Stocks fall on fears of a Fed rate hike and Hurricane Dimon


Dow Jones futures were down slightly overnight, along with S&P 500 and Nasdaq futures. The stock market rally retreated again on Wednesday as hot labor data raised the prospect of bigger rate hikes, while JPMorgan’s Jamie Dimon warned of an economic “hurricane”. Major indexes pared their losses somewhat as the Federal Reserve saw slower growth across much of the United States.




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Lithium producers Albemarle (ALB) and Livent (LTHM) plunged as agriculture plays like ADM (SMA) and Bunge (BG) fell sharply after Tuesday’s bullish moves.

On the upside, energy stocks continued to do well, with LNG playing Golar LNG (LNG) and excel energy (EE), a recent IPO, flashing buy signals. Callon oil (CPE) climbed to near a buy point, continuing to run from the bottom of a V-shaped cup base. All three are volatile, however.

Printer and PC Giant HP Inc. (HP) rose 3.9% to 40.34, a record close, after better-than-expected earnings on Tuesday night. HP stock broke through an early entry of 39.81 which also lines up with the top of a previous base.

Meanwhile, megacaps are not leading the market rally. Microsoft stock is the only one to approach its 50-day line, however Apple (AAPL) and parent company of Google Alphabet (GOOGL) are approaching their 50-day waning lines. You’re here (TSLA) fell 2.4% on Wednesday. TSLA stock, after last week’s big rebound, is meeting resistance at its 21-day exponential moving average.

Data storage plays NetApp (NTAP) and Pure storage (PSTG) announced its results on Wednesday evening, as well as Hewlett Packard Enterprise (HPE) and software vendors MongoDB (MDB) and Veeva systems (VEV). NetApp, Pure Storage, MongoDB and Veeva rose in extended trade on strong results, while HPE fell after a slight miss. All are considerably off the tops.

Albemarle’s stock is on the IBD ranking. Microsoft (MSFT) and Google Stock are long-term IBD leaders. Callon Petroleum and BG shares are on the IBD 50, with CPE selected as Wednesday’s IBD 50 Stock To Watch.

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%.

Crude oil prices fell more than 1%.

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


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Economic data

The April JOLTS survey showed job vacancies at 11.4 million, in line with views. It’s not quite at an all-time high, but very close. March job vacancies were revised to 11.855 million from 11.549 million. People quit at near-record levels, while layoffs hit new lows. The Federal Reserve clearly wants to see labor markets ease. Maybe it started happening in May. But that wasn’t in the April JOLTS report.

The May jobs report is due Friday.

Meanwhile, the ISM manufacturing index rose to 56.1 in May from 55.4 defying sight for a slight drop to 54.5.

The Fed’s Beige Book report, released at 2 p.m. ET, showed economic growth slowed in several districts as customers balked at some high prices.

Atlanta Fed President Raphael Bostic returned from a “break” in September. San Francisco Fed President Mary Daly sees no pause until the fed funds rate hits 2.5%. With the benchmark rate at 0.75%-1% now, that implies at least three more half-point rate hikes.

Finally, JPMorgan CEO Jamie Dimon warned of an economic “hurricane” ahead. “You better get ready,” he told a financial conference. “JPMorgan is gearing up.” Dimon said the question is whether it will be a minor or major hurricane.


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Stock market rally

The stock market rally opened on Wednesday with solid gains, but warm economic data and “Hurricane Dimon” quickly changed the mood, with major indexes reversing lower. The indices pared their losses in the afternoon, helped by the Fed’s Beige Book, but sagged again.

The Dow Jones Industrial Average fell 0.5% in trading on Wednesday. The S&P 500 index fell 0.75%, with ALB stock the worst performer. The Nasdaq composite fell 0.7%. Small cap Russell 2000 lost 0.6%.

U.S. crude oil prices rose 0.5% to $115.26 a barrel. Gasoline, diesel and natural gas futures posted much larger gains.

