Dow Jones futures fell slightly overnight, as did S&P 500 and Nasdaq futures. Another inflation report, the Producer Price Index, is coming.
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The stock market rally lost ground on Wednesday following a high CPI inflation report. The Nasdaq and S&P 500 found key support, with the biggest stock in the market rally Nvidia (NVDA) bouncing higher.
But Nvidia stock was masking broad-based weakness as small-caps and key ETFs fell below key levels.
Treasury yields soared following the inflation report and weak 10-year Treasury auctions. The minutes of the Fed’s March meeting didn’t have much impact. They show that policymakers want to see more progress on inflation but still expect rate cuts this year.
Markets have anticipated a Fed rate cut for June and July. Investors now expect a first easing in September, but this is not a given. Markets are now starting to price in a low probability that there will be no rate cut in 2024.
In addition to Nvidia shares, chipmaker Nvidia Taiwan Semiconductor (TSM) rose slightly after reporting strong sales, making the right side of a base. A third AI chip stock, recent IPO Astera Laboratories (ALAB), made a strong gain. Nutanix (NTNX), Axone Company (AXONE) and tech giant Dow Microsoft (MSFT) showed strength.
You’re here (TSLA) fell back from near resistance. Stocks are still up for the week.
Nvidia stock is on the rise MII classification And Swing Trader. Microsoft stock is on Long-term leaders in IBD. Axon, Nvidia and Ares shares are on sale MII 50. Nvidia and Axon shares are on sale IBD large cap 20. Nvidia was the one on Wednesday IBD Stock of the Day.
Economic data
The Labor Department will release the March producer price index and weekly jobless claims at 8:30 a.m. ET on Thursday.
Initial jobless claims are expected to fall by 6,000 in the week ended April 6, to 215,000.
Economists expect March’s PPI to rise 0.3% after February’s 0.6% jump. The core PPI, which excludes food and energy, is expected to increase slightly by 0.2% following February’s 0.3% increase. Core PPI inflation is expected to rise to 2.3% from a year earlier, after 1.6% in February. Core PPI inflation is also expected to reach 2.3%, up from 2% previously.
Key elements of the PPI report feed directly into the PCE Core Price Index, the Fed’s preferred inflation report.
Dow Jones Futures Today
Dow Jones futures fell 0.15% from fair value. S&P 500 futures fell 0.15% and Nasdaq 100 futures fell 0.1%.
The yield on the 10-year Treasury fell to 4.54%.
Remember that overnight action Dow Jones Futures and elsewhere does not necessarily translate into real exchanges during the next regular class sotck exchange session.
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Stock market rally
The stock market rally fell sharply on Wednesday due to higher-than-expected CPI inflation data, even as indexes broke out from intraday lows.
The Dow Jones Industrial Average fell 1.1% on Wednesday stock market trading, falling from the 50-day line to a two-month low. The S&P 500 fell 0.95% and the Nasdaq Composite Index fell 0.8%, both falling below the 21-day moving average and testing the 10-week line.
The losers beat the winners on Wednesday. The small-cap Russell 2000 index lost 2.5%, below the 50-day line.
The Invesco S&P 500 Equal Weight ETF (RRSP) fell 1.7%, but found support at the 10-week line. The First Trust Nasdaq 100 Equal-Weighted Index ETF (QQEW) lost 1.6%, falling below the 50-day mark.
Nvidia and other AI names helped mask Wednesday’s weakness. It’s good to see the market’s biggest stocks performing well. However, if Nvidia were to decline, it could trigger a brutal exodus, perhaps fueling the first correction since the market’s recovery began in late October.
On the other hand, banks sold off their higher interest rates, as did homebuilders and some consumer sector leaders.
US crude oil prices rose 1.15% to $86.21 per barrel.
The 10-year Treasury yield jumped 19 basis points to 4.56%, its highest level since mid-November. It was the biggest one-day gain since September 2022. The two-year Treasury yield, more closely aligned with the Fed’s rate outlook, jumped 22 basis points to 4.97%, its highest level since the end of November.
Markets now estimate there is only a 19% chance the Fed will cut rates at the June meeting and only a 45% chance of a cut by the July 31 meeting. Investors expect just two rate cuts in 2023, down from three before the CPI report was released. There is now a 13% chance that there will be no reduction in 2024.
President Biden says he expects the Fed to cut rates before the end of the year.
