism that the U.S. won't fall into a recession. But that also means inflation will likely be more persistent and that the Fed could be leaning toward being more aggressive. Markets now see at least an 80% chance of three more quarter-point rate hikes, with a small-but-rising chance of a half-point move in March or May.
On Friday, investors will get the January reading for the PCE price index, the Fed's favorite inflation gauge.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF gave up 2.2%. The iShares Expanded Tech-Software Sector ETF retreated 2%. The VanEck Vectors Semiconductor ETF fell back 3%. Nvidia stock is a major SMH holding.
Reflecting stocks with more speculative stories, the ARK Innovation ETF tumbled 6.1% and ARK Genomics shed 6.25%. CRSP stock and Coinbase are two big holdings at Ark Invest.
The SPDR S&P Metals & Mining ETF lost 2.6%. U.S. Global Jets ETF descended 3%.
SPDR S&P Homebuilders ETF sold off 3.9% as Home Depot's guidance and rising yields hammered housing-related stocks. TOL stock is an XHB holding.
The Energy Select SPDR ETF and the Financial Select SPDR ETF each retreated 2.1%. The Health Care Select Sector SPDR Fund declined 1.3%.
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Market Rally Analysis
The stock market rally extended its pullback Tuesday. The S&P 500, Nasdaq and Russell 2000 all fell sharply, knifing below their 21-day moving averages. The Dow Jones fell decisively below its 50-day line after holding that key level for a month.
As of now, the market pullback still looks normal on a weekly chart, but it's a little like saying a person's blood pressure is "normal" but getting toward the upper bound.
The S&P 500 and Nasdaq are tumbling near their 50-day and 200-day lines, respectively. Breaking those levels would be worrisome.
Recent breakouts and buy signals have struggled, with the overall market fading since Feb. 2 and especially in the past three sessions.
Rising Treasury yields and a rebounding dollar are weighing on stock prices, especially growth names. With some short-term yields topping 5%, that's a fairly decent risk-free return vs. equities.
More broadly, the market rally is no longer shrugging off mixed (at best) earnings, guidance and economic data.
The good news is that investors no longer seem so complacent. The Cboe Volatility Index, or VIX, has jumped to its highest level since early January, just before the Jan. 6 follow-through day.
Speculative growth names, which boomed from bear-market lows in January, may not continue to lead on the upside if their actual earnings don't match.
Some mining stocks showed strength as copper and other metal prices rebounded. But will that last more than a day?
More-defensive names are standing out again. Lamb Weston is hovering around a buy point while Hershey flirted with a breakout Tuesday. Walmart flashed a buy signal on earnings despite weak guidance.
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What To Do Now
Investors should be getting more defensive, perhaps paring overall exposure. Even if that isn't your explicit goal, you should be trimming exposure by cutting individual losers or taking at least partial gains in some winners.
The recent pullback could still be a positive. Stocks that resisted the initial mild pullback in early February are now taking a breather or falling back. A few good days could easily revive the market rally's fortunes and trigger a number of buying opportunities. So investors should be ready to act, building up their watchlists.
But if conditions worsen, you'll need to step back more substantially. So stay flexible and remain engaged.
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