The 10-year Treasury yield jumped nine basis points to 2.93% following the JOLTS report and Fed comments. That’s after a 10 basis point increase on Tuesday. Investors betting on half-point rate hikes this month and July are now pricing in a 50 basis point move in September as well.

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Among the top ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.15%, while the Innovator IBD Breakout Opportunities ETF (BOUT) edged up 0.6%.

The iShares Expanded Tech-Software Sector ETF (IGV) gained 0.6% as Salesforce.com (CRM) reported strong earnings and ServiceNow (NOW) increased guidelines. MSFT stock is also a huge IGV portfolio.

ETF VanEck Vectors Semiconductor (SMH) fell 1.6%.

The SPDR S&P Metals & Mining ETF (XME) and the Global X US Infrastructure Development ETF (PAVE) both fell 0.2%. America’s Global Jets (JETS) fell 3.1%. SPDR S&P Homebuilders (XHB) sank 1%. The Energy Select SPDR ETF (XLE) rose 1.6% and the Financial Select SPDR ETF (XLF) fell 1.6%.

Mirroring stocks with more speculative histories, ETF ARK Innovation (ARKK) fell 3.6% and ARK Genomics (ARKG) lost 3.4%. Tesla stock remains Ark Invest’s No. 1 ETF.


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Refrigerated lithium stocks

Albemarle stock plunged 7.8% while Livent stock plunged 14%, dropping below early buy points after strong losses on Tuesday. Earlier this week, Goldman Sachs announced a top in battery metals, predicting a sharp decline in white-hot lithium prices in 2023.

ALB and Livent shares surged late last week past key resistance levels as the Nasdaq followed. The moves were also a late reaction to Albemarle’s second bullish guidance move in a month.

ALB stock, at least, found support at its 21-day moving average. On a monthly chart, shares of Albemarle and LTHM don’t look too bad, given their huge gains in May. Maybe these stocks will form handles, but maybe not.

Anyone who bought these stocks Thursday-Friday, even near the entry points, is sitting on modest to painful losses.

Agricultural stocks are wilting

ADM stock fell 4.6% to 86.67, falling below the 50-day line and wiping out several days of gains. On Tuesday, ADM stock rose 2.1%, breaking above the 50-day line and showing early entry. Bunge stock showed similar action on Tuesday with a 3.1% gain. But it fell 3.6% to 114.10 on Wednesday, back below the 50-day line.

Fertilizer stocks such as Mosaic (MOS), which had posted strong gains on Tuesday, was sold on Wednesday.

Market rally analysis

The stock market rally suffered modest losses for a second straight session, posting intraday lows but fading again at the close. The Nasdaq continued to find support at its 21-day moving average.

One of the concerns about the current market rally is that there hasn’t been a lot of stocks to buy. This situation has not improved with some promising moves reversing hard including LTHM stocks, ADM stocks and more. Drugmakers haven’t broken down, but aren’t having a good time this week.

Meanwhile, a number of stocks that were establishing themselves are struggling again, including travel games such as Delta Airlines (DAL).

Could many of these names rally if the market recovery stabilizes? Sure. In a positive scenario, the current pullback in the market could allow new handles and pullbacks to form. But right now, stocks are falling.

The only exception is oil and gas. This sector continues to perform well overall, with some stocks at or near buy points. But these names are subject to volatile action.

Growth names remain heavily damaged, with the rebound in Treasury yields once again concerning. Even though the market rally is showing lasting power and shares of Microsoft, Google and Apple are getting back into shape, it’s unclear if these megacaps will outperform for the foreseeable future.


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What to do now

If you took limited exposure on Thursday or Friday, you might not have been hurt too much and you could still be on your feet. But if you stepped in more aggressively and continued to add holdings on Tuesday, you could have suffered nasty losses. This is especially true if you have purchased more volatile names.

Remember that if you are going to be aggressive to enter, you must be aggressive to reduce.

Yes, it is possible that you will sell positions and the stocks and the market will rebound quickly. But if so, you can redeem those stakes – or something better. This is a minor cost for protection against a much steeper sell off.

Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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