Dow Jones futures tilted higher early Wednesday, along with S&P 500 futures and Nasdaq futures. CrowdStrike rallied overnight on earnings. Tesla stock fell on an analyst downgrade and a new safety probe.
The stock market rally saw serious losses after Fed chief Jerome Powell said policymakers are "prepared to increase the pace of rate hikes." The S&P 500 knifed through its 21-day moving average and undercut its 50-day line.
Tesla fell below a key level, but that could still be constructive action. Tech titans Apple, Microsoft and Google parent Alphabet, which were modest winners Monday, gave up those gains Tuesday.
Many leaders held up reasonably well, though others took on some more damage. Delta Air Lines, New Relic and Canadian Solar flirted with buy signals as their respective groups did well.
Investors should be cautious about new buys in the very short term and might want to reduce overall exposure somewhat.
The video embedded with this article discussed Tuesday's market action and analyzed DAL stock, Canadian Solar and Freeport-McMoRan.
DAL stock is on the IBD Big Cap 20. New Relic was Tuesday's IBD Stock Of The Day.
Fed Chief Powell
Citing stronger economic data, Fed chief Jerome Powell told the Senate Banking Committee that the "the ultimate level of rates is likely to be higher than previously anticipated." Markets had already been pricing in higher rates than the Fed's late 2022 forecast for a peak rate around 5.1%.
But Powell also signaled that he's open to reaccelerating Fed rate hikes. "If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes."
That puts even more pressure on Friday's February jobs report, as well as next week's CPI inflation report.
The odds of a 50-basis-point Fed rate hike on March 22 shot up to 70.5% on Tuesday, up from 31% on Monday and 24% a week earlier. The odds are now at 72%.
Powell testifies before the House Financial Services Committee today, though he may not say anything new.
Key Earnings
CRWD stock rose solidly after CrowdStrike earnings beat and the cybersecurity play gave bullish guidance. CrowdStrike stock fell 2.1% in Tuesday's session to 124.93, up sharply over the past two months but still well below the 200-day line. Okta, Palo Alto Networks and Fortinet have been looking stronger.
SoundHound AI plunged early Wednesday on a smaller-than-expected Q4 loss and revenue growth that narrowly beat. The AI play gave in-line revenue guidance for 2023. SOUN stock rose 2.15% to 3.33 on Tuesday. SoundHound stock is working on a 5.04 buy point from a consolidation that's mostly formed above the 200-day line.
Dow Jones Futures Today
Dow Jones futures climbed 0.1% vs. fair value. S&P 500 futures advanced 0.1% and Nasdaq 100 futures rose 0.2%.
The 10-year Treasury yield dipped 2 basis points to 3.95% after slightly topping 4% overnight.
Crude oil futures fell slightly. Copper prices edged higher.
Investors will get the ADP Employment Report at 8:15 a.m. ET, providing an estimate of private payrolls in February. But the ADP report has an uneven record of forecasting the Labor Department's jobs report. The February jobs report is due Friday.
The JOLTS survey at 10 a.m. ET will reveal job openings as of January.
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 started off Tuesday slightly higher, but fell sharply on Fed chief Powell's hawkish testimony at 10 a.m. ET.
The Dow Jones Industrial Average tumbled 1.7% in Tuesday's stock market trading. The S&P 500 index skidded 1.5%. The Nasdaq composite gave up 1.25%. The small-cap Russell 2000 retreated 1.2%.
Apple stock fell 1.45%, essentially erasing Monday's gain. Intraday Monday, AAPL stock hit 156.30, nearly clearing a handle buy point. Microsoft sank 1.1%, more than offsetting Monday's whittled 0.6% advance. Apple and Microsoft stock are Dow Jones, S&P 500 and Nasdaq components.
S&P 500 and Nasdaq giant GOOGL stock slid 1.4%, back to its 50-day line.
The 10-year Treasury yield actually fell 1 basis point to 3.97%. But yields spiked for shorter-term Treasurys, which are more closely tied to Fed policy. The 2-year yield leapt 12 basis points to 5.01%. The six-month T-bill yield surged 17 basis points to 5.29%.
Meanwhile, the U.S. dollar soared on Powell's hawkish testimony and generally higher Treasury yields, hitting its highest level since late November.
