Dow Jones futures fell sharply early Wednesday, along with S&P 500 futures and Nasdaq futures, setting the new stock market rally on course to erase much of Tuesday’s strong gains. Treasury yields and crude oil prices also fell significantly. Federal Reserve Chair Jerome Powell will testify before Congress amid growing concerns that Fed rate hikes will drive the economy into a recession.
Vertex Pharmaceuticals (VRTX) and Bristol-Myers Squibb (BMY) reclaimed their 50-day lines Tuesday, while United Therapeutics (UTHR) is in a buy range. All three pharma stocks have relative strength lines at highs.
Fed Chief Powell Testifies
Fed chief Powell will testify before the Senate Banking Committee on Wednesday, followed by the House Financial Services Committee on Thursday. The hearing begins at 9:30 a.m. ET, right at the opening bell. The Federal Reserve could release Powell’s prepared remarks earlier.
Powell will likely reaffirm the central bank’s commitment to taming inflation, which hit a 40-year high in May according to the consumer price index. As a result of that surprise CPI inflation report, the Fed raised rates by 75 basis points on June 15, the biggest hike in 28 years. After the Fed meeting announcement, Powell said policymakers could hike rates by 50 basis points or 75 in late July. Markets have almost entirely priced in another move of 75 basis points.
On June 15, Powell said a soft landing was still possible, but markets decided a day later that the Fed’s aggressive anti-inflation medicine makes at least a mild recession likely. Will Powell try to soothe investors on economic growth?
On Wednesday, Citigroup sees a 50-50 chance that the U.S. will sink into a recession. The most likely recession would be a mild “garden variety” downturn, but there are “hard landing” and “stagflation” risks.
Dow Jones Futures Today
Dow Jones futures fell 1.3% vs. fair value. S&P 500 futures retreated 1.5%. Nasdaq 100 futures tumbled 1.5%.
U.S. crude oil prices sank 6%, trading below $105 a barrel and pointing crude toward futures toward their first monthly decline since November. Oil markets are increasingly worried about a recession dampening oil demand. Meanwhile, President Joe Biden called on Congress to suspend the federal gasoline tax of 18.4 cents per gallon for three months.
Copper prices tumbled more than 3%. The 10-year Treasury yield plunged to 3.16% from Tuesday’s 3.31%.
Stocks To Watch
Vertex stock rebounded above its 50-day line on Tuesday following a strong move Friday. The biotech giant has a 292.85 buy point, but investors could use 279.23 as an early entry. A downward-sloping trendline might offer a slightly lower entry.
BMY stock popped back above its 50-day line on Tuesday, arguably offering an early entry. Bristol stock technically is a few weeks into a new base, but also arguably is in a consolidation going back to early April.
UTHR stock jumped 4.3% Tuesday to 228.84, bouncing from the 21-day line and breaking a short downtrend. United Thera stock is still just in range from a 218.48 buy point.
Tesla stock leapt 9.3% to 711.11 on Tuesday, just above its 21-day moving average. But it’s still below its fast-falling 50-day line, with its 200-day average well above that. Last week, TSLA stock fell as low as 626.08, but held above an 11-month low of 620.57 on May 24. Shares fell nearly 2% Wednesday morning.
Google stock gained 4.1% to 2,230.88 on Tuesday, just below its 21-day line. It’s not too far from its fast-falling 50-day line, but the 200-day line is a long way off. Last week, GOOGL stock fell to just above 2,100, modestly above the May 24 low of 2,037.69. Shares fell 1% early Wednesday.
Market Rally Analysis
The Dow Jones Industrial Average rose 2.15% in Tuesday’s stock market trading. The S&P 500 index popped 2.45%. The Nasdaq composite jumped 2.5%. The small-cap Russell 2000 advanced 1.8%.
Tuesday’s strong gains were nice, but markets have numerous one-day or short-lived rallies in the midst of sharp downtrends. Wednesday’s big decline in Dow futures suggests that the new stock market rally attempt is running into trouble already.
Assuming the major indexes don’t undercut last week’s lows, investors could look for a follow-through day to confirm the new rally attempt.
What To Do Now
Investors should remain on the sidelines, waiting for a confirmed market uptrend. Even then, investors should be cautious. A relative lack of good stocks in position to buy would likely be one of them.
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