Dow Jones futures rose slightly overnight, along with S&P 500 futures and Nasdaq futures. The share price rose sharply on Wednesday after hawkish Federal Reserve comments, and ended on session bottoms. Microsoft (MSFT), Google stocks, AMD and Nvidia are coming under increasing pressure, while even Apple and Tesla stocks are starting to show strain. Commodity stocks, cyclical and financial stocks are still doing well, but the weight is on the downside.
Once again, it was government interest rates that drove the market action. The 10-year Treasury topped 1.7% for the first time in nine months after the release of the Fed minutes in December.
Fed Minutes Hawkish
Politicians signaled that interest rate hikes from the Fed may come faster than expected, as the central bank showed real concern about inflation at its meeting in December.
At the December meeting, politicians agreed to accelerate the tapering of bonds, and reduce monthly purchases of assets by $ 30 billion a month. This means that new bond purchases will be completed in mid-March, and lays the groundwork for actual austerity measures from the Fed. In particular, some members wanted to start reducing the Fed’s balance sheet “at some point” after the first rate hike. In fact, “many participants judged that the appropriate pace of balance runoff would probably be faster than it was during the previous normalization episode.”
There is a big change of tone from Fed Chairman Jerome Powell right after the policy meeting in December. While saying that politicians started talking about cutting the balance, he also assured Wall Street that he would take a “cautious, methodical approach”.
The next Fed meeting is 25-26. January.
The 10-year government bond yield rose 4 basis points to 1.705%, reaching 1.71% intraday. It removed the peaks in October and November to reach its highest level since early April. The reference interest rate on the Treasury is up 19 basis points for the week.
Meanwhile, the two-year government interest rate, more closely linked to the Fed action, rose 7 basis points on Wednesday to 0.83%, the highest since March 2020. This means that the interest rate spread in the Treasury actually decreased somewhat on Wednesday. This is not good news for the banks’ traditional loan card and long-term loan model.
Apple, Tesla retire
Among megacaps, apple (AAPL) and Tesla (TSLA) no longer shrugs its shoulders from growth sales. AAPL shares fell 2.66% on Wednesday, but may still form a three-week tight pattern after this week. The Tesla stock is still moderately up for the week after rising higher on Monday on blowout deliveries, but has fallen below a buy point.
Microsoft stock, Google parent Alphabet (GOOGL), Advanced micro devices (AMD), Nvidia (NVDA) and Facebook parent Metaplatforms (FB) everyone looks injured. Microsoft stock and Google lost further ground from their 50-day lines, along with Nvidia. AMD shares fell below that key level. The FB stock fell below the 50-day and 200-day lines on Wednesday, while also underperforming an aggressive trend line entry.
Software and other highly valued stocks, already hit in recent days and weeks, continued to struggle. Computer chip maker Ambarella (AMBA) crashed 19% on Wednesday after falling 5.1% on Tuesday.
data dog (DDOG) rose overnight trading in an agreement with Amazonsin (AMZN) Amazon Web Services. But DDOG has plunged 18% so far this week.
Nucor (NUE) and Signature Bank (SBNY) broke out, while Cheniere energy (LNG) removed a trend line entry. Everyone is in leading groups and sectors right now. But even these stocks came from peaks when the broader market came under pressure. The SBNY stock closed below the buy point while the LNG stock closed slightly positive.
Nucor and LNG shares joined the IBD Leaderboard, which also boasts Tesla, Microsoft, Google, Nvidia and AMD. The NUE stock is on SwingTrader and was Wednesday’s IBD Stock Of The Day. Microsoft and GOOGL stocks are long-term IBD leaders. The Tesla stock and AMD are on IBD 50.
The video embedded in this article discusses an important market day and analyzes the SBNY stock, Nucor and Reliance Steel (RS).
Dow Jones Futures today
Dow Jones futures rose 0.2% relative to fair value. S&P 500 futures rose 0.2% and Nasdaq 100 futures rose 0.15%.
