Dow Jones futures fell slightly overnight along with S&P 500 futures and Nasdaq futures. The attempted rally in the stock market made progress on Thursday, especially on the Nasdaq, amid some hints that inflation is peaking.
But those hints of inflation spikes included falling copper and other commodity prices, which also reflect rising recession risks. Commodity-related stocks were hit hard on Thursday.
Vertex Pharmaceuticals (VRTX), UnitedHealth (UNH), Service now (Now and Tesla (TSLA) rivals BYD (SHALL) Li Auto (LI) are worth checking out, albeit for different reasons. VRTX shares and Li Auto cleared buying points on Thursday, while BYD shares nearly did. UNH stocks are nearing a breakout. ServiceNow is still a long way from old highs, but it has taken a positive step.
Shares Vertex and Li Auto are on the IBD 50. UnitedHealth was Thursday’s IBD share of the day.
After the closing, FedEx (FDX) reported fourth-quarter fiscal and earnings that just missed analyst opinions for the shipping giant. But FedEx increased earnings per share for the full year.
FDX shares rose modestly in overnight trading. Shares fell 0.4% to 228.13 on Thursday, meeting resistance near their 200-day moving average for the past few days. FedEx stocks are off their early May lows but are in a long downtrend.
Dow Jones Futures Today
Dow Jones futures fell 0.3% from fair value. S&P 500 futures fell 0.3% and Nasdaq 100 futures fell 0.3%.
Keep in mind that an overnight action in Dow futures and elsewhere does not necessarily lead to actual trading in the next regular trading session.
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stock market rally
The attempted rally in the stock market faltered again throughout the day, but major indices eventually closed close to 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 was up 1.6%. The small cap Russell 2000 rose 1.1%.
The price of crude oil in the US fell 1.8% to $104.27 a barrel, marking a rapid decline.
The copper price fell more than 5% to a new low in 16 months. Other metal futures and crop prices also lost ground. That’s a sign of slower economic growth and perhaps a spike in inflation.
10-year Treasury yields fell 9 basis points to 3.07% after falling 15 basis points on Wednesday amid mounting fears of a recession. The benchmark return has fallen sharply since hitting an 11-year high of 3.48% on June 16.
Markets are pricing in slightly less tightening towards the end of the year than before Fed chief Jerome Powell testified before the Senate Banking Committee on Wednesday, followed by the House Financial Services Committee on Thursday. Investors are still overwhelmingly anticipating another 75 basis point rate hike at the Fed meeting in late July. Those odds were bolstered on Thursday when Fed Governor Michelle Bowman said she favors such a move in July, followed by 50-point increases in subsequent meetings.
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Among the top ETFs, the Innovator IBD 50 ETF (FFTY) lost 2.35%, while the Innovator IBD Breakout Opportunities ETF (BOUT) lost 1.3%. The iShares Expanded Tech-Software Sector ETF (IGV) was up 3.6%, with ServiceNow shares a notable position. The VanEck Vectors Semiconductor ETF (SMH) fell 0.5%.
SPDR S&P Metals & Mining ETF (XME) fell 3.7%, continuing a sharp sell-off. The Global X US Infrastructure Development ETF (PAVE) fell 0.7%. US Global Jets ETF (JETS) fell nearly 1%. SPDR S&P Homebuilders ETF (XHB) shot up 3.6%. The Energy Select SPDR ETF (XLE) fell 3.7% and the Financial Select SPDR ETF (XLF) fell 0.4%. The Health Care Select Sector SPDR Fund (XLV) gained 2.4%
As a result of more speculative story stocks, ARK Innovation ETF (ARKK) was up 7.1% and ARK Genomics ETF (ARKG) was up 8.3%. Tesla stocks remain a top spot in Ark Invest’s ETFs. Ark also owns a small stake in BYD stock.
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Stocks to watch
Vertex shares were up 4.1% to 283.50, erasing an entry of 279.23 and a declining trendline. But the shares have risen 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 stocks is high. The RS line, the blue line in the charts provided, tracks a stock’s performance against the S&P 500 index.
Other drug and biotech stocks that are strong include: Eli Lilly (LLY), Bristol Myers Squibb (BMY) and Harmony Biosciences (HRMI).
