Dow Jones futures, S&P 500 and Nasdaq were not much changed after-hours. AMD reported the most important earnings after the close. The Fed rate decision is Wednesday.
Stock market gains were slowed down by solid losses on Tuesday. The major indexes fell from their highs of 2023, but they found support.
Investors are selling off banks, especially regionals like PacWest Bancorp, Western Alliance Bancorp and Comerica. They fear that more bank failures will follow the collapse of First Republic Bank and its sale to JPMorgan Chase.
Crude oil prices have caused a drop in energy stocks.
Early Wednesday, Wingstop (WING), and Yum Brands(YUM) will be on the air.
SMCI and AMD stock are listed on the IBD 50. IBD Big Cap 20 includes AMD and ANET.
Dow Jones Futures Today
Dow Jones futures were slightly lower in comparison to fair value. AMD is an important Nasdaq stock.
Keep in mind that overnight trading in Dow futures or elsewhere may not necessarily translate to actual trading during the next regular session of the stock market.
Fed Rate Decision
Federal Reserve will almost certainly raise rates at 2 pm. Even with the banking crises, which was largely triggered by Fed tightening, is still far from over, ET Wednesday. The fed funds rate would be lowered by a quarter point, bringing it to 5%-5.25 percent. What will Fed Chairman Powell and the Fed Meeting Statement say about future monetary policy? The markets currently expect that the Fed will pause. Powell will probably want to maintain Fed flexibility, given the stubbornly high inflation.
The bank stocks fell Tuesday, after a day of solid losses that accelerated to sharp ones on Monday. However, they bounced back from their intraday lows. PACW plunged 28% and set a record closing. WAL shares fell 15%.
Superregionals have also fallen. Comerica's stock fell 12%. Keycorp (KEY), lost 9.4%, and Truist (TFC), dropped 7.6%. PNC Financial Services, Inc. (PNC), fell 2.3% to a multi-year low.
Charles Schwab (SCHW), a banking giant, also suffered a 3.3% decline. Bank giants were also struggling. Bank of America (BAC), and Wells Fargo, (WFC), lost 3% and 3,8% respectively. They are not at the recent lows yet but they are not far away either. JPMorgan's stock fell by 1.6% after it flirted with an upward breakout on Monday due to its deal to purchase First Republic.
First Republic's failure and sale did not end banking concerns. PacWest disclosed stabilizing deposit last week, but is among the worst-hit banks this week.
Investors are afraid of more bank failures, which could leave them with no money. This could be a self-fulfilling omen, as falling bank stocks encourage people to withdraw deposits faster. The regulators have stated that all deposits will be protected, but it only takes a couple of clicks to move funds to "safe" banks.
Bank profitability and stock prices may suffer in the long term. Regional banks will be forced to pay much more for funding or deposits, which could affect their profitability. The FDIC, on the other hand, will charge banks, and especially giants, hefty fees in order to cover the costs of failures.
Financial Select SPDR ETF XLF (dominated by financial giants like JPM stock and BofA) lost 2.3%. The SPDR S&P Regional Banking ETF KRE -- which includes PACW, Western Alliance and Comerica, among others -- fell 6.3%, reaching a new 30-month low.
AMD's stock dropped in after-hours trades, indicating a move under the 50-day line. AMD's earnings exceeded expectations, but its Q2 revenue guidance and gross margin were below the consensus. In Tuesday's regular trading session, shares rose 0.25% to reach 89.91. AMD stock was finding support around the 50-day mark, which is also a previous buy point. A move up from current levels could be a good opportunity to buy.
SMCI shares rose overnight after Super Micro's earnings missed expectations, but the server manufacturer guided up for fiscal Q4. Tuesday, shares fell 0.65%. SMCI shares fell last week after the server manufacturer issued disappointing preliminary results. This was mainly due to component shortages. The shares have risen above the 50-day line, but in a tumultuous range that has been going on since late March.
LTHM shares soared in extended action as the lithium producer beat expectations and raised its full-year guidance. The Livent stock rose 0.6% on Tuesday to 21.02, but below the key moving averages. Albemarle, which reports on Wednesday, is more vulnerable to falling spot lithium price. ALB's stock rose late.
