Dow Jones futures tilted lower overnight, along with S&P 500 futures and Nasdaq futures, with the jobs report on tap Friday morning. The stock market plunged Thursday, wiping out Wednesday’s big gains as the 10-year Treasury yield surged above 3% in a second-day reaction to the Fed meeting.
The Dow Jones tumbled more than 1,000 points while the Nasdaq dived to its lowest levels since 2020, ending its short-lived rally attempt. The market rally attempts are still alive, barely, on the S&P 500 and Dow.
Investors who had tiptoed into the new stock market rally attempt may want to scale back.
Vertex Pharmaceuticals (VRTX) reported mixed earnings late Thursday. VRTX stock closed at the edge of a buy zone after testing support at its 50-day line earlier in the week. Boise Cascade (BCC) is worth watching, trading near a buy point with earnings due Friday morning.
Dow Jones Futures Today
Dow Jones futures fell 0.2% vs. fair value. S&P 500 futures dipped 0.15%. Nasdaq 100 futures edged lower.
The 10-year Treasury yield fell 3 basis points to 3.04%.
The Labor Department will release the April jobs report at 8:30 a.m. ET. Economists expect nonfarm payrolls to rise by 400,000 with the unemployment rate holding at 3.6%. Wages are expected to jump 5.5% vs. a year earlier, slightly below March’s pace and not keeping up with inflation.
Stock Market Rally
The stock market rally sold off throughout the session, closing with huge losses after Wednesday’s encouraging advance.
The Dow Jones Industrial Average fell 1,063 points, or 3.1%, in Thursday’s stock market trading. The S&P 500 index tumbled 3.6%. The Nasdaq composite dived 5%. The small-cap Russell 2000 lost 4%.
Apple stock tumbled 5.6% to 156.77, back below its 50-day and 200-day lines. AAPL stock flashed an early buy signal Wednesday as it reclaimed its 50-day line and nudged past a short trendline.
Tesla stock plunged 8.3% to 873.28, also back below its 50-day and 200-day line. CEO Elon Musk lined up some financing to help with his Twitter takeover, but he’s also going to be Twitter (TWTR) CEO temporarily when he takes over. Those are mixed messages for Tesla and, for TSLA stock, the market sell-off was real driver Thursday.
Treasury Yields Soar
The 10-year Treasury yield vaulted 15 basis points to 3.07%, the highest point since late 2018. The yield is closing in on an 11-year high of 3.25%.
On Wednesday, the 10-year yield fell modestly as Fed chief Jerome Powell said policymakers weren’t actively considering 75-basis-point hikes at the June and July meeting. But the Fed is still being aggressive. The Fed hiked rates by a half point on Wednesday and will likely do so at the next two meetings.
U.S. crude oil prices edged up 0.4% to $108.26 a barrel, cooling from an intraday move above $110 as the stock market sold off. OPEC+ agreed to another small production hike.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) slumped 3.2%, while the Innovator IBD Breakout Opportunities ETF (BOUT) gave up 3%. The iShares Expanded Tech-Software Sector ETF (IGV) sold off 5.75%. The VanEck Vectors Semiconductor ETF (SMH) tumbled 5.75%.
SPDR S&P Metals & Mining ETF (XME) skidded 5.3% and the Global X U.S. Infrastructure Development ETF (PAVE) retreated 4%. U.S. Global Jets ETF (JETS) descended 3.5%. SPDR S&P Homebuilders ETF (XHB) sank 4.9%. The Energy Select SPDR ETF (XLE) fell 1.5% and the Financial Select SPDR ETF (XLF) ceded 2.9%. The Health Care Select Sector SPDR Fund (XLV) lost 1.9%, with MRK stock a key holding.
Vertex earnings fell short of views, though sales narrowly topped. VRTX stock declined 2% in overnight action. Shares closed down 2.7% to 266.37, just pulling back into range from a 255.03 buy point, according to MarketSmith analysis. Vertex stock had tested that buy point at the 50-day line on Monday.
