The stock market rally attempt had another wild session on Wednesday, with the major indexes initially tumbling but recovering from lows, with the Nasdaq making gains. Fear of Swiss Giant Swiss credit (CS) triggered another wave of selling in banking stocks, including well-capitalized global giants such as JPMorgan Chase (JPM).
Government rates fell, especially two-year rates, but they also came from lows. Ominously, trading in government bonds, among the deepest and safest markets in the world, shows declining liquidity.
Crude oil plunged to a 15-month low, while copper also tumbled as investors fear problems with banks and financial markets will spill over into the wider economy.
Microsoft (MSFT), Apple (AAPL), Advanced micro-devices (AMD), Meta platforms (META), Salesforce.com (CRM) and Nvidia (NVDA) shows strength or even contributes to gains. AMD, Meta and CRM shares are hovering just above buy points. Microsoft and Apple shares are moving toward official buy points, where MSFT can undoubtedly be traded. Nvidia stock, among the strongest in 2023, is currently extended.
Nvidia Stocks and Meta Platforms are on the IBD Leaderboard. META stock is on SwingTrader. MSFT stock is on IBD’s Long-Term Leaders list. CRM stocks are on the IBD 50, with Salesforce selected as Wednesday’s IBD 50 stock.
The video embedded in the article discussed Wednesday’s whipsaw market action and analyzed AMD stock, Salesforce and Duolingo (NEAR).
Software giant Adobe (ADBE) and teenager-focused discounters Five below (FEM) reported after the close.
ADBE stock rose 5% in late trade as Adobe slightly topped Q1 views and raised full-year expectations. Shares closed up 0.1% at 333.61 on Wednesday, trading below the 50-day and 200-day lines.
FIVE shares fell 3% overnight as Five Below’s earnings were in line but guidance was weak. Shares rose 0.2% to 198.17, holding support at the 50-day line after an orderly pullback.
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Dow Jones futures rose 0.3% versus fair value, turning higher on Credit Suisse taking SNB funds. S&P 500 futures rose 0.4 percent. Nasdaq 100 futures rose 0.5 percent.
The 10-year Treasury yield rose 2 basis points to 3.51%, erasing losses on the Credit Suisse loan news.
Crude oil futures rose slightly.
Keep in mind that overnight action in Dow futures and elsewhere does not 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 attempt on Wednesday
The stock market rally suffered heavy losses to start the session, but rallied to close mixed, barely.
The Dow Jones Industrial Average retreated 0.9% in Wednesday’s stock market trading. The S&P 500 index fell 0.7 per cent. The Nasdaq composite rose less than 0.1 per cent. The small-cap Russell 2000 tumbled 1.7%.
Credit Suisse sold on Wednesday as its top shareholder, Saudi National Bank, ruled out investing more money in the ailing Swiss giant. It sent banks in Europe and worldwide significantly lower.
CS stock, which has been ailing for years, hit a record low of 1.75 intraday. The stock closed up 14% at 2.16.
The Swiss National Bank said shortly before the US markets closed that it will provide liquidity to Credit Suisse. On Wednesday night, Credit Suisse moved to borrow up to 50 billion Swiss francs ($53.7 billion) from the SNB.
In the US, JPM shares, Wells Fargo (WFC), Bank of America (BAC) and Citigroup (C) all slightly below last week’s lows. JPM stock fell 4.7%, nearing its 200-day line, and setting a 2023 low along with Citigroup. WFC stock hit an eight-month low, while BofA sank to its worst levels since late 2020.
Regional banks were mixed. First Republic Bank (FRC) fell 21% as S&P Global cut its credit rating four notches to junk status. But some regional and super-regional banks moved forward, e.g Western Alliance Bancorp (WAL).
The Financial Select SPDR ETF ( XLF ) fell 2.7%, with JPMorgan, Citigroup, Wells Fargo and BAC all major holdings. The SPDR S&P Regional Banking ETF (KRE) fell 1.6 per cent. FRC shares and Western Alliance are among the many components.
First Republic is exploring options, including a possible sale, Bloomberg reported Wednesday evening, citing sources. FRC shares rose more than 8%.
U.S. crude oil futures fell 5.2% to $67.61 a barrel. barrel, the lowest price in 15 months. Copper prices fell 3.8% to their worst close since January 5.
The 10-year Treasury yield fell 14 basis points to 3.49%. Intraday the rate reached 3.39%, not far from the February 2nd low of 3.33%. The 2-year Treasury yield fell 25 basis points to 3.97% after plunging to 3.72% during the day. A week ago, just before the SVB financial crisis hit, the 10-year interest rate was 3.97%, while the 2-year rate was 5.06%.
