Dow Jones futures fell modestly Tuesday morning, while S&P 500 futures fell solidly and Nasdaq futures tumbled. Treasury yields and crude oil prices continued to rise, raising inflation fears.
House Speaker Nancy Pelosi told her Democratic caucus late Monday that she is no longer linking the bipartisan $1 trillion infrastructure bill to passage of a much-larger reconciliation package. That also comes as Senate Republicans blocked a bill to raise the debt limit and extend government financing.
The stock market rally had a mixed Monday, with the Dow Jones and small-cap Russell 2000 rallying while the S&P 500 and Nasdaq composite retreated.
Dow Jones Futures Today
Dow Jones futures fell 0.3% vs. fair value, with energy and bank components thriving. S&P 500 futures were down 0.7% and Nasdaq 100 futures plunged 1.45%. Those are all off overnight lows. Still, the S&P 500 and Nasdaq are set to open below their 50-day moving averages after closing above that key level Monday.
The 10-year Treasury yield rose up to 1.54% overnight, the highest since June. There’s a growing concern that higher inflation is not transitory, something Fed chief Jerome Powell will likely address in his congressional testimony today.
One reason for the inflation fears is that crude oil prices continue to keep rising and natural gas prices soaring. U.S. crude topped $76 a barrel while Brent hit $80 for the first time in years. U.S. natural gas futures jumped 10% after spiking Monday. Natgas futures are at their highest since 2014.
Higher energy prices are good news for oil and gas plays while the higher and widening Treasury yields spreads buoy financials. But the rising yields pressure highly valued growth stocks, while higher inflation is a general negative.
Also keep in mind that this is a global energy crunch. Natural gas prices have exploded in Europe, while coal is in short supply in China and India. China is seeing some power outages and significant factory shutdowns as a result.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Tesla stock extended Friday’s breakout and hit yet another key level on Monday. That comes as Tesla (TSLA) plans to open FSD Beta to tens of thousands of Full Self-Driving owners or subscribers. Early Tuesday, CEO Elon Musk said that FSD Beta would be opened up by 1,000 drivers a day, starting on Oct. 8.
Advanced Micro Devices (AMD) rebounded bullishly from its 50-day and a trendline, both offering early buy signals.
Both Tesla and AMD stock fell Tuesday morning, with the latter dropping back toward its 50-day line.
Also on Monday, Whiting Petroleum (WLL) and natgas-focused Targa Resources (TRGP) broke out of bases. The sector is likely to thrive again on Tuesday.
JPMorgan Chase (JPM) broke out of a cup-with-handle base on Monday, as the recent jump in Treasury yields lifts bank stocks.
MGM Resorts (MGM) moved higher in a buy range while Hilton Worldwide (HLT) broke out. Travel stocks did well overall, with Covid cases continuing to trend lower. Airline stocks and cruise lines are rebounding after sliding for months.
Tesla stock and AMD are on IBD Leaderboard. AMD stock also is on SwingTrader and was Monday’s IBD Stock Of The Day.
The video embedded in this article reviews Monday’s market action and analyzes TRGP stock, AMD and PerkinElmer (PKI).
Pelosi Infrastructure Bill Decision
Speaker Pelosi, after months of trying to link the $1 trillion infrastructure bill to a much-larger, partisan spending, said she is no longer pursuing that plan. That’s a victory for centrist Democrats, who believe the bipartisan infrastructure package, with some $550 billion in extra funding, was being held hostage. With a 3-seat Democratic majority in the House, Pelosi has little room to maneuver. It’s unclear if left-wing Democrats will vote for the infrastructure deal, which will likely get only a handful of GOP House votes, without some sort of assurances on the reconciliation package. Pelosi has recently signaled the reconciliation bill will be smaller than the long-targeted $3.5 trillion, with Sen. Joe Manchin, D-W.V., pushing for $1 trillion to $1.5 trillion.
The infrastructure bill vote is currently set for Thursday. If the bill doesn’t pass, then existing highway spending authorization runs out as well.
