Recession Fears Hit Market; Warren Buffett’s Concerns Slam These Stocks

Dow Jones futures fell slightly after hours, along with S&P 500 futures and Nasdaq futures. Delta Air Lines earnings and more economic data are on tap.

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The stock market rally retreated Wednesday as the Federal Reserve saw the banking crisis spurring a recession.

Newly released minutes from the March 21-22 Federal Reserve meeting showed Fed staff forecasting “a mild recession starting later this year.” Policymakers expected banking stress to “weigh on economic activity, hiring and inflation,” Fed minutes showed. Members remained “highly attentive” to inflation risks, however. While several policymakers mulled keeping rates steady, they ultimately voted for a quarter-point rate hike, to a 4.75%-5%.

Before the open, the consumer price index came in less than expected, with the CPI inflation rate tumbling a full percentage point to 5%. But core inflation, which excludes food and energy, ticked higher to 5.6%, as expected.

The odds of a Fed rate hike in early May barely dipped, to around 70%.

China stocks were hard hit after Berkshire Hathaway (BRKB) CEO Warren Buffett signaled his concern about geopolitical tensions, notably China and Taiwan. Alibaba (BABA), JD.com (JD), PDD Holdings (PDD) and Tencent Holdings (TCEHY) all fell hard.

BABA stock kept sliding overnight on a report that SoftBank planned to sell much of its stake in the China e-commerce giant.

TSLA stock hit resistance at a key level, continuing to consolidate ahead of Tesla (TSLA) earnings next week.

Shopify (SHOP), ServiceNow (NOW), Cloudflare (NET), Crocs (CROX) and Merck (MRK) are all trading near potential entries.

Delta Air Lines (DAL) reports earnings early Thursday, kicking off results for carriers. DAL stock fell 2.4% Wednesday, below its 200-day line, after American Airlines (AAL) gave first-quarter preliminary results that were slightly above its January guidance, but below analyst consensus. AAL stock tumbled 0.2% to a three-month low.

ServiceNow and CROX stock are on SwingTrader. NOW stock and Crocs also are on the IBD 50. Shopify was Wednesday’s IBD Stock Of The Day.

Dow Jones Futures Today

Dow Jones futures fell 0.2% vs. fair value. S&P 500 futures slipped 0.2% and Nasdaq 100 futures declined 0.15%.

The Labor Department will release the March producer price index and weekly jobless claims at 8:30 a.m. ET.

Remember that overnight action in Dow futures and elsewhere doesn’t 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

The stock market rally initially opened solidly higher on the CPI inflation report, pulled back, and then wavered until Fed recession fears took hold.

The Dow Jones Industrial Average edged down 0.1% in Wednesday’s stock market trading. The S&P 500 index fell 0.4%. The Nasdaq composite slumped 0.85%. The small-cap Russell 2000 gave up 0.7%.

U.S. crude oil prices rose 2.1% to $83.26 a barrel, the highest close in nearly five months.

The 10-year Treasury yield fell 1 basis point to 3.42% after hitting 3.34% soon after the open. The two-year yield fell 9 basis points to 3.97%. The 3-month T-bill yield nudged down, just 2 basis points to 5.01%.

ETFs

Among growth ETFs, the Innovator IBD 50 ETF (FFTY) fell 0.7%, while the Innovator IBD Breakout Opportunities ETF (BOUT) inched up 0.1%. The iShares Expanded Tech-Software Sector ETF (IGV) dipped 0.2%, with NOW stock a significant component. The VanEck Vectors Semiconductor ETF (SMH) retreated 1.8%.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) slumped 2.9% and ARK Genomics ETF (ARKG) retreated 2.3%. Tesla stock is the No. 1 holding across Ark Invest’s ETFs, with Shopify a top-10 holding. Cathie Wood’s Ark also owns a small BYD stock stake.

