Dow Jones futures tilted lower overnight, along with S&P 500 futures and Nasdaq futures. The stock market rally attempt struggled for direction Wednesday as Fed chief Jerome Powell spoke. The major indexes shrugged off solid early losses, but later gave up decent gains to close slightly lower.
Fed chief Powell, speaking before the Senate Banking Committee on Wednesday, reaffirmed the central bank is “strongly committed” to fighting inflation aggressively. But he gave mixed signals about recession risks.
Crude oil futures, copper prices and Treasury yields fell significantly Wednesday, though they closed off their worst levels.
Health care names are among the more-resilient sectors right now. Bristol Myers Squibb (BMY), UnitedHealth (UNH), Eli Lilly (LLY), Vertex Pharmaceuticals (VRTX) and Harmony Biosciences (HRMY) are in or near buy areas. All have relative strength lines at highs.
China EV stocks have been rallying strongly for several weeks. Startup Li Auto (LI) rose modestly Wednesday to just shy of a record high. EV and battery giant BYD (BYDDF) has forged a handle on a daily chart.
The video embedded in this article discussed Wednesday’s market action and analyzed UNH stock, Bristol Myers Squibb and Halozyme (HALO).
Dow Jones Futures Today
Dow Jones futures edged lower vs. fair value. S&P 500 futures dipped 0.15% and Nasdaq 100 futures fell 0.3%.
Bitcoin traded at $20,000 after drifting lower on Wednesday. The Bitcoin price hit an 18-month low near $17,600 on Saturday.
Fed Chief Powell On Recession Risks
“At the Fed, we understand the hardship high inflation is causing,” Fed chief Powell said in his prepared remarks. “We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so.”
Powell said the U.S. is “well positioned” to handle tighter Fed policy. He later said the risks of a recession ‘are not particularly elevated right now.” But he also said that an economic soft landing is “significantly more challenging” now.
In recent months, Powell has cheered Wall Street with comments minimizing recession risks, only for stocks to sell off the next session. Investors may feel he’s not telling the whole truth, or simply doubt his forecasts.
Stock Market Rally
The stock market rally opened solidly lower, soon rebounded higher as Fed chief Powell testified, but then closed with slim losses.
The Dow Jones Industrial Average fell 0.15% in Wednesday’s stock market trading. The S&P 500 index dipped 0.1%. The Nasdaq composite gave up 0.15%. The small-cap Russell 2000 dipped 0.2%
U.S. crude oil prices fell 3% to $106.19 a barrel, but after tumbling more than 6% at one point.
The 10-year Treasury yield tumbled 15 basis points to 3.16%, but rebounded off the 21-day moving average.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) tumbled just over 4%, reflecting losses in energy and commodity stocks. The Innovator IBD Breakout Opportunities ETF (BOUT) slid 1.7%. The iShares Expanded Tech-Software Sector ETF (IGV) edged up 0.2%. The VanEck Vectors Semiconductor ETF (SMH) slid 1.2%.
SPDR S&P Metals & Mining ETF (XME) slumped 3.8% and the Global X U.S. Infrastructure Development ETF (PAVE) fell 0.6%. U.S. Global Jets ETF (JETS) ascended 0.5%. SPDR S&P Homebuilders ETF (XHB) climbed 0.7%. The Energy Select SPDR ETF (XLE) lost 4% and the Financial Select SPDR ETF (XLF) dipped 0.2%. The Health Care Select Sector SPDR Fund (XLV), with UNH stock a huge component along with Eli Lilly, Bristol Myers and Vertex, added 1.4%.
Stocks To Watch
VRTX stock advanced 0.8% to 272.31, breaking a trendline for an early entry, with 279.23 as another aggressive buy area. The official buy point is 292.85.
LLY stock gained 3.1% to 306.69, rebounding from the 50-day line in above-average volume while closing right on a short trendline. Investors could buy shares here or use Wednesday’s high of 309.65 as an aggressive entry. Eli Lilly stock is working on a new consolidation.
UnitedHealth stock gained nearly 2% to 489.68 on Wednesday, after Tuesday’s 6.25% spike. UNH stock is still in range of a downward-sloping trendline. But investors could view the consolidation as a double-bottom base with a 507.35 buy point.
Bristol Myers stock edged up 0.1% to 76.55 after reclaiming its 50-day line on Tuesday. Arguably BMY stock is flashing an early entry. The drug giant is on track to have a flat base after this week with a 78.71 buy point. But investors could view BMY stock as being in a messy flat base going back to early April.
The Tesla Shanghai plant will suspend production for couple weeks near the start of July, Reuters reported Wednesday. That will allow Tesla to upgrade equipment and perhaps ultimately boost plant production capacity. In the short run, it will hinder Tesla’s efforts to rebound to record production levels, though the Berlin and Austin plants should slowly gain steam.
From March 28-April 18, Tesla Shanghai was closed due to the city’s strict lockdown. From April 19 to early June, the plant was operating on partial capacity. That will likely cut Q2 global production by well over 50,000. Tesla will release Q2 production and delivery figures in early July.
Meanwhile, Morgan Stanley cut its TSLA stock price target to 1200 from 1,300, citing weaker Q2 deliveries and margins. It maintained an overweight rating.
Tesla stock dipped 0.4% to 708.26, just below its 21-day moving average after spiking 9.35% on Tuesday. TSLA stock has some distance to reach its 50-day and 200-day moving averages.
China EV Stocks
Li stock climbed 2.9% to 36.80, just below December’s 52-week high of 37.45. Technically, the stock has a 37.55 buy point, but it’s been running up for weeks and could use a long pause. Li Auto on Tuesday unveiled the L9, a new hybrid SUV that will begin deliveries in August. It’s more expensive than the current Li One hybrid.
BYD stock dipped 0.9% to 38.30. On a daily chart, BYDDF now has a cup-with-handle buy point of 39.81. The handle entry has already been there on a weekly chart. BYD will start selling in Australia in the third quarter and will begin shipments of the Seal, which boasts similar features to a Model 3 but for $10,000. BYD sales of EVs and plug-in hybrids will easily top Tesla’s all-EV sales in the second quarter. The China giant may soon supply batteries to Tesla, though the U.S. EV giant hasn’t confirmed this.
Market Rally Analysis
After an encouraging morning rebound, it was a little disappointing to see the major indexes close lower on Wednesday. But a pullback wasn’t a surprise after Tuesday’s big rebound on light volume. encouraging to see the major indexes rebound from early losses for modest gains.
Still, this is not a confirmed market rally. Wednesday marked day three of a market rally attempt for the S&P 500 and Nasdaq composite, so investors can start looking for a follow-through day. The Dow Jones is only two days into its rally attempt.
Even if there is a confirmed rally soon, skepticism would be in order. Several confirmed uptrends have quickly faltered in the current bear market. And there isn’t much to buy.
Some drug and other medical stocks such as Bristol Myers and UnitedHealth are doing relatively well, but otherwise it’s slim pickings.
Energy stocks weakened once again while metals and mining stocks were hammered.
A lot of Wednesday’s gains came in beaten-down techs.
Markets swing from focusing on hot inflation to recession risks and back again
What To Do Now
Investors should wait for a follow-through day to get off the sidelines. At that point, investors could tiptoe back into the market, via a few stocks or broad ETFs. But don’t rush into the market.
For now, stay engaged with the market action and work on your watchlists. Focus on stocks with strong relative strength and trading above or near key moving averages. Few stock charts will look pretty in the current market environment.
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.
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