Dow Jones Futures: Stocks dive on call for biggest rate hike in 40 years; Apple, Tesla Tumble
Dow Jones futures edged higher overnight, along with S&P 500 futures and Nasdaq futures. Stocks plunged Tuesday on a warmer-than-expected inflation report, with the major indexes breaking below their 50-day moving averages and erasing all or nearly all of their recent gains.
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The consumer price index in August was much worse than expected. Consumer prices rose 0.1%, against views for a 0.1% fall, with food prices and rents pushing up costs despite falling petrol prices. The core CPI, which excludes food and energy, rose 0.6%, twice as much as expected. Headline inflation cooled somewhat again, to 8.3%, but Wall Street expected 8%. Core inflation rose more than forecast, to 6.3%.
That prompted one Wall Street firm to predict that the Federal Reserve will raise interest rates by a full percentage point at the Fed meeting on 20-21. September. That would be the most since the early 1980s, when then-Fed chief Paul Volcker waged an all-out war on inflation.
Clean storage (PSTG), Tesla rival Nine (NIO), Devon energy (DVN), Wolfspeed (ULF) and Enphase Energy (ENPH) showed relatively healthy action on Tuesday.
Mega caps apple (AAPL) and Tesla ( TSLA ), which had been flashing buy signals recently, fell hard Tuesday, back below key levels. Nvidia (NVDA) and Facebook parent Meta platforms (META), nobody’s idea of current market leaders, plunged to 2022 lows.
The DVN share is on the IBD Leaderboard. PSTG stock is on SwingTrader and was Tuesday’s IBD stock. Tesla stock and Devon Energy are on the IBD 50. Devon and ENPH stock are on the IBD Big Cap 20.
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Dow Jones Futures today
Dow Jones futures rose 0.15% vs. fair value. S&P 500 futures rose 0.15 percent. Nasdaq 100 futures rose 0.1 percent.
At 8:30 a.m. ET, the Labor Department will release the producer price index for August.
Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session.
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Stock market rally
The stock market rally suffered its worst loss of 2022, with the major indexes closing near session lows on the tepid inflation report and fears of Fed rate hikes.
Another factor? The United States is considering options for sweeping sanctions against China to deter any Taiwan invasion, Reuters reported on Tuesday. The European Union is facing pressure to do the same. It will increase the risk of a massive economic decoupling between China and the West.
The Dow Jones Industrial Average fell 3.9% in Tuesday’s trading. The S&P 500 index plunged 4.3 percent. The Nasdaq composite plunged 5.2%. The small-cap Russell 2000 lost 3.9%.
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Nvidia stock and META stock plunged more than 9%, both below their 2022 lows.
US crude oil prices fell 0.5% to $87.31 a barrel.
The 10-year government yield rose 6 basis points to 3.42%. The benchmark interest rate reached 3.45% intraday, just below the 11-year high of 3.48% set on 14 June. Short-term interest rates rose much more.
ETFs
Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) retreated 2.9%, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) lost 2.35%. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell 4.7%. The VanEck Vectors Semiconductor ETF ( SMH ) plunged nearly 6%. NVDA stock is a large SMH holding.
The SPDR S&P Metals & Mining ETF (XME) returned 3.7%. The SPDR S&P Homebuilders ETF ( XHB ) plunged 5.9%. The Energy Select SPDR ETF (XLE) retreated 2.5% and the Financial Select SPDR ETF (XLF) fell 3.75%. The Health Care Select Sector SPDR Fund ( XLV ) fell 3.3%.
ARK Innovation ETF ( ARKK ) reflected more speculative stock stocks, plunging 6.8% and ARK Genomics ETF ( ARKG ) 5.6%. TSLA stock is a large holding across Ark Invest’s ETFs.
Top five Chinese stocks to watch now
Shares showing strength
PSTG stock fell 3.8% to 29.64 on Tuesday, but closed above its 21-day line. The Pure Storage stock is working on a cup-with-handle base with a buy point of 31.62. Investors can use a move above Monday’s high of 30.88 as a slightly lower entry.
Nio shares rose 0.9% to 21.95, hitting its 200-day line intraday after soaring 13.5% on Monday. Shares of the China EV startup have risen 28% over the past five sessions, four on heavy volume. Analysts are increasingly positive about Nio’s selection. Nio begins deliveries of the ET5 sedan, its third new electric car this year, on September 30. Nio stock has a bottom buy point at 24.53, but investors could use a decisive move above the 200-day line as an early entry.
