Dow Jones rises, technology leads as Fed chief Powell minimizes recession risk
The Dow Jones turned higher on Wednesday, with the S&P 500 and especially the Nasdaq composite in the lead. Federal Reserve chief Jerome Powell told Congress that decision-makers will go aggressive in fighting inflation, but said the US economy is “well positioned” to deal with interest rate hikes. Treasury yields and crude oil prices fell significantly.
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Vertex Pharmaceuticals (VRTX) and Bristol-Myers Squibb (BMY) regained its 50-day lines on Tuesday, while United Therapeutics (UTHR) is in a shopping area. All three pharma shares have relative strengths at peaks.
Meanwhile, Tesla (TSLA) and Google parent Alphabet (GOOGL) are still two megacaps that have not yet undermined their lowest levels by the end of May. It is not market leadership, but it is a nugget of strength.
The UTHR stock is on SwingTrader. Google stock is on IBD Long-Term Leaders. Vertex and BMY stock are on IBD 50 and IBD Big Cap 20.
Fed Chief Powell testifies
Fed chief Powell will testify before the Senate Banking Committee on Wednesday, followed by the House Financial Services Committee on Thursday. The hearing was set to begin at 9:30 a.m. ET, right at the opening bell.
In his prepared remarks, Powell reaffirmed the central bank’s commitment to curbing inflation, which reached a 40-year high in May according to the consumer price index.
“In the Fed, we understand the difficulties that high inflation causes,” Powell said in his comments. “We are strongly committed to bringing inflation down again, and we are moving fast to do so.”
But he said the United States could handle large interest rate hikes and minimize the risk of recession. “The US economy is very strong and well positioned to handle tighter monetary policy.”
On Wednesday, Citigroup sees a 50-50 chance that the US will sink into a recession. The most likely recession will be a mild “garden variant” decline, but there is a risk of “hard landing” and “stagflation”.
The Fed raised interest rates by 75 basis points on 15 June, the largest increase in 28 years. Following the announcement from the Fed meeting, Powell said that decision-makers could raise interest rates by 50 basis points or 75 by the end of July. The markets have almost completely priced in another move of 75 basis points.
Dow Jones today
The Dow Jones rose 0.2% after falling more than 1% just after opening. The S&P 500 rose 0.5 percent. The Nasdaq composition jumped 1 percent.
The US crude oil price fell almost 6%, traded below 103 dollars a barrel and points to crude oil prices against futures against their first monthly decline since November. The oil markets are increasingly concerned about a recession that is dampening oil demand. Meanwhile, President Joe Biden asked Congress to suspend the federal gas tax of 18.4 cents per gallon for three months.
Copper prices fell 3%.
The 10-year government interest rate plunged to 3.16% from Tuesday’s 3.31%.
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Stocks to see
The Vertex stock returned above its 50-day line on Tuesday after a strong move on Friday. The biotechnology giant has a buy point of 292.85, but investors can use 279.23 as an early entry. A downward trend line may provide a slightly lower entry.
Vertex shares rose 1% Wednesday morning.
The BMY stock returned above the 50-day line on Tuesday, which no doubt offered an early entry. The Bristol share is technically a few weeks inside a new base, but is also without a doubt in a consolidation back to the beginning of April. Shares rose Wednesday morning.
The UTHR share jumped 4.3% on Tuesday to 228.84, bounced from the 21-day line and broke a short downtrend. The United Thera share is still in the area from a buy point of 218.48. The UTHR stock fell slightly on Wednesday.
Tesla shares rose 9.3% to 711.11 on Tuesday, just above the 21-day moving average. But it is still below the rapidly falling 50-day line, with the 200-day average well above it. Last week, the TSLA stock fell as low as 626.08, but held above an 11-month low of 620.57 on 24 May. Shares rose 3% on Wednesday.
Google shares rose 4.1% to 2,230.88 on Tuesday, just below the 21-day high. It’s not that far from the rapidly falling 50-day line, but the 200-day line is far away. Last week, the GOOGL stock fell to just over 2,100, modestly above the May 24 low of 2,037.69. Shares rose 1% early Wednesday.
Market Rally Tuesday
The Dow Jones Industrial Average rose 2.15% in Tuesday’s trading session. The S&P 500 index rose 2.45 percent. Nasdaq composition rose 2.5 percent. Small-cap Russell 2000 rose 1.8%.
Tuesday’s strong upturn was pleasant, but the markets have many one-day or short-term upturns in the midst of sharp downtrends. Wednesday’s large decline in Dow futures indicates that the new stock market rally attempt is already having problems.
Provided that the large indices do not undermine last week’s low target, investors can look for a follow-up day to confirm the new rally attempt.
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What to do now
Investors should stay on the sidelines and wait for a confirmed market trend. Even then, investors should be careful. A relative lack of good stocks in a position to buy will probably be one of them.
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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