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Among growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) fell 1.3%. Microsoft is IGV’s No. 1 stock, with Nutanix stock also a member. The VanEck Vectors Semiconductor ETF (SMH) slipped 0.9%, with Nvidia and Taiwan Semi the largest holdings.
Reflecting more speculative stocks, ARK Innovation ETF (ARKK) fell 2.3% and ARK Genomics ETF (ARKG) fell 4.6%. Tesla stock is still a major holding in Ark Invest’s ETFs.
SPDR S&P Metals & Mining ETF (XME) fell 1% while the US Global Jets ETF (JETS) fell by 2.55%. The SPDR S&P Homebuilders ETF (XHB) fell by 2.55%. The Energy Select SPDR ETF (XLE) rose 0.3% and the SPDR Health Care Select Sector Fund (XLIV) fell by 1.2%. The Select Industrial Sector SPDR Fund (XLII) fell 0.85%.
The Financial Select SPDR ETF (XLF) fell 1.5%. The SPDR S&P Regional Bank ETF (KRE) fell by 5%.
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Stocks to watch
Nvidia stock rose 2% to 870.39, rebounding from the 10-week line, hitting resistance at the 21-day line. Stocks are still on track for their third consecutive weekly loss. The company and stock that defines the AI revolution and the AI market rally is poised to have a flat base soon with a buy point of 974. Investors could use a decisive move at -above the 21-day moving average and break a very short trendline as an early entry.
Taiwan Semiconductor shares edged up 0.6% to 146.22, its fourth straight advance from the 21-day line. TSM stock is working on a possible base with a potential buy point of 158.40. Early Wednesday, the foundry giant, which makes chips for Nvidia, Apple (AAPL), Broadcom (AVGO) and many others, reported strong sales in March and the first quarter, fueled by demand for AI semiconductors.
Astera Labs shares jumped 4.3% to 71.31 in outside trading. ALAB stock has a new Basis of IPO with an official buy point of 95.21, but resistance at 75 would provide an earlier entry for this AI network chipset.
Nutanix shares climbed 1.7% to 65.57, rebounding from the 21-day line. The data storage software company is on track to have a 66.99 flat base point of purchase after this week. Investors could use 66.51 as a slightly early entry into NTNX stock.
Axon stock gained 2.25% to 318.26, rebounding from the 21-day line and breaking a very short downtrend. Investors could use this or a near-term high of 321.77 as early buy signals. Taser and body camera maker has an official 325.63 point of purchase from a new flat base, according to MarketSmith Analysis.
Microsoft stock edged down 0.7% to 423.26, but rebounded over 21 days and held above a 420.82 buy point following a short consolidation. MSFT stock could be running in a tight three-week pattern.
Tesla Stock
Tesla stock fell 2.9% to 171.76, off the 10-week moving average where shares hit resistance in 2024. TSLA stock is still up 4.2% for the week, after Elon Musk touted Friday evening the unveiling of a robotaxi on August 8.
Two more analysts cut Tesla profit estimates On Wednesday, it forecast a drop in deliveries in 2024 due to surprisingly weak demand in the first quarter. Tesla will report its first quarter results on April 23, but the focus will be on future growth drivers and whether a robo-taxi will actually be in service in the next few years.
Market Rally Analysis
The S&P 500 and Nasdaq found support on Wednesday, along with a number of leaders. A few leaders, including the largest stock, Nvidia, had strong sessions.
Yet the market rally, already under pressure, suffered significant losses. The Russell 2000 ETF and the equal weight ETFs RSP and QQEW have surpassed key levels.
Even looking at Nasdaq or Nvidia, just because an index or stock finds support for one day – or two, three or five sessions – doesn’t mean it will continue to do so.
Investors may want to avoid making new purchases – except, possibly, swing trades – until the market is clearly strong and not add significant exposure until the Nasdaq breaks out of its sideways trend current.
In the meantime, you may need to cut back on some of your recent purchases. Prepare a release strategy for your different titles.
Keep working on watchlists. The stock market could quickly improve with one or two strong sessions. So look for these emerging bases and pullbacks. Also look for stocks that are simply showing strong values relative strength.
Read The big picture every day to stay in tune with the direction of the market and the main values and sectors.
Please follow Ed Carson on the discussions at @edcarson1971 and X/Twitter on @IBD_ECarson for stock market updates and more.
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