SBUX shares fell slightly after Starbucks' earnings exceeded expectations, driven by strong same-stores sales and a surprising gain in China comps. MarketSmith analysis shows that shares dipped by 0.1% to 114.46 on Tuesday, remaining in the buy range at a buy point of 110.93 cups.
The WING stock rose 0.3% on Tuesday and is also in the buy range. YUM shares are slightly extended and have gained 0.5%.
Stock Market Rally
The rally in the stock market began lower and continued to accelerate losses until late morning.
In Tuesday's stock exchange trading, the Dow Jones Industrial Average dropped 1.1%. S&P 500 index fell 1.2%. The Nasdaq composite fell 1.1%. The Russell 2000 small-cap index fell 2.1%.
The price of U.S. crude dropped 5.3%, to $71.66 per barrel.
The yield on the 10-year Treasury fell by 14 basis points, to 3.44%. The yield on the two-year Treasury fell 16 basis points, to 3.98%. The three-month Tbill rate climbed to 5.24%.
The Innovator IBD Breakout Opportunities ETF (BOUT) fell 0.85%. Innovator IBD's Breakout Opportunities ETF fell by 0.85%. The iShares Expanded Tech Software Sector ETF (IGV), which tracks the entire tech-software sector, lost 1.4%. VanEck Vectors Semiconductor ETF(SMH) lost 0.9%. SMH holds a lot of AMD.
ARK Genomics ETF (ARKG) and ARK Innovation ETF(ARKK) both declined 3.2%, reflecting stocks with more speculative news.
Global Jets (JETS), a major airline, fell 0.8%. SPDR S&P Homebuilders Fund (XHB) fell 0.4%. Energy Select SPDR ETF XLE fell 4.35%, and Health Care Select Sector SPDR Fund XLV dropped 0.4%.
Market Rally Analysis
Stocks fell intraday after hitting resistance at the 2023 highs. The biggest winners were energy stocks, while the largest losers were bank stocks. Arista Networks, a stock that was nearing a buying point, has now tanked on the back of disappointing results.
The Nasdaq Composite, which is not heavily exposed to energy or financials, found its support at the moving average of 21 days. The Nasdaq 100 - which is comprised of the 100 largest Nasdaq non-financial stocks – only fell 0.9%.
S&P 500 & Dow Jones both found support on the 21-day line.
The Russell 2000 fell to its lowest levels since March 24, 2023.
Stock market rallies continue to be under pressure. Major indexes struggle to rise above their 2023 highs. It's not bad, but the indexes are better looking than the overall market.
The market breadth on Tuesday was poor, and the slight uptick seen late last week seemed to be a mere blip.
First Trust Nasdaq 100 Equal Weighted Index ETF QQEW fell by 1.2% and is now back below the 50-day line. Invesco's S&P Equal Weight ETF, (RSP), fell 1.5% below its 50-day line and ended just below the 200 day line.
The earnings reports of many restaurants, including Wingstop Brands, Starbucks and Yum Brands, have shown that they are doing well.
Along with medical products, drugmakers and biotech companies are doing well. The time is right for defensive names and defensive growth companies.
Marriott Worldwide (MAR), which reported earnings on Tuesday, is a good example. This week we'll also see Booking Holdings, the travel leader.
Gold stocks are performing well, but this is not usually a good sign for the market or economy as a whole.
The market leader is very narrow.
Chips outside Nvidia have struggled over the last month. AMD's overnight decline in stock is a sign of further chip weakness.
Fed policymakers have been shackled by the fact that they continue to raise rates despite a bank crises and a slowing economy. Powell is aware that bank troubles are a warning for the financial system, and that they will have a negative impact on the economy. However, he fears that ignoring inflation could be even more damaging.
It is important to watch the market's reaction to Wednesday's Fed meeting. Apple's (AAPL), earnings will be due Thursday, and the April jobs report on Friday.
What to Do Now
This is not the best time to add exposure. The indexes tend to pull back just as the market rally begins to gain momentum and breadth. Many individual stocks suffer heavy losses due to sector rotation and earnings.
The right stocks will likely produce nice returns in 2023 for investors. Knowing when to take profits, whether partial or total, is important.
It is prudent to have a large cash balance, particularly before the Fed rate announcement and other important news. Investors must remain flexible. Two or three good days can send the market to new heights and create a variety of buying opportunities. Few bad days can signal a move to the sidelines.
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