U.S. crude oil prices fell 3.6% to $77.58 a barrel. Fed rate hike concerns, the stronger dollar and weak China imports weighed on crude. Copper prices slumped 2.8% for similar reasons.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF edged down 0.6%. The iShares Expanded Tech-Software Sector ETF gave up 1.%, with MSFT stock a major holding. The VanEck Vectors Semiconductor ETF retreated 1.2%
Reflecting more-speculative story stocks, ARK Innovation ETF gave up 1.7% and ARK Genomics ETF 1.1%. Tesla stock remains a major holding across Ark Invest's ETFs.
SPDR S&P Metals & Mining ETF tumbled 2.85%. U.S. Global Jets ETF ascended 0.65%, with DAL stock a notable holding. SPDR S&P Homebuilders ETF stepped down 1%. The Energy Select SPDR ETF sank 1.7% and the Financial Select SPDR ETF skidded 2.6%. The Health Care Select Sector SPDR Fund ceded 1.6%.
Five Best Chinese Stocks To Watch Now
Tesla Stock Falls On Probe
Tesla stock fell 1% before the open.
Berenberg downgraded Tesla stock to hold from a buy, saying the share price has rebounded to a fair value. The analyst said Tesla price cuts will hit gross margins in the short run, but still sees high margins long term.
The National Highway Traffic Safety Administration has opened yet another Tesla probe, this time over steering wheels coming off. The investigation covers an estimated 120,000 Model Y vehicles from the 2023 model year. In two cases, Model Ys were were delivered to customers without a bolt that holds the wheel to the steering column.
Tesla stock fell 3.15% on Tuesday to 187.71, back below its 21-day moving average and its lowest close in a month. The EV giant has an aggressive buy point of 217.75, but investors should probably wait for a decisive move above the 200-day line. The 200-day line is around 220 and drifting lower. An extended pause would bring the 200-day line down into the recent consolidation and let the 50-day line catch up.
On Tuesday, China EV registration data showed rising Tesla sales there for a second straight week. But Tesla's China deliveries are still on pace to fall in the first quarter vs. Q4, despite big price cuts.
Market Rally Analysis
The stock market rally did not react well to Fed chief Jerome Powell's hawkish statements and the prospect of faster rate hikes and higher rates.
The S&P 500 tumbled below its 21-day moving average and just undercut its 50-day line. The Nasdaq composite fell through its 21-day line.
The Dow Jones, which hit resistance at the 50-day line Monday, fell hard Tuesday.
Tuesday's losses followed a generally negative session Monday. The big-cap indexes erased gains that day, but held up relatively well, thanks to Apple stock, Google and Microsoft. But losers trumped winners nearly 2-to-1.
The Russell 2000, which fell below its 21-day line on Monday, slumped to just above its 50-day line on Tuesday. The small-cap index had its worst close since late January.
Most leading stocks have fallen along with the overall market. Stocks that looked promising on Monday morning have come back quite a bit.
Miners such as FCX stock stumbled Tuesday on the stronger dollar and concerns about China's economy. But generally leading stocks haven't suffered too much damage, yet.
DAL stock and other airline plays look healthy, along with many travel names broadly. CSIQ stock is hovering at a buy point with several solar names trying to shine. NEWR stock is consolidating nicely. Tesla stock could use a longer pause, but is still acting relatively well.
With the 10-year Treasury yield near 4%, shorter-term rates topping 5% and the dollar running up, it's understandable that the stock market rally is having some trouble.
Friday's jobs report and next week's CPI inflation report could lock in expectations for a half-point Fed rate hike this month. As Tuesday's sell-off showed, it's the market reaction that matters, not the news.
The S&P 500 is barely holding the 50-day line and not that far from testing its 200-day once again. The Nasdaq and Russell 2000 could easily break below major levels as well. On the upside, moving above Monday's intraday highs would break short-term trendlines for the S&P 500, Nasdaq and Russell.
Time The Market With IBD's ETF Market Strategy
What To Do Now
Just when the stock market rally seems to be regaining momentum, negative news knocks it back down. Is this a short-term pause within a trading range or the start of something more serious? It wouldn't take much to trigger serious weakness or renewed strength.
So investors have to be prepared and ready to act.
It's probably best to hold off on buys until there is more clarity. Not many stocks flashed new buy signals on Tuesday in any case. Instead, investors may want to consider exiting or trimming recent positions if they're not working.
Keep working on your watchlists. The rangebound market is tricky to play, but many new bases and bullish pullbacks are taking shape as well.
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Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
