Dow futures fell after hours, as did S&P 500 futures and Nasdaq futures. AMD led key earnings reports after the close, with the Fed rate decision looming on Wednesday.
The stock market rally suffered strong losses on Tuesday, as major indexes pulled back from their near 2023 highs, although they found support.
Banks were sold – in particular regionals like Backwest Bancorp (Baku), Western Alliance Bancorp (WAL) and Comerica (CMA) – As investors fear more bank failures in the wake of a collapse, they sell First Republic Bank (FRC) to c. B. Morgan Chase (JPM).
Energy stocks fell along with crude oil prices.
Arista Networks ANET has become another big profit loser, in a bad sign of tech hardware.
advanced micro devices (AMD), Super microcomputer (SMCI), Levent (LTHM) f Starbucks (SBUX) reported late Tuesday. AMD and SBUX stocks fell strongly while SMCI and Livent stocks jumped.
wing stop (wing) f Yum Brands (YUM) on tap early Wednesday.
SMCI and AMD stock are in IBD 50. AMD and ANET stock are in IBD Big Cap 20.
Dow jones futures today
Dow Jones futures lost a fraction of their fair value. S&P 500 futures were down and Nasdaq 100 futures were down 0.1%. AMD stock is a prominent component of Nasdaq.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
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Federal interest rate decision
The Federal Reserve is closing in on raising interest rates at 2pm EST on Wednesday, even as the banking crisis looms, driven largely by the Fed’s rapid tightening that’s far from over. A quarter-point move would raise the fed funds rate to 5%-5.25%. The real question is what does the Fed and Fed Chair Jerome Powell’s meeting statement say about the way forward on monetary policy. Markets are currently expecting the Fed to stall. But Powell is likely to want to keep the Fed flexible as inflation stubbornly rises.
Banking stocks fell on Tuesday, rallying from strong to sharp losses on Monday, although they have rebounded from intraday lows. PACW fell 28%, setting a new record close. WAL stock fell 15%.
Superregionals also declined. Comerica stock sank 12%, KeyCorp (KEY) lost 9.4% and the truth (TFC) shares fell 7.6%. PNC Financial Services (PNC) fell 2.3% and hit a new multi-year closing low.
Charles Schwab (SCHW) shed 3.3%. Banking giants have also suffered. American bank (BAC) f Wells Fargo (WFC) lost 3% and 3.8% respectively, not at recent lows but not far off either. Shares of JPMorgan, which was courting Monday a deal to buy First Republic, fell 1.6%.
Clearly, the failure and sale of the First Republic did not spell the end of banking concerns. PacWest last week revealed stable deposits, but they are among the bank stocks hit hardest this week.
Investors fear more bank failures that leave them with nothing. That could become a self-fulfilling prophecy, as falling bank stocks motivate people to withdraw deposits at a faster rate. While regulators have made it clear that they will protect all deposits, it only takes a few clicks to transfer money to a “secure” bank.
In the long run, the profitability of banks and stocks may struggle. Regional banks in particular are likely to pay more money for deposits or financing, which limits profitability, both in absolute and relative terms versus behemoths like JPMorgan. Meanwhile, the FDIC would end up charging banks, especially the giants, exorbitant fees to cover the cost of continued failures.
The Financial Select SPDR ETF (XLF) — which is dominated by financial giants such as JPM, BofA and Wells Fargo — lost 2.3%. The SPDR S&P Regional Banking ETF (KRE) — which owns shares of PACW, Western Alliance, Comerica and several others — fell 6.3% to a 30-month low.
AMD stock fell in after-hours trading, indicating a sharp move below the 50-day line. AMD’s earnings topped views, but the chip giant’s second-quarter revenue and gross margin guidance fell short of the midstream consensus. “The demand environment is mixed,” said CEO Lisa Su. Shares rose 0.25% to 89.91 in Tuesday’s regular session. AMD stock found support at the 50-day line, near a previous buy point. The upward movement from current levels presents a buying opportunity.
SMCI stock jumped overnight after Super Micro’s earnings plunged, but the server maker guided its fiscal fourth quarter. Shares fell 0.65% on Tuesday. SMCI stock fell last week as the server maker issued weak preliminary results, mostly due to component shortages. But stocks are back above the 50-day line in a chaotic range since late March.
LTHM stock jumped in extended action after the lithium producer comfortably beat opinions and lifted guidance for the full year. Livent stock rose 0.6% to 21.02 on Tuesday, below its major moving averages. Albemarle (ALB), which comes out on Wednesday, is more vulnerable to lower spot lithium prices. ALB stock rose a little late.
