Futures fall after surge in yields
Dow Jones futures fell slightly overnight, along with S&P 500 and Nasdaq futures, with the jobs report available Friday morning. The stock market plunged Thursday, erasing Wednesday’s big gains as the 10-year Treasury yield jumped above 3% in a second-day reaction to the Fed meeting.
The Dow fell more than 1,000 points while the Nasdaq plunged to its lowest levels since 2020, ending its short-lived rally attempt. Market rally attempts are still barely alive on the S&P 500 and the Dow.
Investors who had tiptoed into the new bid for a stock market rally may want to step back.
Vertex Pharmaceuticals (VRTX) reported mixed results Thursday night. VRTX stock closed at the edge of a buy zone after testing support at its 50-day line earlier in the week. Wooded Waterfall (BCC) is worth watching, trading near a buy point with profits expected on Friday morning.
Northrop Grumman (NOC), Pioneer of natural resources (PXD), Merck (MRK) and Albemarle (ALB), all with earnings on the sidelines, are also close to buy points in relatively strong sectors.
Tesla stock and Vertex are on IBD Leaderboard and IBD 50. Merck stock is on SwingTrader and IBD Big Cap 20.
Dow Jones Futures Today
Dow Jones futures fell 0.2% from fair value. S&P 500 futures were down 0.2%. Nasdaq 100 futures fell 0.2%.
The 10-year Treasury yield rose 1 basis point to 3.08%.
Remember that overnight action on futures contracts on Dow Jones and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Report on the works
The Department of Labor will release the April jobs report at 8:30 a.m. ET. Economists expect nonfarm payrolls to rise by 400,000, with the unemployment rate holding steady at 3.6%. Wages are expected to jump 5.5% from a year earlier, slightly below the pace in March and not keeping pace with inflation.
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Stock market rally
The stock market rally sold off throughout the session, closing with huge losses after Wednesday’s encouraging advance.
The Dow Jones Industrial Average fell 1,063 points, or 3.1%, in Thursday’s stock trading. The S&P 500 index fell 3.6%. The Nasdaq composite plunged 5%. Small cap Russell 2000 lost 4%.
Apple stock fell 5.6% to 156.77, back below its 50- and 200-day lines. AAPL stock issued an early buy signal on Wednesday as it recovered its 50-day line and broke above a short trendline.
Tesla stock plunged 8.3% to 873.28, also below its 50- and 200-day line. CEO Elon Musk has secured funding to help him take over Twitter, but he’s also going to be Twitter (TWTR) CEO temporarily upon taking office. These are mixed messages for Tesla and, for TSLA shares, the market sell-off was a real driver on Thursday.
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Treasury yields soar
The 10-year Treasury yield jumped 15 basis points to 3.07%, the highest point since late 2018. The yield is approaching an 11-year high of 3.25%.
On Wednesday, the 10-year yield fell slightly as Fed Chief Jerome Powell said policymakers were not actively considering 75 basis point hikes at meetings in June and July. But the Fed remains aggressive. The Fed raised rates by half a point on Wednesday and will likely do so at the next two meetings.
U.S. crude oil prices edged up 0.4% to $108.26 a barrel, after an intraday move above $110 as the stock market tumbled. OPEC+ agreed to another small increase in production.
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) fell 3.2%, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 3%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 5.75%. ETF VanEck Vectors Semiconductor (SMH) fell 5.75%.
The SPDR S&P Metals & Mining ETF (XME) slipped 5.3% and the Global X US Infrastructure Development ETF (PAVE) slipped 4%. The US Global Jets ETF (JETS) fell 3.5%. The SPDR S&P Homebuilders ETF (XHB) fell 4.9%. ETF Energy Select SPDR (XLE) fell 1.5% and ETF Financial Select SPDR (XLF) lost 2.9%. The SPDR healthcare sector fund (XLV) lost 1.9%, with MRK stock a key holding.
Reflecting more speculative stocks, ARK Innovation ETF (ARKK) plunged 8.9% and ARK Genomics ETF (ARKG) 7.85%. Tesla stock is Ark Invest’s main ETF holding.
