The Dow Jones futures, S&P 500 futures, and Nasdaq futures were not affected by the hours. CrowdStrike (CRWD), rallied on earnings, while AI play SoundHound tumbled.
After Fed chief Jerome Powell stated that policymakers are ready to "increase the pace of rate increases," serious losses were suffered by the stock market rally. S&P 500 smashed its 21-day moving mean and cut its 50-day line.
Although Tesla (TSLA's) stock fell below a critical level, this could still be a positive action. Tech giants Apple (AAPL), Microsoft(MSFT), and Google parent Alphabet [GOOGL], which were modest winners Monday night, lost those gains Tuesday.
While many leaders were able to hold their own, others suffered more. Delta Air Lines (DAL), New Relics (NEWR), and Canadian Solar (CSIQ), flirted with buy signals, as their respective groups did well.
Investors should be cautious with new purchases in the short-term and may want to reduce their overall exposure.
This video discusses Tuesday's market action. It also analyzes DAL stock, Canadian Solar, and Freeport McMoRan.
DAL stock is listed on the IBD Big Cap 20. IBD Stock Of The Day Tuesday: New Relic
Fed Chief Powell
Fed chief Jerome Powell stated that "the ultimate rate is likely to rise more than anticipated" citing stronger economic data. The Fed's late 2022 forecast of a peak rate of 5.1% in the latter part of 2022 was already being criticized by markets.
Powell indicated that he is open to increasing Fed rate increases. We would consider increasing the rate of hikes if the data indicated that tightening was warranted faster.
This puts additional pressure on Friday's February employment report and next week's CPI inflation reports.
The chances of a Fed rate increase by 50 basis points on March 22 rose to 70.5% from 31% Monday and 24% one week earlier.
CrowdStrike's earnings beat was a strong win for CRWD and the cybersecurity company gave positive guidance. CRWD stock rose solidly. CrowdStrike stock dropped 2.1% to 124.93 in Tuesday's session. This is a sharp increase over the past two month, but still below the 200-day mark. Okta (OKTA), Palo Alto Networks, (PANW), and Fortinet(FTNT) are looking better.
The AI company provided in-line revenue guidance through 2023. SOUN stock rose by 2.15% to 3.33 Tuesday. SoundHound stock has a 5.04 buypoint from a consolidation that is mostly above the 200-day mark.
Dow Jones Futures Today
Dow Jones futures rose only a fraction of fair value. Futures of the S&P 500 were flat, while those for Nasdaq 100 were tilted higher.
The ADP Employment Report will be available to investors at 8:15 AM. ET provides an estimate of private payrolls for February. However, the ADP report is not able to forecast the Labor Department's jobs report. Friday is the due date for the February jobs report.
At 10 a.m., the JOLTS survey will be available. ET will announce job openings starting in January.
Do not forget that Dow futures stock exchange session is subject to overnight action.
Stock Market Rally
Stock market rallies started Tuesday slightly higher but dropped sharply after Fed chief Powell's hawkish testimony of 10 a.m. ET.
In Tuesday's stock exchange trading, the Dow Jones Industrial Average fell 1.7%. S&P 500 index fell 1.5%. The Nasdaq composite lost 1.25%. Russell 2000, a small-cap stock, retreated 1.2%
Apple stock dropped 1.45%, effectively erasing Monday’s gains. Intraday Monday saw AAPL stock reach 156.30. This was close to a handle buy point. Microsoft lost 1.1%, surpassing Monday's 0.6% gain. The Dow Jones, S&P 500, and Nasdaq components are responsible for Apple and Microsoft stock.
S&P 500 and Nasdaq giant GOOGL stocks fell 1.4% to their 50-day lines.
In fact, the 10-year Treasury yield fell 1 basis point at 3.97%. However, yields rose for shorter-term Treasurys that are closer to Fed policy. The 2-year yield jumped 12 basis points to 5.01%. The 6-month T-bill yield jumped 17 basis points to 5.299%.
The U.S. dollar rose on Powell's hawkish testimony, and generally higher Treasury yields. It reached its highest point since November.