Boise Cascade Stock
Boise Cascade stock sank 4% on Thursday to 81.67, back below an 82.20 handle buy point. The relative strength line, the blue line in the charts provided, is already at a new high. The wood products firm reports earnings Friday morning. Louisiana-Pacific (LPX) surged Tuesday-Wednesday on strong earnings, blowing past a trendline entry. Weyerhaeuser (WY) has had huge daily swings near a buy point, but recent weekly action has been tight.
Albemarle stock gapped up 9.8% Thursday to 236.50, reclaiming its 200-day line on booming earnings and sharply raised guidance. That came a day after it rallied 9.3% on similar news from rival lithium play Livent (LTHM). Ideally, ALB stock would consolidate for a few days above the 200-day line and form a handle, then break above resistance near 248. The RS line is rebounding, hitting a 2022 high.
LTHM stock also is showing somewhat similar chart action, while Piedmont Lithium (PLL) is worth watching.
Northop stock rose 0.9% to 466.66 on Thursday, continuing to rebound from the 50-day moving average and testing a trendline. Those offered early entries. NOC stock has an official 477.36 buy point from a cup-with-handle base. The RS line is at a 23-month high on a weekly chart.
Pioneer Natural Resources reported surging earnings and sales growth Wednesday night. PXD stock climbed 1.5% to 256.48 on Thursday, its fourth straight gain. Shares nearly eclipsed the March 30 high of 260. If it can hold in its current range, PXD stock would have a proper base after Friday with a 260.10 buy point. Investors could buy PXD stock off the 50-day line now. The RS line is already at a new high.
On April 28, Merck stock jumped nearly 5% on earnings, flashing an early entry in its cup-with-handle base. The next day, MRK stock flirted with the official 89.58 buy point before backing off. The Dow Jones drug giant has backed off, but only slightly.
Merck stock fell 0.6% to 88.01 on Thursday. The RS line for MRK stock is right at 52-week highs.
Market Rally Analysis
The stock market rally attempt suffered stunning losses Thursday. The major indexes wiped out Wednesday’s big gains and then some, with the Nasdaq diving once again to its worst levels since 2020.
Treasury yields fell Wednesday after the Fed rate hike and guidance, then they skyrocketed Thursday in a delayed reaction.
The bond market has been calling the shots on Wall Street. Surging Treasury yields are a major headwind for stocks, especially growth. With the Fed moving aggressively and not concerned with propping up share prices, the stock market could struggle until there are clear signs that inflation is coming down substantially. That could take some time.
Don’t get too excited if Treasury yields tumble for a day or two. That’s happened a number of times in the past few months, but the 10-year yield has still nearly doubled over the past two months.
The market rally attempt is over for the Nasdaq, but it’s still ongoing for the S&P 500 and Dow Jones for now. So there could be a follow-through day as soon as Friday.
Sectors To Watch
Energy and other commodity plays such as fertilizer are holding up relatively well, though many fell modestly to sharply on Thursday. Lithium and wood products firms such as ALB stock and Boise Cascade also are looking interesting. Northrop and other defense stocks are holding up well. Vertex, Merck and Eli Lilly (LLY) are around buy zones, while health insurers continue to do well.
Growth stocks, which had such nice moves on Wednesday, gave all that up and much more Thursday. While this article highlighted Apple stock and Tesla, they still look better than other megacaps and growth stocks generally.
What To Do Now
If you bought stocks or ETFs on Wednesday’s big bounce, you probably should have exited those new positions on Thursday.
Technically, the market could still stage a follow-through day. But the Nasdaq bear market appears to be starting another leg down.
Cash is still a leading position in 2022.
Keep working on those watchlists. Running through screens and updating watchlists isn’t the most exciting part of investing, but it’s one of the most important. You don’t know when the market will be ready. But if you’re ready to act when a market rally gains steam, you can jump on board the best stocks at the start of big runs.
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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