Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures. The stock market rally attempt made progress Thursday, especially on the Nasdaq, amid some hints that inflation is peaking.
But those inflation-peaking hints included plunging copper and other commodity prices, which also reflect rising recession risks. Commodity-related stocks were hard-hit Thursday.
Vertex Pharmaceuticals (VRTX), UnitedHealth (UNH), ServiceNow (NOW) and Tesla (TSLA) rivals BYD (BYDDF) and Li Auto (LI) are worth watching, though for different reasons. VRTX stock and Li Auto cleared buy points Thursday, while BYD stock nearly did so. UNH stock is near a breakout. ServiceNow is a long way from old highs, but did take a positive step.
In other news, Zendesk (ZEN) is close to a private equity buyout, The Wall Street Journal reported Thursday night. The buyers include Hellman & Friedman and Permira. ZEN stock, which had a $7.1 billion market cap as of Thursday’s close, skyrocketed 53% in overnight trade.
Several cybersecurity buyouts have taken place over the past year.
Meanwhile, Merck (MRK) is ramping up negotiations for a possible Seagen (SGEN) takeover, WSJ reported. SGEN stock rose 2% overnight, after jumping last week on reports of talks. Seagen ended Thursday with a $32 billion valuation.
FDX stock rose modestly in overnight trading. Shares dipped 0.4% to 228.13 on Thursday, hitting resistance at their 200-day moving average in recent days. FedEx stock is off early May lows but has been in a long downtrend.
Dow Jones Futures Today
Dow Jones futures fell 0.2% vs. fair value. S&P 500 futures sank 0.2% and Nasdaq 100 futures retreated 0.1%.
The 10-year Treasury yield rose 3 basis points to 3.1%.
Crude oil prices rose slightly.
Stock Market Rally
The stock market rally attempt wobbled yet again intraday, but the major indexes ultimately closed near session highs.
The Dow Jones Industrial Average rose 0.6% in Thursday’s stock market trading. The S&P 500 index climbed 0.95%. The Nasdaq composite jumped 1.6%. The small-cap Russell 2000 advanced 1.1%.
U.S. crude oil prices retreated 1.8% to $104.27 a barrel, extending a rapid retreat.
Copper prices plunged more than 5% to a fresh 16-month low. Other metal futures and crop prices also lost ground. That’s a sign of slower economic growth and perhaps inflation peaking.
The 10-year Treasury yield sank 9 basis points to 3.07% after tumbling 15 basis points on Wednesday, as recession fears grow. The benchmark yield has fallen sharply since hitting an 11-year high 3.48% on June 16.
Markets are pricing in slightly less tightening by year-end than before Fed chief Jerome Powell testified to the Senate Banking Committee on Wednesday, followed by the House Financial Services Committee on Thursday. Investors still overwhelmingly expect another 75-basis-point rate hike at the late July Fed meeting. Those odds were bolstered Thursday as Fed Gov. Michelle Bowman said she favors such a move in July, followed by 50-point hikes at subsequent meetings.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) gave up 2.35%, while the Innovator IBD Breakout Opportunities ETF (BOUT) retreated 1.3%. The iShares Expanded Tech-Software Sector ETF (IGV) jumped 3.6%, with ServiceNow stock a notable holding. The VanEck Vectors Semiconductor ETF (SMH) dipped 0.5%.
SPDR S&P Metals & Mining ETF (XME) slumped 3.7%, continuing a sharp sell-off. The Global X U.S. Infrastructure Development ETF (PAVE) fell 0.7%. U.S. Global Jets ETF (JETS) descended nearly 1%. SPDR S&P Homebuilders ETF (XHB) popped 3.6%. The Energy Select SPDR ETF (XLE) slumped 3.7% and the Financial Select SPDR ETF (XLF) edged down 0.4%. The Health Care Select Sector SPDR Fund (XLV) gained 2.4%
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) leapt 7.1% and ARK Genomics ETF (ARKG) 8.3%. Tesla stock remains a top holding across Ark Invest’s ETFs. Ark also owns a small BYD stock stake.