Meanwhile, Senate Republicans rejected a measure to avoid a partial government shutdown after Sept. 30. Republicans object to raising the debt limit as well, saying Democrats should do it themselves. Shutdown and debt limit fears also could be contributing to higher Treasury yields.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally Monday
The stock market rally opened mixed and stayed that way, with the 50-day line acting as support or resistance in many cases.
The Dow Jones Industrial Average rose 0.2% in Monday’s stock market trading. The S&P 500 index fell 0.3%. The Nasdaq composite sank 0.5%. The small-cap Russell 2000 popped 1.5%.
The 10-year Treasury yield rose as high as 1.51% early Monday, a three-month best. The benchmark yield closed up two basis points at 1.48%.
Many medical product stocks were down sharply, including Moderna (MRNA), Charles River Laboratories (CRL), Idexx Labs (IDXX), Repligen (RGEN), Dexcom (DXCM), Thermo Fisher Scientific (TMO), Intuitive Surgical (ISRG) and PerkinElmer. It’s not clear why such an array of biotechs and medical product and systems makers would all be hard hit. A New York state mandate requires that over 665,000 workers in hospitals and nursing homes have at least one vaccine dose by midnight Monday or lose their jobs.
Meanwhile, a number of tech names fell hard, especially in software. Cloudflare (NET) tumbled 5.8% to essentially its 50-day line.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) slumped 2.3%, while the Innovator IBD Breakout Opportunities ETF (BOUT) dipped 0.25%. The iShares Expanded Tech-Software Sector ETF (IGV) retreated 1.7%. The VanEck Vectors Semiconductor ETF (SMH) gave up 0.4%, with AMD stock a major SMH component.
SPDR S&P Metals & Mining ETF (XME) popped 3.5% and Global X U.S. Infrastructure Development ETF (PAVE) advanced 1.2%. U.S. Global Jets ETF (JETS) edged up 0.7%. SPDR S&P Homebuilders ETF (XHB) climbed 0.8%. The Energy Select SPDR ETF (XLE) jumped 3.6%. The Financial Select SPDR ETF (XLF) rose 1.4%, with JPM stock a major holding.
Reflecting stocks with more speculative stories, the ARK Innovation ETF (ARKK) dipped 0.1% and ARK Genomics (ARKG) fell 0.5%. Rising Tesla stock is the top holding across Ark Invest ETFs, but they’ve generally struggled over the past few months.
Five Best Chinese Stocks To Watch Now
Market Rally Analysis
The stock market rally had an OK session. The Nasdaq and S&P 500 retreated, but found support at the 50-day line following the strong recovery last week. Meanwhile, the Dow Jones hit resistance at its 50-day line, but at least it’s trying to get above that key level after several weeks. The Russell 2000 simply had a very strong day after reclaiming its 50-day and 200-day lines last week.
Growth stocks retreated Monday, partly due to the continued rise in the 10-year Treasury yield. The FFTY ETF showed real resilience in the past couple of weeks after racing to record highs.
Meanwhile, rising Treasury yields and energy prices pushed up the Dow Jones and Russell 2000.
But futures suggest that the S&P 500 and Nasdaq will open below their 50-day lines.
Is this part of a sector rotation out of growth and into energy and financials? Will last week’s stock market rebound be short-lived?
Don’t forget Capitol Hill. A partial government shutdown or an infrastructure bill defeat could upset the market, but how much would depend on how long the impasse goes on.
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What To Do Now
Monday’s mixed market rally and Tuesday’s futures showed why investors shouldn’t get too exposed, especially to a particular sector. That said, a lot of sectors have been working, though not necessarily all on the same day.
Continue to grade your stocks. Are you in sync with the market rally? That doesn’t mean all your stocks outperform every day. But are you generally in the right stocks and sectors? If not, you may want to exit some positions and reorient your portfolio, making sure you don’t chase extended stocks.
Read The Big Picture every day to stay in sync with the 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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