Dow Jones futures rose slightly on Tuesday night, as did S&P 500 futures and Nasdaq futures. The stock rally was technically mixed on Tuesday, but technology stocks suffered significant losses. Treasury Secretary Janet Yellen after the close attempted to reverse previous comments when she said interest rates may have to rise “somewhat.”
The Nasdaq fell intraday to its 50 day line while the Russell 2000 closed at this key level. Trillion dollar stocks Apple (AAPL), Amazon.com (AMZN), Microsoft (MSFT) and Google parent Alphabet (GOOGL) sold. So done Nvidia (NVDA) and other names of chips. ServiceNow (NOW), Adobe (ADBE) and other software fell, just like You’re here (TSLA) and other EV manufacturers.
On the rise, steel and mining stocks such as Steel dynamics (STLD) generally did well. Agriculture, transportation, housing and retail groups generally resisted, as did oil and financial groups such as Goldman Sachs (GS).
The Dow Jones managed to make a gain. The S&P 500 edged down, but held support at its exponential 21-day moving average, even with large-cap tech like Apple stock pushing the benchmark down.
Bottom line: The stock rally looks divided once again with tech and growth names looking weak while old economy names are doing well.
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Yellen warns of higher interest rates
Treasury Secretary Yellen admitted that the Federal Reserve may have to raise interest rates as the government releases massive new spending.
“Interest rates may need to rise somewhat to ensure our economy does not overheat,” Yellen said in an event aired Monday morning.
After the stock market closed, Yellen tried to reconsider his comment “a little”, at least a little. She said she “neither anticipates nor recommends” rate hikes. Yellen added that she was not concerned about inflation.
The U.S. government has spent $ 5.3 trillion on Covid-related stimulus measures since March 2020, including a $ 1.9 trillion package adopted shortly after President Joe Biden took office. Thanks to heavy government spending and coronavirus vaccinations, the U.S. economy is rebounding quickly, nearly eclipsing pre-pandemic peaks in the first quarter. Job growth is also booming.
But the Biden administration is pushing for an additional $ 4 trillion in spending. President Biden has offered to fund both of these packages with tax hikes on top earners, including nearly doubling the capital gains tax rate, as well as increasing corporate taxes.
Tax hikes targeting corporations and capital gains, as well as higher interest rates, would likely be negative for the stock market.
Yellen headed the central bank before current Fed chief Jerome Powell.
Powell and current policymakers have indicated they want to see a lot more economic strength before they even talk about curbing asset purchases, with rate hikes a long way off. But Yellen’s comments raise hopes that the “typing talk” could begin at the June Fed meeting. The June meeting will include new rate hike projections from the Fed. Projections for the mid-March meeting did not include Biden’s last two spending proposals.
Adobe, Microsoft, Nvidia, ServiceNow, and Google Stock are all on IBD Leaderboard. Adobe, ServiceNow, and Microsoft Stock are long-term IBD leaders. Steel Dynamics and Goldman shares are on SwingTrader. Goldman Sachs and Tesla shares are on the IBD 50.
Apple, Microsoft and Goldman stocks are on the Dow Jones Industrial Average.
Dow Jones Futures today
Dow Jones futures contracts increased 0.2% from fair value. Futures contracts on S&P 500 climbed 0.3%. Futures contracts on Nasdaq 100 advanced 0.3%.
Keep in mind that overnight action on Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular trading session.
Join the IBD experts as they analyze the exploitable stocks during the stock market rally on IBD Live.
Coronavirus cases around the world have reached 154.97 million. Covid-19 deaths have exceeded 3.24 million.
Coronavirus cases in the United States have reached 33.27 million, with deaths exceeding 592,000.
Stock market rally
The stock rally had a mixed session, but one would have to be optimistic to see the glass half full on Tuesday.
The Dow Jones Industrial Average closed at a session high, just above the stock market breakeven point on Tuesday. The S&P 500 index lost 0.7%. The Nasdaq composite fell 1.9%, although it cut losses to finish slightly above its 50-day moving average. The major indices fell from the open, with intraday lows after Yellen’s comments on interest rates.
