Dow Jones Futures: Stocks Plunge on Demand for Biggest Fed Rate Hike in 40 Years; Apple, Tesla Tumble

Dow Jones futures were little changed overnight, along with S&P 500 futures and Nasdaq futures. The stock rally collapsed on Tuesday on a hotter-than-expected inflation report, with major indices breaking below their 50-day moving averages, wiping out all or nearly all of their recent gains.




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August’s consumer price index was much worse than expected. Consumer prices rose 0.1% from a 0.1% decline, while food prices and rents pushed costs up despite falling gasoline prices. Core CPI, excluding food and energy, rose 0.6%, double what was expected. General inflation cooled somewhat to 8.3%, but Wall Street was counting on 8%. Core inflation rose more than expected to 6.3%.

That prompted a Wall Street firm to predict that the Federal Reserve will raise interest rates by a full percentage point during its Sept. 20-21 Fed meeting. That would be the most since the early 1980s, when then-Fed chief Paul Volcker waged an all-out war on inflation.

Pure storage (PSTG), Tesla rival Nioz (NIO), Devon Energy (DVN), wolfspeed (WOLF) and Enphase Energy (ENPH) showed relatively healthy action on Tuesday.

Mega caps Apple (AAPL) and Tesla (TSLA), which had recently given buy signals, fell hard Tuesday, back below key levels. Nvidia (NVDA) and Facebook parent Metaplatforms (META), no one’s idea of ​​the current market leaders, plummeted to the low of 2022.

DVN shares are listed on IBD Leaderboard. PSTG shares are listed on SwingTrader and were the IBD share of the day on Tuesday. Tesla shares and Devon Energy are on the IBD 50. Devon and ENPH shares are on the IBD Big Cap 20.


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Dow Jones Futures Today

Dow Jones futures were up 0.1% from fair value along with S&P 500 futures. Nasdaq 100 futures were flat.

At 8:30 a.m. ET, the Department of Labor will release the August producer price index.

Keep in mind that an overnight action in Dow futures and elsewhere does not necessarily lead to actual trading in the next regular trading session.


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stock market rally

The stock rally suffered its biggest loss of 2022, with major indices closing near session lows on the hot inflation report and fears of Fed rate hikes.

Another factor? The US is considering options for sweeping sanctions against China to avert an invasion of Taiwan, Reuters reported Tuesday. The European Union is under pressure to do the same. That would increase the risk of a massive economic decoupling between China and the West.

The Dow Jones Industrial Average fell 3.9% in trading on Tuesday. The S&P 500 index fell 4.3%. The Nasdaq composite fell 5.2%. The small-cap Russell 2000 lost 3.9%.


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Nvidia shares and META shares plunged more than 9%, both of which undercut their 2022 lows.

The price of crude oil in the US fell 0.5% to $87.31 a barrel.

Ten-year government bond yields rose by 6 basis points to 3.42%. The benchmark’s return reached 3.45% intraday, just below the 11-year high of 3.48% on June 14. Short-term yields rose much more.

ETFs

Among the top ETFs, the Innovator IBD 50 ETF (FFTY) fell 2.9%, while the Innovator IBD Breakout Opportunities ETF (BOUT) lost 2.35%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 4.7%. The VanEck Vectors Semiconductor ETF (SMH) plunged nearly 6%. NVDA stocks are a major SMH holding company.

SPDR S&P Metals & Mining ETF (XME) lost 3.7%. SPDR S&P Homebuilders ETF (XHB) fell 5.9%. The Energy Select SPDR ETF (XLE) fell 2.5% and the Financial Select SPDR ETF (XLF) lost 3.75%. The Health Care Select Sector SPDR Fund (XLV) fell 3.3%.

As a result of more speculative story stocks, ARK Innovation ETF (ARKK) plunged 6.8% and ARK Genomics ETF (ARKG) 5.6%. TSLA stocks are a major holding in Ark Invest’s ETFs.


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Stocks showing strength

PSTG shares fell 3.8% to 29.64 on Tuesday, but closed above the 21-day line. Pure Storage stock is working on a handle cup with a buy point of 31.62. Investors could use a move above Monday’s high of 30.88 as a slightly lower entry point.

Nio shares rose 0.9% to 21.95, reaching the 200-day intraday line after soaring 13.5% on Monday. Shares of the Chinese EV startup are up 28% in the past five sessions, four of them in heavy volume. Analysts are increasingly optimistic about Nio’s lineup. Nio will start shipping the ET5 sedan on September 30, the third new EV this year. Nio shares are low at 24.53, but investors can use a decisive move above the 200-day line as an early entry.

