Dow Jones futures rallied slightly late Tuesday night, along with S&P 500 and Nasdaq futures. Technically, the rally in the stock market on Tuesday was mixed, but technology stocks suffered significant losses. Treasury Secretary Janet Yellen tried to shy away from earlier comments after the close when she said interest rates might need to be “slightly” raised.
The Nasdaq fell to its 50-day line during the day and the Russell 2000 closed right at this key level. Trillion Dollar Stock Apple (AAPL), Amazon.com (AMZN), Microsoft (MSFT) and parent of Google Alphabet (GOOGL) sold out. So did Nvidia (NVDA) and other microcircuit names. ServiceNow (NOW), Adobe (ADBE) and other software games crashed, as did Tesla (TSLA) and other electric vehicle manufacturers.
On the other hand, stocks in the metals and mining industry such as Steel dynamics (STLD) has generally done well. Agricultural, transportation, housing, and retail groups tended to stick together with oil groups and finance companies such as Goldman Sachs (GS).
The Dow Jones managed to break free. The S&P 500 fell slightly but maintained support at the 21-day exponential moving average, even as large-cap companies such as Apple stock cut the benchmark.
Bottom line: The stock market rally looks bifurcated again, with tech and growth companies looking weak, while old economy companies doing well.
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Yellen warns of interest rate hikes
Treasury Secretary Yellen acknowledged that the Federal Reserve may have to raise interest rates as the government continues with massive spending.
“It may turn out that interest rates will need to rise slightly to keep our economy from overheating,” Yellen said at an event on Monday that aired Tuesday morning.
After the close of the stock exchange, Yellen tried to respond to her “some” comment, at least in part. She said she “does not forecast 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 passed shortly after President Joe Biden took office. Thanks to massive government spending and coronavirus vaccinations, the U.S. economy is recovering rapidly, nearly dwarfing pre-pandemic peaks in the first quarter. Job growth is also skyrocketing.
But the Biden administration is pushing for another $ 4 trillion. President Biden has proposed financing the two packages with tax hikes for the highest paid individuals, including a nearly doubling of the capital gains tax rate, as well as higher corporate taxes.
Higher taxes targeting corporations and capital gains, along with higher interest rates, are likely to be negative for the stock market.
Yellen ran the central bank until current Fed Chairman Jerome Powell.
Powell and current politicians have made it clear they want to see a lot more economic power before even talking about curbing asset purchases with future rate hikes. But Yellen’s comments give rise to hope that “talk of a cut” could begin at the June Fed meeting. At the June meeting, new forecasts for the Fed’s rate hike will be presented. Predictions for the mid-March meeting did not include Biden’s last two spending proposals.
Adobe, Microsoft, Nvidia, ServiceNow, and Google are on the IBD leaderboard. Adobe, ServiceNow and Microsoft Stock are long-term leaders of IBD. Steel Dynamics and Goldman stocks are listed on SwingTrader. Goldman Sachs and Tesla shares are at IBD 50.
Apple, Microsoft and Goldman are listed on the Dow Jones Industrial Average.
Dow Jones Futures Today
Dow Jones futures were up 0.2% from fair value. S&P 500 futures were up 0.3%. Nasdaq 100 futures were up 0.3%.
Remember that overnight activity in Dow futures and elsewhere does not necessarily mean actual trading in the next regular stock market session.
Join IBD experts who analyze trending stocks in the stock market rally at IBD Live.
The number of coronavirus cases worldwide has reached 154.97 million. Deaths from Covid-19 have exceeded 3.24 million.
The number of cases of coronavirus in the United States has reached 33.27 million people, and the number of deaths has exceeded 592 thousand people.
Stock market rally
The rally in the stock market was a mixed session, but you have to be optimistic to see the glass half full on Tuesday.
The Dow Jones Industrial Average closed at session highs, just above breakeven in stock market trading on Tuesday. The S&P 500 Index lost 0.7%. The composite Nasdaq fell 1.9%, albeit slightly above its 50-day moving average. Major indices dropped from the opening, with intraday lows following Yellen’s comments on interest rates.
Big Cap Techs Recession
Apple shares fell 3.5%, finding support in their 50-day timeframe. Amazon shares plunged 2.2%, falling below points of purchase. Microsoft shares dropped 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 shares fell 2.5%, approaching the 50-day and 200-day lines. NOW shares are down 1.4%, down 14.1% in the past five sessions since the profit was made. ServiceNow is starting to lose sight of its long-term averages.
Tesla shares fell 1.65% to 673.60 on Tuesday, breaking a 50-day period 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 bottom. Tesla shares are now well below their March highs.
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.45% and the Innovator IBD Breakout Opportunities (BOUT) ETF fell 1.9%. The iShares Expanded Tech-Software Sector ETF (IGV) fund fell 2.4% on notable components of Microsoft, Adobe and ServiceNow. The VanEck Vectors Semiconductor ETF (SMH) fell 1.2%, although it narrowed intraday losses. Nvidia shares are a large SMH holding.
The SPDR S&P Metals & Mining ETF (XME) jumped 3% to hit a new high, while the Global X US Infrastructure Development ETF (PAVE) added 1.5%. US Global Jets (JETS) Shares Down 2.2%
Reflecting stocks with a lot of speculative histories, the ARK Innovation ETF (ARKK) fell 3.55%, testing its 200-day line for the first time since April 2020. ARK Genomics ETF (ARKG) fell 3.1%. Tesla shares are the largest holding for Katie Wood’s ARK Investments. But stocks like ARKs generally struggled, and Wood often raised rates when they fell.
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Market rally analysis
The rally in the stock market has eased considerably over the past few sessions. A few weeks later, when the market rally showed some broad strength, it reverted to a bifurcated March rally.
The Nasdaq found support at its 50-day line below the mid-March high. Titans like Apple and Amazon, who until recently hid the weakness of the tech sector, did not take refuge on Tuesday. Chip stocks, the first high-tech sector to rise, have been lagging for weeks and looking increasingly damaged. Software products such as ServiceNow and Adobe stock, which were just starting to look promising in late April, have plummeted in a few sessions. Tesla stock is in need of a repair shop again and it is in better condition than other EV makers.
For the Dow Jones and the S&P 500, the picture is completely different. The Dow managed to regain profits, even as megacities like Apple stocks are pushing blue chips. The S&P 500 found support on its 21-day line, even with losses in stocks from Apple, Amazon, Nvidia, Tesla and others.
Maintaining the 50-day line will be critical for the Nasdaq and Russell 2000.
What to do now
Investors must reduce their influence over tech and emerging companies. Many of them triggered automatic sell signals or received reverse profits. If you have long-term big winners in growth, consider dropping your rates down to major positions.
In terms of shopping opportunities, there are housing and commodity games as well as finance, shipping and some industrial businesses. They benefit from a booming economy
Look for real leaders by buying solid breakouts or bullish pullbacks. Rio Tinto (RIO), Caterpillar (CAT), Deer (DE), FedEx (FDX), Nutrien (NTR), Goldman shares, Granite construction (GVA) and Azek (AZEK) are in or near the shopping area.
Rio Tinto and Granite Construction are on the list of David Ryan’s “SIR DOG” stocks he highlighted Tuesday on IBD Live, and it’s definitely an episode worth watching again.
But when the rally in the market has split again, investors must be careful not to be too vulnerable. Perhaps the old names of economics will prevail, and the names of technologies will at least support. But there is a danger that the Nasdaq and Russell 2000 will pull the stronger sectors down, turning the market’s split rally into a full-fledged correction.
Read the big picture every day to stay on top of market trends and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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