The collapse of large-cap technologies
Apple plunged 3.5%, finding support in its 50 days. Amazon’s stock slipped 2.2%, falling further below buy points. Microsoft stock fell 1.6%, testing a recent point of purchase. Facebook (FB) and Google stocks lost 1.3% and 1.55% respectively, although their charts look better.
Adobe stock fell 2.5%, dropping to its 50-day and 200-day lines. NOW stocks are down 1.4%, down 14.1% in the last five sessions since earnings. ServiceNow is starting to lose sight of its long-term averages.
Tesla stock fell 1.65% to 673.60 on Tuesday, after 50 days after falling 3.5% on Monday. The TSLA stock no longer has a buy point of 780.89 because the midpoint of the handle is now below the midpoint of the base. Tesla stock is now significantly below its March highs.
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.45%, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 1.9%. The iShares Extended Tech-Software Sector (IGV) ETF fell 2.4%, with Microsoft, Adobe and ServiceNow stocking notable components. The VanEck Vectors Semiconductor (SMH) ETF fell 1.2%, although it reduced intraday losses. The Nvidia share is a major holding company of SMH.
SPDR S&P Metals & Mining ETF (XME) jumped 3% to a new high, while the Global X US Infrastructure Development (PAVE) ETF gained 1.5%. US Global Jets (JETS) fell 2.2%
Mirroring stocks with more speculative stories, ARK Innovation ETF (ARKK) fell 3.55%, testing its 200-day line for the first time since April 2020. ARK Genomics ETF (ARKG) slipped 3.1% . Tesla stock is the largest holding for Cathie Wood’s ARK Investments. But ARK-style stocks generally struggled, with Wood often increasing his stakes as they tumbled.
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Market rally analysis
The stock market rally has weakened considerably in recent sessions. After a few weeks where the market rally showed some strength, it returned to the March fork rally.
The Nasdaq found support at its 50-day line and below the mid-March high. Titans like Apple and Amazon, which until recently hid the underlying weakness in the tech sector, were no safe haven on Tuesday. Shares of chips, the first tech sector to rebound, have been lagging for the past few weeks and appearing to be increasingly damaged. Software games like ServiceNow and Adobe stock, which were just starting to look promising in late April, fell sharply in several sessions. Tesla’s stock is in need of the repair shop again and is in better shape than other electric vehicle manufacturers.
It’s a very different picture for the Dow Jones and the S&P 500. The Dow Jones managed to make a gain, even with megacaps like Apple stock weighing on blue chips. The S&P 500 found support on its 21-day line, even with losses from Apple, Amazon, Nvidia, Tesla and more.
Maintaining the 50 day line will be critical for the Nasdaq and Russell 2000.
What to do now
Investors should reduce their exposure to the names of technology and growth. Many have triggered automatic sell signals or round trip gains. If you have big, long-term winners in growth names, consider lowering your stakes to key positions.
For purchasing opportunities, games related to housing and raw materials worked, as well as financial games, navigation games and some industrial games. They benefit from a booming economy
Look for real leaders, buying them on solid breaks or bullish pullouts. Rio Tinto (RIO), caterpillar (CAT), Deere (OF), FedEx (FDX), Nutrients (NTR), Goldman share, Granite construction (GVA) and Azek (AZEK) are in or near shopping areas.
Rio Tinto and Granite Construction are on David Ryan’s list of “SIR DOG” tracks that he highlighted on Tuesday’s IBD Live, an episode that is certainly worth watching.
But, with the division of the market rallying once again, investors need to be careful not to be overly exposed. Maybe the old names in economics will lead, and the names in tech will at least get stronger. But there is a risk that the Nasdaq and Russell 2000 will drag the stronger sectors down, turning a divided market rally into a full correction.
Read The Big Picture daily to stay in sync with market direction and major stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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