SBUX stock fell strongly, even though Starbucks earnings outpaced views of strong store sales around the world. Shares fell 0.1% on Tuesday to 114.46, extending a long range of 110.93 fundamental buy points, according to MarketSmith analysis. But SBUX stock could test the buy point on Wednesday.
WING stock rose 0.3% on Tuesday, also staying in a buy range. YUM stock rose 0.5% and extended slightly.
Stock market rise
The stock market opened higher and losses accelerated into late morning. Then the major indices trimmed losses to some extent.
The Dow Jones Industrial Average fell 1.1% in stock market trading Tuesday. The S&P 500 fell 1.2%. The Nasdaq Composite fell 1.1%. Russell 2000 junior stock fell 2.1%.
US crude oil prices fell 5.3% to $71.66 a barrel.
The 10-year Treasury yield fell nearly 14 basis points, to 3.44%. The two-year Treasury plunged 16 basis points, to 3.98%. But the rate of three-month treasury bills rose to 5.24%.
Exchange Traded Funds
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) fell 2.2%, losing some big new earnings. The Innovator IBD Breakout Opportunity Index (BOUT) fell 0.85%. The iShares Expanded Tech-Software ETF (IGV) lost 1.4%. The VanEck Vectors Semiconductor Index (SMH) fell 0.9%. AMD stock is a big SMH property.
Reflecting stocks with speculative stories, ARK Innovation ETF (ARKK) was down 2.35% and ARK Genomics (ARKG) was down 3.2%.
The SPDR S&P Metals & Mining ETF (XME) was down 0.2%. American Global Jets (JETS) fell 0.8%. SPDR S&P Homebuilders (XHB) declined 0.4%. The Energy Select SPDR ETF (XLE) was down 4.35% and the SPDR Healthcare Sector Selection Fund (XLV) was down 0.4%.
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Market rally analysis
The stock market rally hit resistance at the 2023 highs, and sold off heavily on the day, although it did pull back from the lows. Banking stocks were the biggest movers, but energy plays were big losers as well. Arista Networks (ANET) has become the latest leading stock near the tank buy point on the results.
The Nasdaq Composite, with not much exposure to the financials or energy sector, found support at the 21-day moving average. The Nasdaq 100, which includes the 100 largest non-financial stocks on the Nasdaq, fell just 0.9%.
The S&P 500 and Dow Jones also found support at the 21-day line.
The Russell 2000 Index fell to its worst level since its 2023 low on March 24.
The stock market rally is still under pressure. Major indices are struggling to break above their 2023 highs. It’s not terrible, but the indices look better than the broader market.
The market breadth was nasty on Tuesday, as the slight rally late last week seemed to be just a blip.
The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) fell 1.2%, pulling back from its 50-day line. The Invesco S&P 500 Equivalent ETF (RSP) fell 1.5%, below the 50-day level and ending just below the 200-day line.
Restaurants are looking strong — including Wingstop, Starbucks and Yum Brands — as they headline their earnings reports.
Pharmaceutical makers and biotech giants do well alongside medical products. It’s a good time for defensive and defensive growth names.
The hotels look interesting, though Marriott International (March) Earnings break out on Tuesday. Several other hotels will open this week, along with a leading travel company Reservation holdings (BKNG).
Gold stocks are doing well, but this is not usually a good sign for the market or the economy in general.
But market leadership is narrow.
The chips have been struggling over the past month out nvidia (NVDA). The overnight slide of AMD stock indicates further weakness in the chips.
The fact that the Federal Reserve has continued to raise interest rates during a banking crisis amid already slowing economic growth shows how cornered policymakers are. Powell knows that banking problems are a warning sign for the financial system and the economy, but fears stopping inflation will ultimately be worse.
Obviously, the market’s reaction to the Fed meeting on Wednesday will be important. naturally, apple (AAPL) earnings due Thursday night, with the April jobs report due on Friday.
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What are you doing now
It’s not a great environment for adding exposure. Just when the market’s rally begins to hint at gaining momentum and widening, the indexes pull back, with huge losses in many individual stocks due to earnings and sector rotation.
Investors in the right stocks could make good money in 2023. Even then, it was often important to know when to take partial or full profits.
A cash-heavy stance is the wise choice, especially heading into the Fed rate decision and other important news. Investors need to be flexible. A few good days can send the market to new highs and unleash a number of buying opportunities. A few bad days could signal a rush to the sidelines.
So keep your watchlists up to date and your exit strategies at the ready.
Read the big picture every day to stay in sync with market trend, leading stocks and sectors.
Please follow Ed Carson on Twitter at @tweet For stock market updates and more.
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