Stocks To Watch
Vertex stock rose 4.1% to 283.50, clearing a 279.23 entry as well as a downward-sloping trendline. But shares have rallied sharply since June 14 and especially in the last four days. Ideally, VRTX stock would pause, forming a new handle and buying opportunity. The relative strength line for Vertex stock is at highs. The RS line, the blue line in the charts provided, tracks a stock’s performance vs. the S&P 500 index.
UNH stock climbed 2.1% to 499.81, just above its 50-day line. UnitedHealth stock is in a double-bottom base with a 507.35 buy point. Shares reclaimed their 50-day line on Tuesday, kicking off three gains in above-average volume. The RS line for UNH stock is at a new high. Meanwhile, Centene (CNC), Humana (HUM) and some other health insurers are showing some strength.
Li Auto stock jumped 6.6% to 39.24 on Thursday, clearing a 37.55 buy point from a long, very deep consolidation. But LI stock has more than doubled since early May. Shares are 54% above their 50-day moving average. Investors should likely wait for Li Auto stock to pause, forming a shelf or a new compact base.
Li Auto unveiled the high-end L9 SUV hybrid on Tuesday, with the automaker expecting booming sales after deliveries start in August. Also, China’s government is giving stronger signals that it’ll extend some EV subsidies past 2022.
BYD stock climbed 3.15% to 39.50, nearly crossing a 39.81 buy point from a 48%-deep cup-with-handle base. Ideally, the EV giant would form a longer handle and the major indexes catch up. BYD also should benefit from EV subsidies and will begin deliveries of several new models in the coming months.
TSLA stock dipped 0.4% to 705.21, falling back from the 21-day moving average. Tesla should also get a boost from extended China EV subsidies. But CEO Elon Musk said in a May 31 interview released late Wednesday that the new Tesla plants in Austin and Berlin are losing billions of dollars.
ServiceNow stock, like Tesla, didn’t undercut its May lows so far in June. On Thursday NOW stock rose 5.9% to 485.53, moving above its 21-day and 50-day moving averages. ServiceNow is up 9.5% so far this week, but those gains have come on below-average volume.
ServiceNow isn’t close to being actionable. Perhaps it will form a bottoming base, though it’s well below its 200-day line. Still, it’s good to see a big growth leader show some signs of life. The RS line for NOW stock is at its best level since late March.
Market Rally Analysis
The major indexes once again swung up and down intraday, but on Thursday the major indexes closed with decent-to-strong gains.
Thursday marked day four of a stock market rally attempt for the S&P 500 and Nasdaq composite and day three for the Dow Jones.
The Nasdaq delivered a strong price gain, while volume rose slightly vs. the prior session.
Still, put Thursday’s action in context. The Nasdaq’s gain didn’t really stand out amid the big price moves of recent weeks and months. The composite did close above its 10-day moving average — the Maginot Line of resistance — the tech-heavy index is still below its 21-day line, with the 50-day and 200-day average much higher.
Bearish, Confusing Headwinds
Meanwhile, macroeconomic conditions are decidedly bearish and in flux.
Powell, in his two days of congressional testimony, reiterated that policymakers will be aggressive in fighting inflation. While a recession isn’t “inevitable,” he stressed that a soft landing will be difficult.
Markets will struggle to rally with the Fed raising rates aggressively. But the Fed won’t relent until inflation gets under control, which probably won’t happen until the economy slows dramatically or falls into a recession.
Needless to say, aggressive Fed, high inflation and recession risks are not an appealing word salad for bulls.
Market Action Mixed
While the major averages moved higher, there are some big losers beneath the surface, as the sector ETFs showed. Recession fears are slamming oil and other commodity prices, with energy stocks, miners and fertilizer makers selling off hard.
A lot of Thursday’s winners were beat-up techs like NOW stock and Ark-type names. But these aren’t actionable. And as quickly as they bounce, they can fall even faster if the market heads back toward recent lows.
Drug stocks and some health insurers are looking strong, including Vertex and UnitedHealth. Medicals are defensive growth names that should fare relatively well in tougher economic times.
What To Do Now
The market rally is showing some positive action, though there are plenty of caveats. There’s no real reason to move off the sidelines until a follow-through day confirms a new uptrend.
While some drug and medical stocks are looking interesting, or even flashing buy signals, like Vertex, there aren’t many quality stocks in position or setting up.
Build up your watchlists. Look for stocks setting up but also names that have strong relative strength but need time to repair their charts.
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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