UNH shares climbed 2.1% to 499.81, just above the 50-day line. UnitedHealth shares are in a double bottom base with a buy point of 507.35. Shares regained their 50-day line on Tuesday, starting with three gains in above-average volume. The RS line for UNH stocks is at a new high. In the meantime, hundreds (CNC), human (HUM) and some other health insurers are showing some strength.
Li Auto shares rose 6.6% to 39.24 on Thursday, hitting a buy point of 37.55 after a long, very deep consolidation. But LI shares have more than doubled since early May. The shares are 54% above their 50-day moving average. Investors should probably wait for Li Auto stocks to pause and form a shelf or new compact base.
Li Auto unveiled the high-end L9 SUV hybrid on Tuesday, with the automaker anticipating booming sales after deliveries begin in August. The Chinese government is also giving stronger signals that it will extend some EV subsidies beyond 2022.
BYD shares climbed 3.15% to 39.50, nearly breaking a buy point of 39.81 from a 48% deep cup-with-handle base. Ideally, the EV giant would form a longer handle and the major indexes are catching up. BYD should also benefit from EV subsidies and will begin shipping several new models in the coming months.
TSLA shares fell 0.4% to 705.21, falling back from the 21-day moving average. Tesla should also get a boost from expanded Chinese EV subsidies. But CEO Elon Musk said in a May 31 interview that it was released late Wednesday that the new Tesla plants in Austin and Berlin are losing billions of dollars.
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ServiceNow stocks, such as Tesla, have not fallen below May lows so far in June. On Thursday, NOW stock rose 5.9% to 485.53, surpassing the 21 and 50 day moving averages. ServiceNow is up 9.5% so far this week, but that gain is below average.
ServiceNow is far from being executable. Perhaps it will bottom out, although it is well below the 200 day mark. Still, it’s good to see a large growth leader showing signs of life. The RS line for NOW stocks is at its best level since late March.
Market rally analysis
Major indices swung up and down again intraday, but on Thursday the major indices closed with decent to strong gains.
Thursday was day four of a rally attempt for the S&P 500 and Nasdaq composite and day three for the Dow Jones.
The Nasdaq posted strong gains, while volume increased slightly from the previous session.
Still, put Thursday’s action into context. The Nasdaq’s gains have not really stood out amid the major price movements of recent weeks and months. The composite closed above its 10-day moving average – the Maginot resistance line – the tech-heavy index is still below its 21-day line, with the 50-day and 200-day averages much higher.
Bearish, confusing headwind
Meanwhile, macroeconomic conditions are decidedly bearish and in flux.
Powell reiterated in his two-day congressional testimony that policymakers will be aggressive in fighting inflation. While a recession is not “inevitable”, he stressed that a soft landing will be difficult.
Markets will struggle to recover as the Fed aggressively raises interest rates. But the Fed won’t budge until inflation is under control, which it probably won’t until the economy slows dramatically or enters recession.
Needless to say, the aggressive Fed, high inflation and recession risks are not an attractive word for bulls.
Market action mixed
While the key averages came in higher, there are some big losers below the surface, as sector ETFs showed. Fears of a recession are putting pressure on oil and other commodity prices, while energy stocks, miners and fertilizer producers are selling hard.
Many of Thursday’s winners were beat-up techies like NOW stocks and Ark-type names. But these are not executable. And as fast as they bounce, they could fall even faster if the market returns to recent lows.
Drug stocks and some health insurers look strong, including Vertex and UnitedHealth. Medicals are defensive growth names that should do relatively well in tougher economic times.
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What to do now
The market rally is showing some positive action, although there are plenty of caveats. If you’re going off the sidelines, start with minimal buys and gradually increase exposure as the market continues to perform well.
While some drug and medical stocks look interesting, or even give flashy buy signals, such as Vertex, not many quality stocks are in position or set up. Buying a broad-market ETF is one way to gain exposure.
Be ready to pull out quickly when sales resume.
Build your watchlists. Look for stocks that are building, as well as names that have strong relative strength but need time to fix their charts.
Read The Big Picture every day to stay informed about market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock updates and more.
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