Dow Jones futures were little changed early Wednesday, along with S&P 500 futures and Nasdaq futures. Dow component Johnson & Johnson (JNJ) rose late as it proposed paying $8.9 billion to settle claims that talc products caused cancer.
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The stock market rally lost ground Tuesday as recession fears mounted. Job openings fell to a 21-month low, much lower than expected. While the data further lower Fed rate hike odds, they raise concerns that the U.S. economy is heading for a recession.
The major indexes had modest losses, not showing much damage. A lot of that reflects megacaps. Apple (AAPL), Microsoft (MSFT) barely budged while Meta Platforms (META) edged higher. So did Google parent Alphabet (GOOGL), working toward a buy point. Tesla (TSLA) fell slightly, extending Monday’s tumble after first-quarter deliveries. But TSLA held key support, though.
Growth overall held up reasonably well, with some software makers such as ServiceNow (NOW) making strong moves. On the downside, AI stock plummeted on a short-seller’s latest move vs. C3.ai (AI). C3 kept sliding late.
Overall market breadth was weak. Many groups, including steelmakers, base metal miners, building materials firms and heavy construction makers, suffered sharp losses. on economic fears.
Banks fell as well, especially regional names but also giants such as JPMorgan Chase (JPM). If nothing else, the recent bank woes will likely mean less lending, notably for commercial real estate, weighing on the economy.
JPMorgan CEO Jamie Dimon warned in his annual shareholder letter Tuesday that the bank crisis is “not yet over” with “repercussions” for years to come.
Gold and gold stocks had a strong day, as recession fears and weaker dollar sent investors scurrying into safe havens.
ServiceNow and META stock are on SwingTrader. Microsoft and Google stock are on IBD Long-Term Leaders.
The video embedded in this article discussed Tuesday’s market action and analyzed NOW stock, Atkore and C3.ai.
J&J Talc Settlement
After the close, Johnson & Johnson offered to pay $8.9 billion to settle long-standing claims that baby power and other talc products caused cancer. The J&J subsidiary LTL Management refiled for bankruptcy.
JNJ stock rose 3% in late trading. Shares climbed just over 1% for a third straight session Tuesday, reclaiming the 50-day line. But JNJ stock is still not far from a two-year low.
Dow Jones Futures Today
Dow Jones futures were little changed vs. fair value, even with JNJ stock offering a small lift. S&P 500 futures and Nasdaq 100 futures were flat.
The 10-year Treasury yield rose slightly to 3.35%.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally
The stock market rally started Tuesday off little changed, but retreated, with the major indexes down modestly but masking deeper weakness.
At 10 a.m. ET, the JOLTS survey showed job openings fell to 9.9 million in February from January’s downwardly revised 10.6 million. That’s the lowest in 21 months and far below views. That’s something that markets — and Fed chief Jerome Powell — have wanted to see for months. But the indexes quickly turned lower as the focus turned to recession fears.
The Dow Jones Industrial Average declined 0.6% in Tuesday’s stock market trading, along with the S&P 500 index. The Nasdaq composite fell 0.5. The small-cap Russell 2000, exposed to regional banks, gave up 1.8%.
U.S. crude oil prices edged up 0.4% to $80.71 a barrel, off morning highs but up nearly 11% in the past four sessions.
The 10-year Treasury yield fell more than 9 basis points to 3.335%, the lowest close in nearly 7 months. The two-year yield skidded 15 basis points to 3.83%.
The odds of a May rate hike fell to 40% on Tuesday from 57% on Monday. The March jobs report, due out Friday with U.S. markets closed, will likely swing rate hike expectations again.
The U.S. dollar sank to its lowest since Feb. 2.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.5%. The iShares Expanded Tech-Software Sector ETF (IGV) just edged higher, with MSFT and NOW stock big components. The VanEck Vectors Semiconductor ETF (SMH) sank 1.5%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) dipped 0.5% and ARK Genomics ETF (ARKG) slipped 0.4%. TSLA stock is the No. 1 holding across Ark Invest’s ETFs.
SPDR S&P Metals & Mining ETF (XME) skidded 2.5%% and the Global X U.S. Infrastructure Development ETF (PAVE) tumbled 3.75%. U.S. Global Jets ETF (JETS) descended 0.7%. SPDR S&P Homebuilders ETF (XHB) gave up 2.7%. The Energy Select SPDR ETF (XLE) retreated 1.8% and the Health Care Select Sector SPDR Fund (XLV) ticked higher.
The Financial Select SPDR ETF (XLF) declined 0.9%. JPM stock, a major holding, fell 1.3%. The SPDR S&P Regional Banking ETF (KRE) slumped 2.2%, not far from recent multiyear lows.
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AI Stock
AI stock plunged 26% to 24.95 in massive volume, wiping much of a big recent advance for the highly volatile name.
Kerrisdale Capital Management, which had previously said it was selling AI stock short, sent a letter to C3.ai’s auditor, Deloitte, accusing the artificial intelligence company of “using accounting methods that have the effect of inflation its income statement.
C3.ai, in a response, said the “Kerrisdale Letter appears to be a highly creative and transparent attempt by a self-acclaimed short seller to short the stock.”
AI stock fell 6% in overnight trade.
Megacap Stocks
Apple stock dipped 0.3% and Microsoft ended just below break-even. META stock edged up 0.8%. All are extended.
Google stock ticked up 0.3% to 104.72, close to a 106.69 cup-with-handle buy point, according to MarketSmith analysis.
Tesla stock fell 1.1% to 192.58, but held above its 21-day and 50-day lines. Shares fell 6.1% on Monday, back below a 200.76 buy point as analysts fear further price cuts will be needed to fuel demand. On Tuesday, Tesla reduced prices in Australia.
Market Rally Analysis
The stock market rally retreated Tuesday, but it’s not clear if it was the start of something serious or no big deal
After rooting for months for weaker economic data to end Fed rate hikes, investors on Tuesday were more fearful of a recession than the Fed.
The major indexes had modest losses overall, looking normal or even healthy.
The Nasdaq traded within Friday’s trading range for a second straight session. The S&P 500 and Dow Jones pulled back after four-day win streaks.
Apple stock and the megacaps didn’t move. Chips declined but don’t look damaged.
Software stocks were leaders Tuesday, with ServiceNow up 2.5% to 476.05 getting an analyst upgrade, moving toward a 494.72 consolidation buy point. NOW stock was actionable Friday from a strong move above its 50-day line and breaking a downtrend.
But losers trounced winners Tuesday, by more than 2-to-1 on the Nasdaq and NYSE. And many of the losers were hammered, notably in mining, construction or manufacturing fields. Nucor (NUE), Rio Tinto (RIO), Atkore (ATKR) and Caterpillar (CAT) tumbled, along with stocks in their groups.
Bank stocks, especially regional plays, are still struggling.
Market breadth had improved over the past week, following several weeks of narrow leadership. So Tuesday’s action bears watching. But it was just one day.
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What To Do Now
The market rally was due for a pullback and it got one. Most of the big losers weren’t leaders, while growth names generally did OK.
So investors needn’t overreact. But the action in many groups and individual stocks show the importance of being nimble and controlled.
This is not a mad bull market, so investors should step into the uptrend gradually and avoid buying extended stocks. They should also consider continuing to take partial profits quickly, especially with highly volatile names like AI stock. Don’t let winners turn into losers.
This is definitely a time to be engaged, paying close attention to the major indexes, leading stocks and your own portfolio. 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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