DVN shares fell 3% to 69.07, retreating after breaking the trendline of a handle on Monday. The purchase point for cup with handle is 75.37. Investors can now use Monday’s high of 71.57 as an early entry. A longer break would allow the 50-day moving average to catch up somewhat.
WOLF shares fell 2.5% to 113.98 on Tuesday after dipping to 111.26 shortly after the open. Evercore ISI kicked off the chipmaker with a better performance, saying it’s a great way to play the EV space. Investors can treat the recent action as a handle to a huge consolidation, with a buy point at 123.35. A move above Monday’s high could offer an early entry, but Wolfspeed stock is extended, largely outperforming some of its moving averages.
ENPH stock fell 1.1% to 305.50 after testing its 21-day line. Investors can buy Enphase shares now outside the 21-day line, although market conditions increase risk. A longer ENPH stock break would allow a rapidly rising 50-day line to make up some ground.
Apple stock
Apple shares plunged 5.9%, falling back below the 50-day and 200-day lines on heavy volume, giving up the gains of the previous two sessions. AAPL stock had broken a downtrend in a handle on Monday, making an early entry, but that’s off the table now. Shares of the Dow Jones tech titan are working on a 176.25 buy point from that handle.
Apple iPhone 14 pre-orders appear to be running as strong or stronger than for the iPhone 13 last year. Actual iPhone 14 sales start on Friday.
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Tesla shares
Tesla shares slipped 4% to 292.13, back slightly below the 200-day line but holding its 21-day and comfortably above the 50-day. Volume was low, but higher than in the five-day rally.
TSLA stock arguably has a short base within a much larger consolidation, with a buy point at 314.74. A move above Monday’s high of 305.49 could offer an early entry.
Tesla’s head of investor relations Martin Viecha said at a conference on Tuesday that supply chain constraints and costs are easing for electric cars, which should lead to lower prices. Viecha said Tesla will eventually unveil a cheaper EV model, but gave no details on when that might happen. Tesla recently introduced a lower range Model Y in Europe at a much cheaper price.
Market rally analysis
The recently revived stock market rally ran headlong into CPI inflation on Tuesday. The major indexes and the Russell 2000 all fell below their 50-day moving averages. The Dow Jones undermined last week’s low, while the S&P 500 nearly did. The Nasdaq erased most of the gains from the previous four sessions.
Leading stocks, many of which had made some strong gains in recent days, also suffered on Tuesday. Losers drew winners, after robust market breadth in recent days.
Apple stock showed damaging action on Tuesday. Tesla also pulled back after some gains in low volume, but the chart is looking a little better.
While Pure Storage and Nio stock still look OK, odds are they will falter if the market comes under more pressure.
The stock market had risen over the past few days in small part on expectations of a tame inflation report. That in turn will spur the Fed to start raising interest rates less aggressively.
But after the tepid inflation report, Nomura Securities predicted that Fed policymakers will raise interest rates by 100 basis points on September 21. Late Tuesday, Ed Yardeni of Yardeni Research said a full percentage point Fed rate hike is “more likely” than 75 basis points. .
Markets are fully pricing in at least 75 basis points for a third Fed meeting in a row next week. But there is now about a one-in-three chance of 100 basis points, up from zero before the CPI data. The markets are betting on a higher annual rate.
The 10-year government yield continued its violent run in recent weeks.
A more aggressive Fed, higher Treasury yields and a stronger dollar is not a good recipe for stocks. This is especially so when the markets bet on the opposite.
Now the question is where the market goes from here. Will the major indices undermine last week’s lows and head towards June lows? It is possible that the market will be circumscribed as Wall Street waits for actual signs that the Fed will slow rate hikes.
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What to do now
Investors may have wanted to take profits heading into Tuesday’s CPI inflation report, given the low volume growth that priced in good news. At this point, you may want to lock in remaining gains in recent purchases, or cut losses.
It is a good idea to keep the exposure light. The warm inflation data undermined the short-term case for tamer Fed rate hikes, with market direction now uncertain.
At some point, whether it’s next week, next month, or next year, the market will be in a clear uptrend. That’s when the real money will be made.
So work on your watchlists, focus on relative strength and signs that large institutions are buying stocks.
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