Dow Jones Futures Fall as Markets Start to Price on Chances of Not Cutting Rates by Fed; Nvidia is rising

Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures. Another inflation report, the Producer Price Index, is available.

X

The stock market rally lost ground on Wednesday after a hot CPI inflation report. The Nasdaq and S&P 500 found significant support, leading the market rally Nvidia (NVDA) that rebounds higher.

But Nvidia shares masked broad weakness, with small caps and major ETFs breaking below key levels.

Treasury yields soared thanks to the inflation report and a weak 10-year Treasury auction. The Fed minutes from the March meeting did not have much impact. They showed that policymakers wanted to see more progress on inflation but still expected rate cuts this year.

Markets have priced in a Fed rate cut for June and July. Investors now expect the first relaxation in September, but it is not a bull’s-eye. Markets are now starting to price in the slim chance that there will be no rate cuts in 2024.

In addition to Nvidia stock, Nvidia chipmaker Taiwanese semiconductor (TSM) moved higher after reporting strong selling, building the right side of a base. A third AI chip stock, recent IPO Astera Labs (ALAB), posted strong gains. Nutanix (NTNX), Axon company (AXON) and Dow technology giant Microsoft (MSFT) showed strength.

Tesla (TSLA) fell back from near-resistance. Shares are still up this week.

Nvidia stock is on the list IBD rankings and SwingTrader. Microsoft stock is listed at IBD Long-Term Leaders. Axon, Nvidia and Ares shares are on the line IBD50. Nvidia and Axon stocks are on the list IBD Bigcap 20. Nvidia was the IBD stock of the day on Wednesday.

Economic data

The Department of Labor will release the Producer Price Index and weekly unemployment claims at 8:30 a.m. ET on Thursday.

Initial unemployment claims are expected to drop by 6,000 to 215,000 in the week ending April 6.

Economists expect March’s PPI to rise 0.3%, following February’s 0.6% jump. The core PPI, which excludes food and energy, should rise a modest 0.2% after February’s 0.3% rise. Core PPI inflation should rise to 2.3% from a year earlier, up from 1.6% in February. Core PPI inflation should also be 2.3%, up from 2%.

Key elements in the PPI report directly impact the PCE core price index, the Fed’s favorite inflation report.

Dow Jones futures today

Dow Jones futures fell 0.2% from fair value. S&P 500 futures fell 0.2% and Nasdaq 100 futures fell 0.2%.

Remember, overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading during the next regular stock market session.

Join IBD experts as they analyze leading stocks and the market on IBD Live

Stock market rally

The stock market rally fell sharply on Wednesday on higher-than-expected CPI inflation data, although indexes did come off their intraday lows

The Dow Jones Industrial Average fell 1.1% in stock market trading on Wednesday, falling from its 50-day line to its lowest level in two months. The S&P 500 index fell 0.95% and the Nasdaq index lost 0.8%. Both fell below the 21-day moving average and tested the 10-week line.

The losers defeated the winners on Wednesday. The small-cap Russell 2000 fell 2.5%, below the 50-day line.

The Invesco S&P 500 Equal Weight ETF (RSP) fell 1.7%, but found support at the 10-week line. The first Trust Nasdaq 100 equal-weighted index ETF (QQEW) gave up 1.6%, breaking below 50 days.

Nvidia and some other AI names helped mask how weak Wednesday was. It’s good to see the key stocks in the market rally doing well. However, if Nvidia moves lower, it could trigger a sharp exodus, perhaps fueling the first correction since the market recovery began in late October.

On the other hand, banks sold the higher rates, along with homebuilders and some consumer leaders.

US crude oil prices rose 1.15% to $86.21 per barrel.

The yield on ten-year government bonds rose by 19 basis points to 4.56%, the highest level since mid-November. It was the biggest one-day increase since September 2022. Two-year Treasury yields, more in line with the Fed’s interest rate outlook, rose 22 basis points to 4.97%, the highest level since late November.

Markets now see only a 19% chance of a Fed rate cut by the June meeting and only a 45% chance of a cut by the July 31 meeting. Investors expect barely two interest rate cuts in 2023, compared to three before the CPI report. There is now a 13% chance that there will be no cuts in 2024.

President Biden says he expects the Fed to cut rates before the end of the year.

ETFs

Of the growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) fell by 1.3%. Microsoft is the No. 1 holding company in IGV, which also includes Nutanix stock as a member. The VanEck Vectors Semiconductor ETF (SMH) fell 0.9%, with Nvidia and Taiwan Semi shares holding the largest holdings.

