Dow Jones futures fell solidly overnight, along with S&P 500 futures and Nasdaq futures, with Treasury yields continuing to rise and a report that Apple (AAPL) is curbing iPhone production plans
The stock market saw another opening rebound fizzle Tuesday as the 10-year Treasury yield surged toward 4%. The S&P 500 index tumbled to a bear market low, but the major indexes rallied to close mixed.
Investors should be extremely cautious about making any moves, even when quality stocks show bullish action.
On Tuesday, Vertex Pharmaceuticals (VRTX) and World Wrestling Entertainment (WWE) briefly flashed what would have been aggressive buy signals in a decent market. But they backed off from early highs as the indexes reversed. Enphase Energy (ENPH), a day after a downside reversal, reclaimed key support even after paring intraday gains. Tesla (TSLA) and Shockwave Medical (SWAV) hit resistance at their 50-day lines.
Meanwhile, lawyers for Tesla CEO Elon Musk and Twitter (TWTR) faced off Tuesday in another preliminary court hearing ahead of their October takeover trial. Musk is trying to get out of his $44 billion, $54.20-a-share takeover deal to buy Twitter. Legal experts say Twitter has a strong case to make Musk go through with the deal, and Tuesday’s hearing appeared to reinforce that.
Twitter stock rose 1.4% to 42.11 on Tuesday. TWTR climbed modestly in late trading as the hearing continued.
Apple is ditching plans boost iPhone 14 production by up to 6 million handsets in the second half of its fiscal year, because a demand bump didn’t materialize, Bloomberg reported overnight. Instead, Apple will aim for 90 million iPhones, flat vs. the prior year.
Extended trading had extended when the iPhone report broke. But Apple stock and iPhone chipmakers to move Wednesday morning.
Late Tuesday, egg giant Cal-Maine Foods (CALM) reported stronger-than-expected earnings. Cal-Maine earnings shot up as revenue growth accelerated for a fifth straight quarter, to 103%. CALM stock edged lower overnight. Shares rose 1.4% to 60.53 on Tuesday, at the edge of a buy zone.
ENPH stock and Vertex are on the IBD 50 and the IBD Big Cap 20. The video embedded in this article discusses Tuesday’s bear market action and analyzes Vertex, WWE and SWAV stock.
Dow Jones Futures Today
Dow Jones futures fell 0.6% vs. fair value, reversing from slight gains earlier Tuesday night. S&P 500 futures retreated 0.7%. Nasdaq 100 futures sank 0.9%. AAPL stock is a Dow Jones, S&P 500 and Nasdaq component.
The 10-year Treasury yield rose 2 basis points to 3.98%.
China’s yuan hit a 14-year low, as the surging dollar adds to financial market strains.
Crude oil futures fell more than 1%.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
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Stock Market Tuesday
The stock market once again tried to bounce near the open, with stronger, broader gains Tuesday morning than on Monday. But as the 10-year Treasury yield soared to a fresh 12-year high, fueled by a number of stronger-than-expected economic reports at 10 a.m. ET, the major indexes reversed lower, with the S&P 500 breaking below its June lows. However, the indexes rallied to finish narrowly mixed.
The Dow Jones Industrial Average fell 0.4% in Tuesday’s stock market trading. The S&P 500 index lost 0.2%. The Nasdaq composite edged up 0.25%. The small-cap Russell 2000 climbed 0.3%.
The 10-year Treasury yield leapt 9 basis points to 3.96%, hitting 3.99% intraday. The 10-year yield hasn’t topped 4% since April 2010. The two-year Treasury yield is at 4.3%, edging lower on the session.
The 30-year U.K. gilt yield hit 5% on Tuesday. The new U.K. government plans to borrow heavily for tax cuts, while investors are betting that the Bank of England will need to push up rates sharply to support the pound. The pound bounced Tuesday but then gave up most of its gains. That’s after plunging to a record low vs. the dollar on Monday.
U.S. crude oil prices rose 2.3% to $78.50 a barrel, bouncing from the lowest levels since January.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.1%. The iShares Expanded Tech-Software Sector ETF (IGV) climbed 0.7%. The VanEck Vectors Semiconductor ETF (SMH) advanced 0.8%.
SPDR S&P Metals & Mining (XME) gained 2.8%. U.S. Global Jets (JETS) ascended 1.6%. SPDR S&P Homebuilders (XHB) edged up 0.4%. The Energy Select SPDR ETF (XLE) advanced 1.1% and the Financial Select SPDR ETF (XLF) dipped 0.4%. The Health Care Select Sector SPDR Fund (XLV) dipped 0.3%.