U.S. crude oil prices dropped 3.6% to $77.58 per barrel. Concerns about Fed rate hikes, the stronger dollar, and weaker imports from China weighed down on crude oil prices. Similar reasons led to copper prices falling 2.8%
The Innovator IBD 50 (FFTY), a growth ETF, fell 0.6%. The iShares Expanded Tech Software Sector ETF (IGV), which holds MSFT stock, lost 1.%. VanEck Vectors Semiconductor ETF(SMH) fell 1.2%
Reflecting the more-speculative story stocks, ARK Innovation ETF(ARKK) lost 1.7% and ARK Genomics ETF(ARKG) 1.1%. Ark Invest's ETFs still hold Tesla stock as a significant holding.
Global Jets ETF(JETS) rose 0.65% with DAL stock being a notable holding. SPDR S&P Homesbuilders ETF (XHB), a 1% drop, was reported. The Energy Select SPDR ETF(XLE) fell 1.7%, while the Financial Select SPDR ETF(XLF) dropped 2.6%. The Health Care Select Sector SPDR Fund, XLV, lost 1.6%.
Tesla stock dropped 3.15% to 187.71. This was below its 21-day moving mean and its lowest close in one month. Although Tesla stock has an aggressive buy price of 217.75 investors should wait for a move above the 200 day line. The 200-day line is at 220, with drifting lower. A prolonged pause would bring down the 200-day consolidation line and allow the 50-day line to catch up.
China EV registration data on Tuesday showed that Tesla sales in China rose for the second consecutive week. Despite big price drops, Tesla's China deliveries still look set to decline in the first quarter.
Market Rally Analysis
Stock market rallies did not respond well to Fed chief Jerome Powell’s hawkish statements, and the prospect for faster rate increases and higher rates.
S&P 500 fell below its 21-day moving mean and just undercut its 50 day line. The Nasdaq composite also fell below its 21-day line.
The Dow Jones, which had hit resistance at its 50-day line Monday afternoon, was unable to hold it and fell hard Tuesday.
After a Monday session that was generally negative, Tuesday's losses were a result of Tuesday's declines. The gains of the big-cap indexes were erased that day but they held up fairly well thanks to Apple stock and Google. Losers outnumbered winners almost 2-to-1.
The Russell 2000 fell below its 21-day mark on Monday and sank to just above its 50 day mark on Tuesday. The close of the small-cap index was its most severe since January.
The market has seen a drop in most of the top stocks. Stocks that appeared promising Monday morning have since fallen quite a bit.
On Tuesday, miners like FCX stock fell on the stronger dollar as well as concerns about China's economic health. However, leading stocks have not suffered much damage yet.
DAL stock and the other airline investments look healthy, as do many travel names. CSIQ stock is near a buy point, with many solar names trying to shine. NEWR stock is consolidating well. Tesla stock could benefit from a longer pause but is still performing well.
It's easy to see why the stock market rally is struggling with the near-4% 10-year Treasury yield, the 5% shorter-term rate, and the dollar rising.
Friday's jobs report, next week's CPI inflation data could set expectations for a Fed rate increase of half a point this month. It's not the news that matters, but the market reaction, as Tuesday's selloff demonstrated.
The S&P 500 is just barely holding the 50-day mark and is not far from testing its 200 day once more. Russell 2000 and the Nasdaq could also fall below their major levels. Moving above Monday's intraday peak would be a positive sign and break the short-term trendlines of the S&P 500 Nasdaq, Russell 2000, and Nasdaq.
What to do now?
Negative news can bring down the stock market just as it seems that the rally is gaining momentum. This is a temporary pause in a trading range, or the beginning of something more serious. It would not take much to cause serious weakness or renewed strength.
Investors must be ready and willing to act.
You might be better to wait until more clarity is available before you make any buys. In any case, not many stocks showed new buy signals Tuesday. Investors may be better off reducing or exiting current positions that aren't working.
Keep up the good work on your watchlists. Although the rangebound market can be tricky to navigate, there are many new bases and bullish pullbacks emerging.
To stay on top of market direction, leading stocks, and other sectors, read The Big Picture each day.