Dow Jones futures edged higher, along with S&P 500 futures and Nasdaq futures, after a tough day for the S&P 500 and the stock market rally. All eyes will be on the October CPI inflation report.
The stock market rally lost ground on Wednesday as the S&P 500 index returned below its 50-day moving average. Possible factors included different election results, Bitcoin’s continued problems, the renewed Chinese blockade and the looming CPI.
Bitcoin fell to fresh two-year lows after Binance, the world’s largest cryptocurrency exchange, announced on Wednesday afternoon that it would not acquire rival FTX.
Megacaps didn’t help. Tesla ( TSLA ) slipped below key levels to a two-year low. Amazon.com ( AMZN ) also set fresh bear market lows. Apple ( AAPL ) had its worst close since June Microsoft (MSFT) and Google Parent Alphabet (GOOGL) fell slightly.
Facebook parent Meta platforms (META) was the exception, bouncing back after announcing job and expense cuts. But the main suppliers fell.
Catalyst Pharmacy (CPRX), Excellent energy (EE), Celsius Holdings (CELH), Rivian (RIVN) and Wynn Resorts (WYNN) reported Wednesday night.
Shares of CPRX rose solidly after hours as Catalyst Pharma beat EPS and revenue numbers. The biotech also reported fourth-quarter sales in line with consensus. Shares of Catalyst fell 5.35% on Wednesday, returning to about before the start.
Shares in CELH rose sharply on the rise in Celsius earnings overnight after the energy drink maker fell to its lowest level since July on Wednesday. Rivian shares recover from mixed Q3 results after falling to four-month low Lucid (LCID) results. EE shares fell slightly in limited trading after Excelerate’s earnings beat views. Shares of Excelerate fell on Wednesday, testing the 50-day line.
Meanwhile, the network company Digi International (DGII) and Tesla China EV rival Nio (NIO) are available early Thursday. Shares of DGII retreated to the 50-day line on Wednesday as it is working on an upside base buy point. Nio shares fell to a two-year closing low as the southern manufacturing hub of Guangzhou announced a Covid lockdown, knocking many Chinese stocks.
CPI Inflation Report
The October consumer price index will be published on Thursday at 8:30 a.m. ET. Economists expect the CPI inflation report to show that prices rose 0.7% from September. Core CPI, which excludes food and energy, should rise by 0.5%.
Annual CPI inflation should decrease to 8% from September’s 8.2%. Core inflation is considered stable at 6.6%.
The Federal Reserve wants to see clear and convincing evidence of slowing inflation before ending rate hikes. Markets are leaning slightly toward a 50 basis point Fed rate hike in December, but a fifth consecutive 75 basis point hike remains a strong possibility. The November employment data and CPI report will be released before the December Fed meeting and announcement.
Dow Jones futures today
Dow Jones futures were up 0.1% versus the real value. S&P 500 futures rose 0.1% and Nasdaq 100 futures added 0.25%.
The 10-year Treasury yield decreased by 6 basis points to 4.09%.
Bitcoin traded just above $16,000, still nearing two-year lows hit Wednesday afternoon.
Remember that overnight action in Dow futures and elsewhere does not necessarily mean actual trading in the next regular stock market session.
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Stock market rally
The stock market rally got off to a mixed start on Wednesday, but then lost ground, especially in the afternoon, to close at session lows.
The Dow Jones Industrial Average fell nearly 2% in stock market trading on Wednesday. The S&P 500 index fell 2.1%. The Nasdaq composite budget fell 2.5%. The small-cap Russell 2000 fell 2.7%.
The 10-year Treasury yield increased by 2 basis points to 4.15%.
The dollar had a strong session after a big drop in three days.
US crude oil prices fell by 3.5% to 85.83 dollars per barrel. Weekly US crude oil inventories rose by the most in a month. Meanwhile, China’s blockade raised concerns about crude oil demand there. US natural gas futures retreated 4.5%.
Bitcoin fell again after Binance’s tentative deal to buy FTX fell apart on Tuesday, and Binance walked away after looking at its rival’s books. “We had hoped to be able to support FTX customers to provide liquidity, but the issues are beyond our control or ability to assist,” Binance said in a statement Wednesday afternoon.
FTX, which earlier this year seemed like a potential savior for struggling cryptocurrency firms, is now on the verge of collapse.
Bitcoin fell to $15,554.48, the worst in two years. On Monday, the first-time cryptocurrency fell below $20,000. Other major cryptocurrencies such as Ethereum also continue to sell off, as do crypto-related stocks.