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Vertex’s revenue lagged views, though sales edged higher. VRTX stock fell 2% overnight. Shares closed down 2.7% at 266.37, coming back just within the range of a buy point of 255.03, according to MarketSmith analysis. Vertex stock had tested that buy point at the 50-day line on Monday.
Boise Waterfall Stock
Boise Cascade stock fell 4% on Thursday to 81.67, falling back below a buy level of 82.20. The relative strength line, the blue line in the charts provided, is already at a new high. The wood products company announces its results Friday morning. Louisiana-Pacific (LPX) surged Tuesday-Wednesday on strong earnings, topping a trendline entry. Weyerhaeuser (WY) has seen huge daily swings near a buy point, but recent weekly action has been tight.
Albemarle stock rose 9.8% on Thursday to 236.50, resuming its 200-day line on booming earnings and sharply raised guidance. It came a day after rising 9.3% on similar news from rival lithium play Livent (LTHM). Ideally, ALB stock would consolidate for a few days above the 200-day line and form a handle, then break above resistance near 248. The RS line bounces back, reaching a high in 2022.
The LTHM stock also displays a somewhat similar chart action, while Piedmont Lithium (PLL) is worth watching.
Northop stock rose 0.9% to 466.66 on Thursday, continuing to rebound from the 50-day moving average and testing a trendline. Those that offered early entry. The NOC stock has an official buy point of 477.36 from a cup base with handle. The RS line is at a 23-month high on a weekly chart.
Pioneer Natural Resources reported strong growth in earnings and sales on Wednesday night. PXD stock soared 1.5% to 256.48 on Thursday, its fourth consecutive gain. Shares nearly eclipsed the March 30 high of 260. If it can hold its current range, PXD stock would have a suitable base after Friday with a buy point of 260.10. Investors could buy PXD shares on the 50-day line now. The RS line is already at a new high.
On April 28, Merck stock jumped nearly 5% on earnings, marking an early entry into its handle cup base. The following day, MRK stock flirted with the official buy point of 89.58 before falling back. Drug giant Dow Jones fell back, but only slightly.
Merck shares fell 0.6% to 88.01 on Thursday. The RS line for MRK stocks is right at 52-week highs.
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Market rally analysis
The stock market rally attempt suffered stunning losses on Thursday. Major indexes erased Wednesday’s big gains and then some, with the Nasdaq plunging again to its worst levels since 2020.
Treasury yields fell on Wednesday after the Fed’s rate hike and guidance, then soared Thursday in a delayed reaction.
The bond market took the lead on Wall Street. Soaring Treasury yields are a major headwind for equities, especially growth. With the Fed acting aggressively and not caring about supporting stock prices, the stock market could struggle until there are clear signs that inflation is coming down significantly. It could take some time.
Don’t get too excited if Treasury yields drop for a day or two. This has happened several times over the past few months, but the 10-year yield has still nearly doubled over the past two months.
The market rally attempt is over for the Nasdaq, but it is still ongoing for the S&P 500 and the Dow Jones for now. So there could be a follow-up day as early as Friday.
Sectors to Watch
Energy and other commodities such as fertilizers are holding up relatively well, although many fell modestly to sharply on Thursday. Lithium and wood products companies such as ALB stock and Boise Cascade also look interesting. Northrop and other defensive stocks are holding up well. Vertex, Merck and Eli Lily (LLY) hover around the buy zones, while health insurers continue to do well.
Growth stocks, which had performed so well on Wednesday, gave up all that and more on Thursday. Although this article has highlighted Apple and Tesla stocks, they still look better than other megacaps and growth stocks in general.
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What to do now
If you bought stocks or ETFs on Wednesday’s big bounce, you probably should have exited those new positions on Thursday.
Technically, the market could still hold a trailing day. But the Nasdaq bear market appears to be starting another leg down.
Cash still occupies a leading position in 2022.
Keep working on those watchlists. Scrolling through screens and updating watchlists isn’t the most exciting part of investing, but it is one of the most important. You don’t know when the market will be ready. But if you’re ready to act when a market rally gathers momentum, you can jump on board the best stocks early in the big streaks.
Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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