Dow Jones reverses on another key inflation report after CPI sparks market plunge

The Dow Jones Industrial Average turned lower after another key inflation report – the producer price index – came on Wednesday in the wake of a stock market drop from a warm consumer price index. Meanwhile, the 10-year government yield is on track to hit June’s 11-year high.

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The U.S. Labor Department said the producer index, or PPI, fell 0.1% in August from the previous month, matching estimates. Wholesale inflation rose 8.7% from a year ago, down from July’s 9.8% increase and in line with Econoday estimates.

On Tuesday, CPI inflation fell to 8.3%, retreating from July’s 8.5% and June’s 9.1% rates, amid falling gas prices. The consumer price index rose 0.1 per cent in the month. But Wall Street economists had expected the CPI to show a monthly decline of 0.1%, bringing CPI inflation down to 8%. Even worse, core inflation accelerated more than expected, to 6.3%.

As a result, markets now believe there is a 38% chance of a full percentage point hike at the Federal Reserve’s next meeting. Before Tuesday, Wall Street wasn’t betting on that possibility at all.

Meanwhile, the leader in electric vehicles Tesla (TSLA) traded up 2% on Wednesday. Among the Dow Jones industrials, tech titans apple (AAPL) and Microsoft (MSFT) was higher after today’s market opening. Merck (MRK) rose 0.7% after Berenberg upgraded the stock to buy.

In the current market volatility, Arista Networks (A WEB), DoubleVerify (DV), Palo Alto Networks (PANW) and Clean storage (PSTG) — as well as the Dow Jones stock Chevron (CVX) — is among the best stocks to buy and watch. Remember, the market’s increased volatility is a good reason for investors to be more defensive, especially after Tuesday’s market plunge.

DoubleVerify is an IBD Leaderboard stock. Chevron and Palo Alto were featured in this week’s Stocks Near a Buy Zone column.

Dow Jones today: Treasury yields, oil prices

After Wednesday’s open, the Dow Jones Industrial Average turned 0.25% lower after giving up early gains, while the S&P 500 slipped 0.2%. The tech-heavy Nasdaq composite lost 0.1% in morning action.

Among exchange-traded funds, Nasdaq 100 tracker Invesco QQQ Trust ( QQQ ) was down 0.1%, and the SPDR S&P 500 ETF ( SPY ) lost 0.2% in early trade.

The 10-year government yield ticked up to 3.43% on Wednesday morning. On Tuesday, the 10-year Treasury yield hit its highest closing level since June 14 and is just shy of the 11-year high of 3.48% set on June 14.

US oil prices edged lower on Wednesday as they continue to consolidate after recent gains. West Texas Intermediate futures traded back below $87 a barrel.

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Stock market rally under pressure

On Tuesday, all three major stock indexes fell below their 50-day moving averages, leading to a return trip to September 6 lows. The Dow Jones Industrial Average fell 3.9%, while the Nasdaq plunged 5.2%.

Ahead of the inflation report, Tuesday’s The Big Picture column commented: “It’s best to stay out of the market at this time. Consider your current holdings. If you have some names that are profitable and holding above short-term support levels, it’s OK to hold.” In the Leaderboard portfolio, for example, we still hold Invesco Solar (TAN) because it is slightly above our entry and holding above the converged 10- and 21-day lines.”

The best way to find emerging leadership in the stock market is by using the relative strength line. The RS line measures a share’s price development vs. S&P 500. If the stock outperforms the broader market, the RS line angles upward. If a stock lags the broad market, the line will point lower.

The RS line is plotted on all IBD and MarketSmith charts. In addition, the IBD Stock Screener includes a list of top-rated stocks with relative strength lines at new highs. MarketSmith also has the “RS Blue Line Dot” list, which looks for RS lines with new highs. (IBD MarketSmith provides free access for a full week.)

If you are new to IBD, consider taking a look at the stock trading system and CAN SLIM basics. Recognizing chart patterns is a key to investment guidelines. IBD offers a wide variety of growth stock lists, such as Leaderboard and SwingTrader.

Investors can also create watch lists, find companies nearing a buy point, or develop custom screens at IBD MarketSmith.

Five Dow Jones stocks to watch now

Dow Jones stocks to watch: Chevron

Dow Jones stock Chevron fell 1.9% on Tuesday but remains above support at its key 50-day line. The stock is nearing its latest buy point of 166.93 — according to IBD MarketSmith chart analysis — amid a strong run by energy stocks so far this year. The stock rose 1% early Wednesday.

CVX stock scores a strong 97 out of a perfect 99 IBD Composite Rating, according to IBD Stock Checkup. Investors can use the IBD Composite Rating to easily measure the quality of a stock’s fundamental and technical metrics.

3 top growth stocks to buy and watch nowra stock market rally

Top stocks to watch: Arista, DoubleVerify, Palo Alto Networks, Pure Storage

Arista Networks has added a handle to a double-bottom base, placing the correct entry at 132.97, according to IBD MarketSmith chart analysis. Arista’s relative strength line is near highs. ANET shares rose 0.1% early Wednesday.

IBD Leaderboard stock DoubleVerify holds above a buy point of 28.07 in a bottom base. Shares are in the 5% buy zone which goes up to 29.47. The DV share fell 0.1 percent on Wednesday morning.

Cybersecurity leader Palo Alto Networks is nearing a 578.89 buy point in a cup with handles despite Tuesday’s 3.4% drop. An early entry around 560 is also in play due to a trendline, according to IBD Leaderboard commentary. The share rose 0.5 percent on Wednesday.

Pure Storage is approaching a 31.62 buy point in a cup with handle. Meanwhile, an early entry is also in play after the stock moved above a downtrend within that handle. The stock fell 0.3 percent on Wednesday.

Join IBD experts as they analyze leading stocks in the current stock market rally on IBD Live

Tesla shares

Tesla shares fell 4% on Tuesday, snapping a five-day winning streak. Shares gave up their 200-day line, which they had just regained. The electric car giant rose 2% on Wednesday morning.

Shares are about 30% off their 52-week high.

Dow Jones Leaders: Apple, Microsoft

Among the Dow Jones stocks, Apple shares tumbled 5.9% on Tuesday, falling back below the 50- and 200-day lines. The stock is about 14% away from a cup-with-handle buy point of 176.25. Apple shares rose 0.3 percent on Wednesday.

Microsoft fell 5.5% on Tuesday, ending a four-day winning streak. The software giant is staying sharply below its 50- and 200-day lines. Shares are about 28% off their 52-week high. Microsoft shares rose 0.1 percent on Wednesday morning.

Be sure to follow Scott Lehtonen on Twitter at @IBD_SLehtonen for more on growth stocks and the Dow Jones Industrial Average.

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