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) fell 4.2%, while the Innovator IBD Breakout Opportunities ETF (BOUT) lost 1.8%. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell 2.2%, with Microsoft shares a key component. The VanEck Vectors Semiconductor ETF ( SMH ) retreated 2.7%.
Reflecting more speculative stocks, the ARK Innovation ETF ( ARKK ) fell 6.5% and the ARK Genomics ETF ( ARKG ) fell 4.3%. Tesla stock is a large component of the Ark Invest ETF.
The SPDR S&P Metals & Mining ETF ( XME ) fell 5.4% and the Global X US Infrastructure Development ETF ( PAVE ) lost 2.1%. The US Global Jets ETF ( JETS ) was down about 1%. The SPDR S&P Homebuilders ETF ( XHB ) fell 1.75%. The Energy Select SPDR ETF ( XLE ) sold off 4.9%, while the Financial Select SPDR ETF ( XLF ) fell 1.7%. The Healthcare Select Sector SPDR Fund ( XLV ) fell 1.1%.
The top five Chinese stocks to watch now
Tesla shares fell 7.2% to 177.59, below 2021 lows. Late Tuesday night, Elon Musk revealed that he sold nearly $4 billion worth of TSLA stock on Nov. 4, 7, and 8, possibly to help finance his takeover of Twitter. The disclosure could prevent TSLA shares from sliding, although Musk has not yet said he is done with his latest share sale.
Elon Musk’s takeover of Twitter has wider implications. It takes up a lot of his time, and there are fears that his Twitter moves and tweets will damage Elon Musk’s brand, and possibly Tesla’s. At the Twitter Spaces event on Wednesday, Musk talked about adding subscriptions and savings and payment features, but did little to win back wary advertisers.
Tesla could also fall along with other China-exposed stocks as the lockdown tightens there. In addition, many US and Chinese EV stocks suffered double-digit losses on Wednesday, including shares of Nio, Lucid and RIVN.
Finally, Tesla still owns some Bitcoin.
TSLA shares remained active overnight. Asked late Wednesday if Musk posed a national security threat, President Biden said, “It’s worth looking at,” adding that there are “a lot of ways” to do that.
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Meta Platforms will eliminate 11,000 jobs, or 13% of its workforce. Facebook’s parent company will also curb infrastructure spending as investors shy away from the huge metaverse costs. META shares rose 5.2%, but the spending cap hit Arista Networks (NETWORK), Nvidia (NVDA) and other vendors benefiting from the metaverse’s sprawl.
Apple shares fell 3.3% to 134.87 points. Although the iPhone maker hasn’t broken its October intraday lows or the bottom of the June 16 bear market, AAPL shares closed at their worst level since June 17. Earlier this week, Apple warned that China’s Covid restrictions would hurt iPhone 14 Pro production.
Amazon shares retreated 4.3%, falling to their lowest point since March 2020. MSFT shares fell 1.9%. Google shares retreated 1.8%. But both are still up slightly on the week.
Market rally analysis
Just when the stock market rally appeared to be regaining momentum, selling returned on Wednesday. The Dow Jones retreated slightly below the 200-day line. The S&P 500 fell below its 50-day moving average. The Russell 2000 also broke below the 50-day mark.
Lagging Nasdaq retreated after hitting resistance near the 21-day line on Tuesday.
Treasury yields rose, but not by much. The dollar recovered but has recently been on the downside. The still-unsettled election results, which suggest a smaller-than-expected GOP wave, may have played a role. This was fueled by Bitcoin’s decline, China’s lockout, and often negative earnings reactions.
After all, the market rally in recent weeks has been under pressure. The S&P 500 above the 50-day line is a minimum level of market strength. A Nasdaq move above this key level would be an even stronger signal.
The October CPI report could set the tone for Fed rate hike expectations and possibly the direction of the market for at least a few weeks.
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What to do now
The market’s rally is limited, although the Dow is near recent highs and the Nasdaq near bear market lows. A volatile, sideways market is extremely dangerous for investors.
A strong bull market usually lifts all boats. A bear market sinks them, driving everyone to dry land. But choppy market waters will be enough to tempt investors with minimal index gains and strong gains in individual stocks. But after buying near the short-term highs, investors have found a low as the stock is falling back. This can go on and on with investors taking small losses or some very large losses.
It’s okay to make some test buys and take positions if they work, although you might want to consider taking at least a partial profit quickly in this environment. But investors should wait for the market rally to show sustained strength before having significant exposure.
But it’s important to stay engaged. Investors need to create a game plan and take action when the market or individual participation levels drop or rise. Update your watch lists so you’re ready to take advantage of the next true bull market rally.
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