Bank fears and interest rate changes by the Fed drive government yields down. Weaker economic data on retail sales, producer prices and the New York Fed’s Empire State Manufacturing Index contributed to the cooling.
Despite falling government yields, the dollar jumped amid a global rush from Credit Suisse concerns. The dollar is close to recent highs.
Bold rate hike odds
A week ago, markets were betting on a 50 basis point rate hike on March 22, followed by at least two more quarter point rate hikes.
But after Wednesday, investors see a 50-50 chance that the Fed will pause next week. They see an increase in the neighborhood by the end of the May meeting. But markets expect several rate cuts after that, including a 50 basis point move in June.
Among growth ETFs, the Innovator IBD 50 ETF ( FFTY ) retreated 1.8%. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell 0.2%, with Microsoft and CRM stocks major IGV holdings along with Adobe. The VanEck Vectors Semiconductor ETF ( SMH ) gave up 1.1%. NVDA stock and AMD are major SMH holdings.
The SPDR S&P Metals & Mining ETF ( XME ) fell 5.9% and the Global X US Infrastructure Development ETF ( PAVE ) fell 4%. US Global Jets ETF (JETS) fell 4.3 per cent. The SPDR S&P Homebuilders ETF (XHB) fell 2.2 percent. The Energy Select SPDR ETF (XLE) fell 5.4 per cent. The Health Care Select Sector SPDR Fund (XLV) fell 0.1 per cent.
As a result of more speculative story stocks, the ARK Innovation ETF ( ARKK ) gained 0.8% and the ARK Genomics ETF ( ARKG ) rose 0.1%.
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Tech Titans show strength
Apple shares rose 0.3% to 152.99. The iPhone giant has a buy point at 157.48 from a flat base formed above the 200-day line. The relative strength line is at a four-month high, reflecting AAPL stock’s outperformance relative to the S&P 500 index.
MSFT shares rose 1.8% to 265.44. The Dow Jones giant is building the right side of a short consolidation formed just above the 50-day and 200-day lines. Microsoft stock is on track to have a flat base with a buy point at 276.86 after Friday’s close. In a better market, MSFT stock would already be active, either as an early entrant or as a long-term leader.
CRM stock rose 1 cent to 182.91, staying within a 178.94 cup-with-handle buy point.
AMD shares rose 2.55% to 89.68, after gaining 6.6% on Tuesday. Shares are just below an 89.04 flat buy point, according to MarketSmith analysis.
META shares rose 1.9% to 197.75. The Facebook parent approved a buy point at 197.26, after topping some early entries with Tuesday’s 7.25% gain.
Nvidia shares rose 0.7% to 242.28. The chip giant is at its best level in 11 months, but is extended from recent buy points. Ideally, NVDA stock would consolidate for a few more weeks, making a new base and allowing the rapidly rising 50-day retracement.
Analysis of market rally
The stock rally attempt had another rollercoaster session, but ended near session highs.
The Nasdaq, down as much as 1.7% intraday, managed to edge higher at the close, holding the 50-day and 200-day lines. The Nasdaq 100, which includes the 100 largest non-financial Nasdaq components such as Microsoft, Apple, Nvidia, Meta and AMD, rose 0.5 percent.
The S&P 500 fell below the lows of Wednesday’s rally, but held above Tuesday’s lows during the day, so its rally attempt is intact.
The Dow Jones simply undercut Monday’s low, wiping out its rally attempt and hitting its worst levels since October. The Russell 2000, loaded with small bank stocks, fell to its worst levels since late 2022.
Technically, investors may start looking for a follow-up day on the Nasdaq to confirm the new rally. An FTD would almost certainly push the Nasdaq 100, and perhaps the Nasdaq Composite, above a trendline from the early February highs.
But the other indexes have a lot more work to do. How sustainable is a tech-led rally if banks, commodity markets and industries sell off?
A potential global financial crisis is, to put it mildly, far more important than if, for example, a job report is too strong or weak. So even minor changes in positive or negative sentiment can trigger massive market swings. And large swings in one market, such as government bonds, will ripple through stocks, commodities and currencies.
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What should I do now
Investing is challenging enough in a clear bull market. Trying to play a volatile market correction in the midst of a burgeoning financial crisis increases the risk exponentially.
Yes, Meta Stock, Salesforce, AMD and Microsoft are technically viable with Apple close behind. A number of other technologies are showing bullish action. But if this market breaks, it will bring everything down.
At least wait for a follow-up day. It is likely to trigger a number of buy signals. But investors should still be cautious even in that scenario. There is a high risk that another major bank or market headline will trigger sudden sell-offs.
In the meantime, build your watchlists. Look for stocks with strong relative strength, especially those near buy points, but also leaders like Nvidia stock.
Read 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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