Reflecting stocks with more speculative stories, the ARK Innovation ETF (ARKK) and ARK Genomics (ARKG) both rose 2.1%. Tesla stock is a top holding across Ark Invest’s ETFs.
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Stocks To Watch
Vertex stock rose 2.9% to 284.74. Intraday, shares hit 289.52, clearing the 50-day line and reaching a downward-sloping trendline. In a better environment, that would have a buy signal, but VRTX stock faded along with the market. The relative strength line hit another new high. The official buy point is 306.05 from a flat base that is just 10% deep.
Vertex and partner Crispr Therapeutics (CRSP) said Tuesday that they’ll begin asking FDA approval for the first approved treatment using the CRISPR gene-editing technique. The treatment would be for sickle cell disease and beta thalassemia.
WWE stock came up to 69.95 intraday, crossing the 50-day line and reclaiming an older, 68.83 buy point. That flirted with an early entry, but WWE stock reversed lower before recovering for a 0.75% gain to 68.20. The wrestling media outfit has a flat base with a 75.33 buy point, according to MarketSmith.
ENPH stock gained 3.6% to 284.81, reclaiming the 50-day line. Intraday, shares reached 294.80 but hit resistance at the 21-day moving average.
SWAV stock climbed modestly for a second straight session, up 2.4% to 260.83. But shares hit resistance at the 50-day line. So far this week, Shockwave stock is up modestly in lighter volume after tumbling 11.7% last week.
Tesla stock climbed 2.5% to 282.94 on Tuesday. But shares hit resistance at the 50-day line, paring gains slightly from 288.67 intraday. TSLA stock has a 314.74 buy point from a short base within a much larger consolidation. Tesla hosts AI Day on Friday, with Q3 global deliveries likely out over the weekend.
Stock Market Analysis
For a second straight session, bulls tried to fight back at the open. The Nasdaq rose as much as 2.2% a few minutes into Tuesday’s session, exceeding Monday’s high.
But as Treasury yields roared higher yet again, the major indexes pared, erased and reversed those gains.
The S&P 500, meanwhile, undercut its June 17 low. The benchmark index joined the Dow Jones, which broke below its June 17 low on Friday. The Nasdaq has not yet undercut its June bear market lows or even Friday’s intraday.
Even with yields holding at intraday highs, the major indexes bounced back to close mixed.
The Cboe volatility index, or VIX, rose to a fresh three-month high, backing off intraday highs as stocks rallied late. The market fear gauge is at a level that could signal at least a short-term bottom, but that could have been said for the past few days. The VIX also isn’t necessarily at a level that would indicate a longer-term bear market bottom is at hand.
The market’s inability to rebound for more than a few minutes is not encouraging. But even if the major indexes bounced solidly for a full day or two, that wouldn’t necessarily mean much. The best market days in history are in bear markets.
Some leading stocks tried to bounce back Tuesday, but they pared gains with the market, including WWE, Shockwave and Tesla stock.
The bear market could be on the cusp of starting a new leg down. It’s still possible that the market bottoms around the June lows, though that needn’t mean a rapid shift to a powerful uptrend. It’s quite possible that the market could be rangebound near lows for weeks or months.
It’s hard to see the S&P 500 and overall stock market having a sustained rally with Treasury yields and the dollar soaring. Perhaps the 10-year yield will hit resistance around the 4% level. A pullback could spur a stock market bounce.
Yet Treasury yields likely won’t break their uptrend until the Fed signals slower rate hikes ahead. Policymakers haven’t given any such indication, and may not until inflation cools significantly and labor markets weaken. It’s possible that the 10-year yield could top out earlier, but that would likely reflect expectations of a clear-cut U.S. recession. Heading into a recession isn’t exactly a recipe for a stock market boom.
Still, markets are now just slightly tilting toward a fourth straight 75-basis-point rate hike in November. Markets are now about split between a year-end fed funds rate of 4%-4.25% vs. 4.25%-4.5%, down modestly from Monday.
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What To Do Now
The last two days have shown the dangers of buying stocks during a strong open in a bear market.
Investors should be patient, and wait for real signs of strength, not just a few strong minutes or one good day. Even if a market rally gets underway and stages a follow-through day in the near future, there likely would be reasons to be cautious. The major indexes would have several resistance levels, while still likely being at the mercy of the Federal Reserve and the bond market.
Keep holding a lot of cash and work on your watchlists. Relative strength is paramount. But many relative leaders are struggling and below their 50-day lines.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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