The market is still reeling as the bull case turns bearish

Dow Jones futures fell overnight, along with S&P 500 futures and Nasdaq futures, with FedEx (FDX) fall overnight due to weak earnings and guidance. The stock market rally continued to falter, with major indexes erasing Wednesday’s weak-to-modest rebound, while Treasury yields are near long-term highs.




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The market is still dealing with Tuesday’s hot consumer price index inflation report, which overturned expectations of an imminent slowdown in interest rate hikes by the Federal Reserve.

Adobe (ADBE) collapsed with mixed results and a A $20 billion acquisition. Oil and natural gas stocks fell with energy prices, but solar and lithium stocks also took heavy losses.

Neurocrine Biosciences (NBIX) and Vertex Pharmaceuticals (VRTX) continued to hold up well, although they weren’t easy to trade either.

Meanwhile, megacap tech continues to languish. An apple (AAPL), which signaled an early buy on Monday, broke short-term lows on Thursday. Microsoft (MSFT) nears its bottom in June, while Google parent Alphabet (GOOGLE) set a 19-month low at the close.

NBIX shares are included IBD ranking. Shares of Microsoft and Google are included IBD long-term leaders. VRTX shares are at IBD Big Cap 20.

FedEx earnings

After the close, FedEx reported that fiscal first-quarter earnings fell 21% from a year earlier, versus views for an 18% rise. Revenue rose modestly but slightly beat forecasts. The shipping giant also withdrew guidance for fiscal 2023 and announced sweeping cost-cutting measures as it faces declining delivery volumes. FedEx was scheduled to release first-quarter results on September 22.

FDX shares fell 16% in overnight trading. Archival UPS (UPS) sank by nearly 6%. Amazon.com (AMZN) fell by 2%. Amazon has cut ties with FedEx, but the warning could be bad news for e-commerce in general.

Separately, General Electric (GE) said ongoing supply chain issues are putting pressure on cash flow. GE shares fell 4% overnight.

Dow Jones futures today

Dow Jones futures were down 0.45% at fair value. S&P 500 futures fell 0.6%. Nasdaq 100 futures were down 0.75%.

Remember this night action in Dow futures and elsewhere does not necessarily become an actual trade in the next regular Stock Exchange session.


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Stock market rallies

The stock market rally started with a rally on Thursday, but it didn’t last as selling soon firmed up.

Jobless claims fell again to a three-month low, but other data, including August retail sales, broadly pointed to a weaker-than-expected economy but with easing price pressures. The Atlanta Fed’s GDPNow tool estimated third-quarter GDP growth of just 0.5 percent, down from a forecast of 2.5 percent in August.

The Dow Jones Industrial Average fell 0.6% on Thursday Exchange Trading. The S&P 500 lost 1.1%. The Nasdaq Composite gave up 1.4%. The small-cap Russell 2000 lost 0.7%.

Apple shares fell 1.9% to 152.37, bottoming out on an already strong position. After rising above its 50-day and 200-day lines on Monday, stocks fell back below those key levels in Tuesday’s market crash.

Microsoft shares sank 2.7% to 245.38 on Thursday, the lowest point since the mid-June low. Shares of Google fell 2% to 102.91, missing their May 24 intraday low but their worst close since April 2022.

U.S. crude oil prices sank 3.8 percent to $85.10 a barrel. Natural gas prices fell 8.7% as an averted rail strike will keep coal supplies going. Natgas jumped on Wednesday.

The yield on the 10-year Treasury note rose 5 basis points to 3.46%, despite weak economic data. That’s just below the 11-year high of 3.48% set on June 14. The one-year yield exceeded 4%.

ETFs

Avg the best ETFsInnovator IBD 50 ETF (FFTY) tumbled 2.1%, while the Innovator IBD Breakout Opportunities ETF (BOOTH) lost 1%. iShares Expanded Tech-Software Sector ETF (IGV) fell 3.2%, with Adobe and MSFT the main components of the stock. VanEck Vectors Semiconductor ETF (SMH) declined by 1.8%.

SPDR S&P Metals & Mining ETF (XME) decreased by 2.75%. Energy Select SPDR ETF (XLE) fell 2.6%, and the Financial Select SPDR ETF (XLF) rose by 0.3%. Select Healthcare Sector SPDR Fund (XLV) rose 0.6%.

Reflecting the more speculative stocks of history, the ARK Innovation ETF (ARKK) rose 2.2% and the ARK Genomics ETF (ARKG) 1.8%.


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NBIX shares

Shares of NBIX rose 2.5% to 106.93 on Thursday. Neurocrine Biosciences now has a flat base with 109.36 buy point, acc MarketSmith analysis. The stock flashed some early entries over the past few weeks, but quickly retreated. Shortly after the open on Wednesday, shares of NBIX fell to 100.46, testing its 50-day line and the top of a previous base. In theory, a trader could buy Neurocrine when it recovers from its 50-day line, but it would take a brave person to make that bet given market conditions.

The line of relative strength is at a new high, reflecting the strong performance of NBIX shares in a weak market.

VRTX Stock

Shares of VRTX rose 1% to 287.67, just below the 50-day line. Vertex Pharmaceuticals gave some early buy signals late last week, but fell 4.4% on Tuesday, falling below its 50-day low.

In a few days, Vertex stock may have its own flat base.

Market Rally Analysis

The stock market rally shows no appetite for recovery. After Wednesday’s shaky, weak recovery from Tuesday’s selloff, the major indexes erased those gains easily.

The Nasdaq 100, with top heavyweights Apple, Microsoft and Google, hit its low for the day on September 6. The Nasdaq and S&P 500 have yet to break the September 6 lows. but both posted their worst closes since July.

A close on the Nasdaq below its Sept. 6 low would likely signal the end of the market’s long overdue rally.

On a technical basis, the major indices should return above their 50-day moving averages. Their 21-day lines are now below the 50-day.

The upcoming Fed meeting adds to the risks over the next few days. More broadly, the market will likely struggle to make lasting progress until there is a strong sense that the Fed will slow and soon stop raising interest rates. That was the hope in Tuesday’s CPI inflation report. But no longer.

Meanwhile, not only is inflation higher than thought just a few days ago, but economic activity is also weaker. So the Federal Reserve will impose more “pain” amid a struggling economy.

A recession — or a zero-growth economy with tight labor markets — will be difficult for businesses to navigate.


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What should we do now

The market rally is barely holding on again. Too many intriguing stocks will give a buy signal, then turn down the next day. It’s just an extremely difficult environment to invest in.

Until the major indices return above their 50-day moving averages, investors should have modest exposure at most and be extremely cautious about any new purchases. It would be nice to have clarity on the Fed’s rate hike endgame, but that may not come for several weeks or more.

Market conditions can quickly improve or deteriorate. If it’s the former, you’ll want to have an up-to-date watch list. If it’s the latter, you’ll be glad you worked on watchlists instead of buying new stocks.

Read it The big picture every day to stay in sync with 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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