Futures on crude oil went down.
Keep in mind that overnight trading in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join IBD experts as they analyze powerful stocks in the stock market rally on IBD Live
Stock market rally
The upturn started with the major indices diverging again, but they all went south after 14.00 ET Fed minutes and closed at the day’s worst levels.
The Dow Jones Industrial Average fell 1.1% in Wednesday’s trading session, trading higher in much of the session. The S&P 500 index fell 1.9 percent. Nasdaq composites fell 3.3%. Small-cap Russell 2000 plunged 3.4 percent.
The US crude oil price climbed 1.1% to $ 77.85 a barrel, reducing gains from over $ 78. The prices of natural gas also rose.
Among the best ETFs, Innovator IBD 50 ETF (FFTY) fell 4.7%, while Innovator IBD Breakout Opportunities ETF (BOUT) lost 2.3%. iShares Expanded Tech-Software Sector ETF (IGV) fell 4.9%. The MSFT share is a large IGV holding. VanEck Vectors Semiconductor ETF (SMH) fell 3.4%, while AMD and Nvidia made key components.
SPDR S&P Metals & Mining ETF (XME) rose 0.1%, with the Nucor stock as a component. The Global X US Infrastructure Development ETF (PAVE) turned lower to close down 1.2%. US Global Jets ETF (JETS) fell 1.7%. SPDR S&P Homebuilders ETF (XHB) fell 2.7%. Energy Select SPDR ETF (XLE) closed just below the breakeven and Financial Select SPDR ETF (XLF) fell 1.2%. Health Care Select Sector SPDR Fund (XLV) fell 0.7%.
ARK Innovation ETF (ARKK) and ARK Genomics ETF (ARKG) reflect more speculative history stocks, both falling 7.1% to a 52-week low. The Tesla share is still number 1 across ARK Invest’s ETFs.
Five best Chinese stocks to see now
Market Rally Analysis
So much for the divergent market upswing. The Dow Jones and S&P 500 fell solidly on Wednesday. The Nasdaq, after reducing losses to just holding its 50-day line on Tuesday, fell below that key level on Wednesday.
Microsoft and Google stocks fell below their lowest values in December, as the damage in growth is no longer limited to those with conspicuous valuations. AMD shares and Nvidia have both seen another 50-day / 10-week line spread, and they are approaching the lowest months in December as well. Meanwhile, the carnage continues in software stocks and just about all highly valued growth names.
Tesla shares fell 5.35% to 1,088.12. It is still up 3% for the week. But after touching 1,208 on Tuesday morning, it is back below a buy point of 1,119.10. Apple shares fell 2.7% on Wednesday, but are still above the 21-day limit.
While the Tesla and Apple stock still looks relatively solid, Microsoft, Google, AMD and Nvidia also saw it at the end of last year.
Russell 2000 fell back below its 200-day line.
The S&P 500 and Dow Jones are still just below the peaks. Real economic names do it relatively well. It includes steel producers such as Nucor shares and energy shares such as LNG. Finances such as Signature Bank hold on to the latest gains or move higher.
Treasury yields will remain at the center of the stock market rise for at least the next few days.
Time market with IBD’s ETF market strategy
What to do now
There are stocks and sectors working right now. Investors who came on board this week have generally seen an upturn. But Tuesday’s divergent market turned into broader, sharper sales on Wednesday. More of the same is likely to lower resilient sectors. Alternatively, rotation back to growth will not be a surprise, and it may be bad news for finance or cyclical.
On the flip side, beware of any peaks in growth stocks in a day, especially those hardest hit. The software sector and many highly valued names are in significant corrections. A one-day pop within a downward trend would not be surprising. Investors who are stuck with heavy losses in technology stocks may want to use any returns as a chance to get out instead of any opportunity to recharge.
Overall, investors should take a more defensive approach in the short term. Do not let winners become losers, or losers become sharp losses.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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