Dow Jones Futures: Stock Market Sells Off On Hot Inflation; This Should Worry Investors

Dow Jones futures rose overnight, along with S&P 500 futures and Nasdaq futures. The stock market sold off Wednesday on hotter-than-expected CPI inflation data, with the S&P 500 and Nasdaq breaking below recent lows.




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The market correction and Nasdaq bear market show no signs of slowing down. Rebound attempts are halfhearted and quickly swatted down. And despite the market meltdown fear gauges, a contrarian indicator, still aren’t spiking.

After the close, Walt Disney (DIS) and Tesla (TSLA) rival Rivian (RIVN) reported weaker-than-expected quarterly results. But investors focused on Disney’s Disney + subscription figures after the stunning Netflix (NFLX) decline. Rivian shareholders keyed in on the EV startup’s statement that it’s revving up delivery of shipments to major customer Amazon.com (AMZN).

Tesla stock is nearing recent lows in its wide-and-loose consolidation. Tesla faces a number of near-term and midterm challenges.

Meanwhile, Merck (MRK) briefly broke out, while Eli Lilly (LLY), Anthem (ANTM), Chevron (CVX) and Dollar Tree (DLTR) are trading around their 50-day lines. All are showing relative strength.

Tesla, Anthem and LLY stock are on IBD Leaderboard, while DLTR stock has joined the Leaderboard watchlist. MRK stock and Dollar Tree are on SwingTrader. Merck and CVX stock are on the IBD Big Cap 20. Eli Lilly was Wednesday’s IBD Stock Of The Day.

Dow Jones Futures Today

Dow Jones futures rose 0.4% vs. fair value. S&P 500 futures advanced 0.6% and Nasdaq 100 futures climbed 0.8%. DIS stock is a Dow Jones and S&P 500 component.

The 10-year Treasury yield dipped 1 basis point to 2.91%.

Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.


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Stock Market Wednesday

The stock market was volatile at Wednesday’s open following the April consumer price index. Inflation cooled to 8.3% from March’s 40-year high of 8.5%, but that was hotter than expected. Core consumer prices rose 0.6% vs. March.

Up-and-down trading turned decisively negative, especially on the Nasdaq. The major indexes sank to fresh 52-week lows, closing near their worst levels of the day.

The Dow Jones Industrial Average fell 1% in Wednesday’s stock market trading. The S&P 500 index gave up 1.6%. The Nasdaq composite tumbled 3.2%. The small-cap Russell 2000 skidded 2.5%.

The 10-year Treasury yield fell 7 basis points to 2.92%, its third straight decline. That’s after initially popping to 3.04% – and even higher before the open on the CPI data. Meanwhile, the two-year yield edged up 1 basis point to 2.63%. The 2-year yield is more closely tied to Fed rate moves, while the 10-year Treasury is feeling the effects of forecasts for slowing growth.

US crude oil prices jumped 6% to 105.71 a barrel. With Shanghai and China Covid cases falling sharply over the past few weeks, expectations are growing that the Chinese government will relax economy-crushing lockdowns, boosting demand for crude oil and other commodities. But that has not happened yet.

ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.4%, while the Innovator IBD Breakout Opportunities ETF (BOUT) edged up 0.15%. The iShares Expanded Tech-Software Sector ETF (IGV) slumped 3.3%. The VanEck Vectors Semiconductor ETF (SMH) retreated 3.1%.

SPDR S&P Metals & Mining ETF (XME) dipped 0.7% and the Global X US Infrastructure Development ETF (PAVE) gave up 1.4%. US Global Jets ETF (JETS) descended 2.4%. SPDR S&P Homebuilders ETF (XHB) retreated 3.6%. The Energy Select SPDR ETF (XLE) advanced 1.3%, with CVX stock a major component. The Financial Select SPDR ETF (XLF) slumped 0.9%. The Health Care Select Sector SPDR Fund (XLV) inched down 0.7%, with Merck, Eli Lilly and ANTM stock all notable holdings.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) dived 10.1%, with key holdings Unity Software (U) and Coinbase (COIN) tumbling on weak results and guidance. ARK Genomics ETF (ARKG) skidded 7.8%. Both ETFs are at two-year lows. TSLA stock remains the No. 1 holding across Ark Invest’s ETFs.


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Stocks To Watch

Merck stock rose 1.6% to 89.20, closing below an 89.58 cup-with-handle buy point after breaking out earlier. Shares had traded tightly over the prior several sessions. The relative strength line for MRK stock had been surging to new highs well ahead of Wednesday’s move.

LLY stock edged up 0.35% to 286.69, paring gains after trying to move off its 50-day moving average. Technically, Eli Lilly stock is still in buy range from a 284 cup-base buy point initially cleared nearly two months ago. But investors might want to wait for LLY stock to break a short downtrend, perhaps using the May 6 high of 298.25 as a trigger. After this week, Eli Lilly should have a flat base – part of a base-on-base formation – with a 314.10 buy point. The RS line for LLY stock is already at a new high.