Reflecting more speculative story stocks, ARK Innovation ETF (ARKK) retreated 2.3% and ARK Genomics ETF (ARKG) fell by 4.6%. Tesla shares are still a major stock in Ark Invest’s ETFs.

SPDR S&P Metals & Mining ETF (XME) fell 1%, while the US Global Jets ETF (JETS) fell 2.55%. The SPDR S&P Homebuilders ETF (XHB) has stepped down by 2.55%. The Energy Select SPDR ETF (XLE) rose 0.3% and the Health Care Select Sector SPDR Fund (XLV) retreated 1.2%. The Industrial Select Sector SPDR fund (XLI) fell by 0.85%.

The Financial Select SPDR ETF (XLF) fell by 1.5%. The SPDR S&P Regional Banking ETF (KRE) fell by 5%.

Time the market with IBD’s ETF market strategy

Stocks to watch

Nvidia shares rose 2% to 870.39, recovering from the 10-week line and hitting resistance at the 21-day line. Shares are still on track for their third straight weekly loss. The company and the stock that defines the AI ​​revolution and the AI ​​market rally is on track to have a flat base soon with a buy point of 974. Investors would like a decisive move above the 21-day moving average and breaking a can use a very short trend line as an early entry.

Shares of Taiwan Semiconductor rose 0.6% to 146.22, the fourth straight increase from the 21-day line. TSM stock is working towards a possible base with a potential buy point of 158.40. On Wednesday, the foundry giant, which makes chips for Nvidia, asked Apple (AAPL), Broadcom (AVGO) and many others reported strong sales in March and the first quarter, fueled by demand for AI semiconductors.

Astera Labs shares fell 4.3% to 71.31 in an remote session. ALAB stock has a new IPO base with an official buy point of 95.21, but resistance at 75 would provide an earlier entry into this AI network chip play.

Nutanix shares rose 1.7% to 65.57, recovering from the 21-day mark. The data storage software company is on track to hit a flat-base buy point of 66.99 after this week. Investors could use 66.51 as a somewhat early entry into NTNX stock.

Shares of Axon rose 2.25% to 318.26, recovering from the 21-day line and breaking a very brief downtrend. Investors could use this or a short-term high of 321.77 as early buy signals. The Taser and body camera maker has an official buy point of 325.63 on a new flat base MarketSmith Analysis.

Microsoft shares fell 0.7% to 423.26, but rebounded from the 21-day high to remain above a 420.82 buy point after a brief consolidation. MSFT stock could operate on a three-week tight pattern.

Tesla shares

Tesla shares fell 2.9% to 171.76, retreating from near the 10-week moving average where shares hit resistance in 2024. TSLA shares are still up 4.2% this week after Elon Musk late Friday touted the August 8 unveiling of a robotaxi.

Two more analysts cut Tesla’s earnings estimates on Wednesday and predicted lower deliveries in 2024 in the wake of stunningly weak demand in the first quarter. Tesla will report first-quarter results on April 23, but the focus will be on future growth drivers and whether a robotaxi will actually be in use within the next few years.

Analysis of the market rally

The S&P 500 and Nasdaq found support Wednesday, along with some leaders. A few leaders, including key Nvidia stock, had solid sessions.

Still, the market rally, which was already under pressure, suffered significant losses. The Russell 2000 and equally weighted RSP and QQEW ETFs broke key levels.

Even if we just look at the Nasdaq or Nvidia, just because an index or a stock finds support for one day – or two, three or five sessions – that doesn’t mean it will continue to do so.

Investors may want to avoid new purchases – with the possible exception of swing trades – until there is clear market strength and not significantly increase their exposure until the Nasdaq rises above its current sideways pattern.

In the meantime, you may need to cut back on some of your recent purchases. Make sure you have an exit strategy ready for your various holdings.

Keep working on watchlists. The stock market could improve quickly with a few strong sessions. So look for those emerging bases and pullbacks. Also look for stocks that are simply showing strong relative strength.

Read The Big Picture every day to stay informed about market direction and the most important stocks and sectors.

Follow Ed Carson on Threads at @edcarson1971 and X/Twitter on @IBD_ECarson for stock market updates and more.

YOU MAY ALSO LIKE:

Best growth stocks to buy and watch

IBD Digital: Unlock IBD’s premium stock lists, tools and analysis today

Elon Musk Teases Robotaxi After Delivery Plunge; BYD introduces pick-up