Dow Jones futures changed slightly late Tuesday along with the S&P 500 futures and Nasdaq futures. The stock market rally technically was mixed Tuesday, but tech stocks suffered significant losses. Finance Minister Janet Yellen tried after the closing to go back on previous comments when she said interest rates might have to rise “somewhat”.
The Nasdaq tumbled intraday to its 50-day line, while Russell 2000 closed right at that key level. Trillions of dollars worth of stocks Apple (AAPL), Amazon.com (AMZN), Microsoft (MSFT) and Google parent Alphabet (GOOGL) sold out. It did, too Nvidia (NVDA) and other chip names, ServiceNu (NOW), Adobe (ADBE) and other software play tumbled as well Tesla (TSLA) and other EV manufacturers.
On the head, steel and mining save as Steel dynamics (STLD) generally performed well. Agriculture, transport, housing, retail groups generally stopped together with oil groups and economics such as Goldman Sachs (GS).
The Dow Jones managed to even out a small gain. The S&P 500 fell modestly, but held support at its 21-day exponential moving average, even with big-cap technologies like Apple stocks pulling the benchmark index.
The bottom line is that the stock market rally again looks split, with tech and growth names looking weak, while old economy names are doing well.
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Yellen warns against higher interest rates
Finance Minister Yellen admitted that the Federal Reserve might have to raise interest rates as the government frees up further massive spending.
“It may be that interest rates need to rise somewhat to ensure that our economy does not overheat,” Yellen said at an economic seminar.
After the stock market closed, Yellen tried to go back on her “something” comment, at least something. She said she “does not predict or recommend” rate hikes. Yellen added that she is not worried about inflation.
The U.S. government has spent $ 5.3 trillion on Covid-related stimulus since March 2020, including a $ 1.9 trillion package adopted shortly after President Biden took office. Thanks to heavy public spending like coronavirus vaccinations, the U.S. economy is rapidly recovering and darkening near-pre-pandemic peaks in the first quarter. Job growth is also flourishing.
But the Biden administration is pushing for an additional $ 4 trillion in spending. President Biden has proposed financing these two packages of tax increases on top earnings, including almost a doubling of the tax rate on capital gains as well as increases in corporation tax.
Tax increases targeting companies and capital gains along with higher interest rates would likely be negative headwinds for the stock market.
Yellen headed the central bank before current Fed chief Jerome Powell. Powell and current politicians have signaled that they will see much further economic strength before even talking about limiting the purchase of assets with interest rate hikes far down. But Yellen’s comments raise expectations that “taper talk” could start at the Fed meeting in June.
On Tuesday, however, 10-year government bond yields fell modestly.
Adobe, Microsoft, Nvidia, ServiceNow and Google stock are all on the IBD Leaderboard. Adobe, ServiceNow, and Microsoft Warehouse are IBD long-term leaders. Steel Dynamics and Goldman shares are on SwingTrader. Goldman Sachs and Tesla shares are at IBD 50.
Apple, Microsoft and Goldman are on the Dow Jones Industrial Average.
Dow Jones Futures today
Dow Jones futures rose lower than fair value. The S&P 500 futures were largely unchanged. Nasdaq 100 futures fell 0.1%.
Keep in mind that overnight trading in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze action stocks at the stock market rally on IBD Live.
News about coronavirus
Coronavirus cases worldwide reached 154.89 million. Covid-19 deaths topped 3.23 million.
Coronavirus cases in the United States have affected 33.26 million with deaths over 592,000.
Stock market rally
The stock market rally had a mixed session, but you should be optimistic to see the glass as half full on Tuesday.
The Dow Jones Industrial Average closed at its highest level just above break-even in Tuesday’s trading session. The S&P 500 index was up 0.7%. The Nasdaq composite tumbled 1.9%, though the paired loss to finish just above its 50-day moving average. The major indices fell from the open, with intraday-low levels following Yellen’s interest rates.
Big Cap Tech’s decline
Apple shed 3.5% and found support in its 50 days. Amazon stock slipped 2.2% and fell further below buy points. Microsoft shares fell 1.6%, testing a recent buying point. Facebook (FB) and Google stock lost 1.3% and 1.55% respectively, although their charts look better.
Adobe stock fell 2.5% and fell towards its 50-day and 200-day lines. The NU stock retreated 1.4%, down 14.1% over the last five sessions since earnings. ServiceNow is starting to lose sight of its long-term averages.
Tesla shares fell 1.65% to 673.60 on Tuesday, back through its 50 days, after falling 3.5% on Monday. The TSLA stock no longer has a buying point of 780.89 because the center of the handle is now below the center of the base. Tesla stock is now significantly below the March highs.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) retreated 1.45%, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 1.9%. The iShares expanded Tech-Software Sector ETF (IGV) fell 2.4% with Microsoft, Adobe and ServiceNow stock notable components. VanEck Vectors Semiconductor ETF (SMH) fell 1.2% even though it cut down on intraday losses. The Nvidia share is a major SMH share.
The SPDR S&P Metals & Mining ETF (XME) jumped 3% to hit a new high, while the Global X US Infrastructure Development ETF (PAVE) rose 1.5%. US Global Jets ETF (JETS) fell 2.2%
The ARK Innovation ETF (ARKK), which reflects more speculative history holdings, fell 3.55%, testing its 200-day line for the first time since April 2020. The ARK Genomics ETF (ARKG) slipped 3.1%. The Tesla stock is the largest holding for Cathie Woods ARK Investments. But ARK stocks have generally struggled with the fact that Wood often increases efforts when they tumble.
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Analysis of market rally
The stock market rally has weakened significantly over the last few sessions. After a few weeks where the market rally showed some broad strength, it has returned to the two-part rally in March.
Nasdaq found support on its 50-day line and below mid-March highs. Titans like Apple and Amazon, which until recently had masked the underlying weakness in the technology sector, were no refuge on Tuesday. Chip stocks, which were the first technology sector to rise, have been lagging behind for a few weeks and look increasingly damaged. Software like ServiceNow and Adobe Warehouse, which just started looking promising in late April, has fallen sharply over several sessions. Tesla warehouse needs the workshop again and it is in better condition than other EV manufacturers.
That’s a far different picture for the Dow Jones and S&P 500. Dow managed to smooth out a gain, even with megacaps like Apple stocks weighing on blue caps. The S&P 500 found support on its 21-day line, even with losses from Apple, Amazon, Nvidia, Tesla stock and more.
Keeping the 50-day line will be crucial for Nasdaq and Russell 2000. But even they can, growth stocks – many of which have never made a real comeback – need significant time to recover.
What should I do now
Investors should reduce their exposure to tech and growth names. Many have triggered automatic sell signals or rounded gains. If you have long-term big winners in growth names, you may want to consider reducing your efforts to core positions.
For buying opportunities, housing and commodity-related pieces have worked with the economy, shipping and some industries. These benefit from a thriving economy
Look for the right leaders, buy them on sound outbursts or bullish pullbacks. Rio Tinto (RIO), Larva (CAT), Deere (FROM), FedEx (FDX), Nutrients (NTR), Goldman stock, Granite construction (GVA) and Azek (AZEK) are in or near purchase zones.
Rio Tinto and Granite Construction are among David Ryan’s “SIR DOG” list of stocks to watch, as he highlighted on Tuesday’s IBD Live, certainly an episode worth watching again.
But with the market rally splitting up again, investors should be careful not to be too exposed. Maybe the old economy names will lead, and tech names will at least run up. But there is a danger that Nasdaq and Russell 2000 will drag the stronger sectors down and make a split market rally a complete correction.
Read the big picture every day to be in sync with the market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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