ANTM stock dipped 0.4% to 487.36, reversing from modest gains near its 50-day line, technically back in a prior buy zone. Shares of the health insurance giant had pulled back tightly over the prior few weeks. Anthem stock could be actionable from the 50-day line, especially if it breaks above a short trend line. The RS line for ANTM stock is at a new high.

DLTR stock fell 1.15% to 156.07, slightly below its 50-day line, just within a prior buy zone like Anthem. A 50-day line bounce above the 21-day line would also break a short down-sloping trendline, offering an aggressive entry. The RS line for Dollar Tree stock is hitting new highs.

CVX stock advanced 1.5% to 163.16, just below its 50-day line after moving above that level intraday. Chevron stock is in a flat base with a 174.96 buy point, according to MarketSmith analysis. Investors could buy CVX stock if it rebounds from its 50-day and clears the May 6 high of 170.97. The RS line for Chevron stock is at a new high.

Disney Earnings

Disney earnings and revenue missed fiscal Q2 estimates. Disney + subscribers rose by 8 million during the quarter to 137.7 million, beating views for 134.4 million.

But ESPN + and Hulu subscribe levels slightly missed, while Disney sees heavier spending on content for its streaming services.

Last month, Netflix reported a first-ever streaming subscriber decline in the first quarter. And it forecast an even-bigger loss in Q2

DIS stock fell 3% overnight after initially rising solidly. Shares sank 2.3% in Wednesday’s regular session to 105.21, a two-year low.

Netflix stock edged lower late, after closing down 6.35%.


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Rivian Earnings

Rivian reported a wider-than-expected loss while Q1 revenue fell far short of consensus. However, the EV startup said it’s stepping up production and deliveries of the EDV 700 delivery van to Amazon, a major customer and investor.

Rivian previously announced that it produced 2,553 vehicles in Q1. That was mostly the Rivian R1T pickup truck but also some R1S SUVs and commercial vans for its main customer, Amazon.com (AMZN). Rivian delivered 1,227 vehicles in the quarter.

Rivian said Tuesday that it’s on track to meet its 2022 production target of 25,000 EVs, but that’s half its initial goal for 50,000.

RIVN stock popped 6% overnight in active trading. Shares plunged 9.6% to 20.45 on Wednesday after Ford (F) confirmed it sold 8 million shares of Rivian stock. Early reports of that Ford sale sent RIVN stock crashing 21% on Monday. Shares are at record lows, far below last November’s $ 78 IPO price.

Tesla Stock

Tesla stock tumbled 8.25% to 734 on Wednesday. That’s still above its Feb. 24 intraday low of 700, but the lowest close since last September. An increasingly ugly handle is now too deep to be valid. The RS line for TSLA stock, at or near consolidation highs in early April, is now near recent lows. The Tesla stock chart, like so many other growth names, will need a lot of repair work.

Clearly, the stock market correction including the Nasdaq bear market is the biggest negative for TSLA stock. But Tesla’s business faces a number of challenges.

The Tesla Shanghai factory is barely making any vehicles right now after a key supplier suspended production earlier this week. The Shanghai factory was closed from March 28 to April 19, and has had limited production since.

Meanwhile, competition is heating up in China, with BYD (BYDDF) and several Chinese automakers set to release Tesla Model 3 rivals in coming months. Later this year chip shortages are expected to ease. While that should let Tesla make a few more EVs itself, rivals will be able to boost EV and overall auto production substantially, ultimately reducing pricing power for Tesla and the industry.


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Market Analysis

After some volatile action Tuesday and Wednesday morning, the major indices turned decisively lower following the hotter-than-expected CPI inflation report. The S&P 500 and Nasdaq undercut recent 2022 lows, killing their one-day “rallies.” The Dow Jones, which declined Tuesday, also hit fresh 52-week lows Wednesday.

The market correction continues to head lower, with the Nasdaq bear market now 30% deep. The S&P 500 is 18.3% off its January high, near the 20% bear market threshold.

Losers are crushing winners, with new lows obliterating new highs.

So far there are no real indications that the market is near a bottom. While market fear gauges are around recent highs, the CBOE Volatility Index, or VIX, fell 1.3% to 32.60 on Wednesday even as the S&P 500 hit new lows.

But another contrarian indicator is, well, contrarian, with the latest bulls-bears reading of investment newsletter writers turning increasingly bearish.


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What To Do Now

Staying out continues to be the best move. Yes, there are pockets of market strength. But leading sectors aren’t immune from selling pressure either. Better to wait for a follow-through day to confirm a new market rally. Even then, investors should be cautious.

Right now, there is not even a market rally attempt.

Stay engaged with the market, but do not obsess over every minute of intraday action. Keep working on your watchlists.

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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