DVN stock fell 3% to 69.07 and pulled back after breaking a handle’s trendline on Monday. The cup-with-handle buy point is 75.37. Investors could now use Monday’s high of 71.57 as an early entry. A longer break would slightly catch up with the 50-day moving average.

WOLF shares fell 2.5% to 113.98 on Tuesday, after falling to 111.26 shortly after opening. Evercore ISI started the chipmaker with an outperform, saying it’s a great way to play into the EV space. Investors might view the recent move as a handle on a massive consolidation, with the buy point at 123.35. A move above Monday’s high could provide an early entry, but Wolfspeed stock has extended, significantly surpassing some of its moving averages.

ENPH shares fell 1.1% to 305.50 after testing the 21-day line. Investors should now be able to buy Enphase shares from the 21-day line, although market conditions are increasing the risks. A longer ENPH stock pause would allow a 50-day rising line to gain some ground.

apple stock

Apple shares plunged 5.9% and slipped back below the 50-day and 200-day lines in heavy volume, abandoning gains from the previous two sessions. AAPL shares had broken a downward trend in a handle on Monday and offered an early entry, but that is now off the table. Shares of the Dow Jones tech titan are working to a buy point of 176.25 from that handle.

Apple iPhone 14 pre-orders appear to be as strong or stronger than for the iPhone 13 last year. The actual iPhone 14 sales begin Friday.


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Tesla stock

Tesla stock fell 4% to 292.13, slightly back below the 200-day line, but held the 21-day mark and comfortably above the 50-day mark. Volume was light, but higher than in the five-day rally.

TSLA stocks arguably have a short base within a much larger consolidation, with a buy point of 314.74. A move above Monday’s high of 305.49 could provide an early entry.

Martin Viecha, Tesla’s head of investor relations, said at a conference on Tuesday that supply chain constraints and costs for EVs are easing, which should lead to lower prices. Viecha said Tesla would eventually unveil a cheaper EV model, but didn’t provide details on when that could happen. Tesla recently introduced a lower-end Model Y in Europe for a much cheaper price.

Market rally analysis

The recently revived stock rally ran headlong into the CPI inflation buzz on Tuesday. The major indices and Russell 2000 all fell below their 50-day moving average. The Dow Jones broke last week’s lows while the S&P 500 nearly did. The Nasdaq has wiped out most of the gains of the previous four sessions.

Leading stocks, many of which made some strong gains in recent days, also suffered on Tuesday. Losers beat the winners, after the robust market size in recent days.

Apple stocks saw damaging action on Tuesday. Tesla also pulled back, after some low volume gains, but the chart is looking slightly better.

While Pure Storage and Nio stocks still look good, chances are they will falter as the market comes under more pressure.

The stock market had rallied in recent days, in no small part due to expectations of a tame inflation report. That, in turn, would prompt the Fed to raise interest rates less aggressively.

But after the hot inflation report, Nomura Securities predicted that Fed policymakers will raise interest rates by 100 basis points on Sept. 21.

Markets are pricing in at least 75 basis points in full for a third consecutive Fed meeting next week. But there is now a chance of about a third of 100 basis points, a zero increase ahead of the CPI data. Markets are betting on higher year-end yields.

The 10-year government bond yield has continued its scorching rise in recent weeks.

A more aggressive Fed, higher Treasury yields and a stronger dollar are not a great recipe for equities. That was especially true when markets bet on the opposite.

The question now is where the market is headed. Will major indices undercut last week’s lows and move towards the June bottom? It is possible that the market will be limited as Wall Street waits for actual signs that the Fed will slow rate hikes.


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What to do now

Investors may have wanted to take profits ahead of Tuesday’s CPI inflation report, given the small advances that held good news. At this point, you may want to lock in any remaining gains from recent purchases or limit losses.

It’s a good idea to keep the exposure light. The hot inflation data undermined the short-term scenario of tame Fed rate hikes as market direction is uncertain.

At some point, be it next week, next month or next year, the market will be in a clear upward trend. Then the real money is made.

So work on your watchlists and focus on relative strength and signs that major institutions are acquiring stocks.

Read The Big Picture every day to stay up to date on market direction and leading stocks and sectors.

Follow Ed Carson on Twitter at @IBD_ECarson for stock updates and more.

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