SPDR S&P Metals & Mining ETF (XME) fell 0.8% and the Global X U.S. Infrastructure Development ETF (PAVE) rose 0.4%. U.S. Global Jets ETF (JETS) descended 3.1%, with Delta and AAL stock big components. SPDR S&P Homebuilders ETF (XHB) dipped 0.1%. The Energy Select SPDR ETF (XLE) edged up 0.1% and the Health Care Select Sector SPDR Fund (XLV) ended fractionally higher.

The Financial Select SPDR ETF (XLF) dipped 0.2%. The SPDR S&P Regional Banking ETF (KRE) fell 1.1%.

Five Best Chinese Stocks To Watch Now

Buffett Wary Of China Tensions

Warren Buffett said Wednesday on CNBC that he thinks China EV giant BYD (BYDDF) is “extraordinary” while Taiwan Semiconductor (TSM) is a “fabulous enterprise.” But that didn’t stop Berkshire from substantially cutting its stakes in both companies.

Buffett made a big bet on TSM in Q3, but then slashed the position by 86% in Q4. He said he “re-evaluated” China-Taiwan tensions, not the business or management.

Meanwhile, Berkshire has roughly halved its big, long-term stake in BYD starting in August, with the latest share reduction disclosed earlier this week.

TSM stock fell 2.7% on Wednesday, trading below the 50-day line. BYD stock sank 3.9%, back below its 50-day.

But many China internets had bigger losses. BABA tumbled 5.9%, undercutting its 50-day line within a cup-with-handle base. SoftBank plans to sell the bulk of its Alibaba stake, the Financial Times reported late Wednesday. Alibaba fell slightly overnight, off initial after-hours lows.

JD stock slumped 7.65% to its worst level since its October lows. PDD stock skidded 5.2%, starting to losing sight of its 200-day line. TCEHY stock gave up 5.4%, knifing below its 50-day.

The Krane CSI China Internet ETF (KWEB) slumped 4.5% to 28.62, below its 200-day line. It hit a 52-week high of 36.19 on Jan. 26 after more than doubling from its October low.

Stocks Near Buy Points

SHOP stock climbed 1.2% on Wednesday to 45.30, but came well off an intraday high of 48.75. Investors could use 48.36 as an early entry. JMP Securities upgraded Shopify stock to a buy rating on Wednesday.

NOW stock edged up 0.3% to 471.43, but well off session highs as well. ServiceNow stock now has a handle on its cup base, giving it a 482.43 buy point.

NET stock popped 3.9% to 63.04. Intraday, shares topped a 63.19 early entry in a consolidation.

CROX stock fell 1.5% to 126.19. Shares are working on a 143.60 official buy point. But investors could use 130.90 as an early entry, which would clear the bulk of trading going back to Jan. 18.

MRK stock climbed 1.1% to 113.75. Shares are near a 115.59 consolidation buy point. The Dow Jones drug giant has been wedging up in the recent days, not creating much of a shakeout.

Tesla Stock

Tesla stock fell 3.35% to 180.54. reversing lower from near the 50-day moving average. Shares are still within a cup-with-handle base with a 217.75 buy point, according to  MarketSmith analysis. The base formed below the 200-day line, which has drifted down to about 214. Investors may want to use a decisive clearing of the 200-day line as an entry.

TSLA stock tumbled 10.8% last week.

Tesla earnings are due April 19, with gross margins in focus.

Market Rally Analysis

The stock market rally was up and down Wednesday, taking a more-decisive trend lower starting midafternoon. It’s not just that Fed staff forecast a recession, it’s that markets see policymakers still raising rates, one final time.

Bearish outside reversals are never a great sign, but the major indexes haven’t significantly changed their character — yet.

The Nasdaq, off for a third straight session, fell below the 12,000 level but is still above its 21-day. The tech-heavy index has suffered three distribution days in the past five sessions, something to note.

The S&P 500 briefly topped its early April highs before fading. The Dow Jones reversed from its best levels in nearly two months.

The Russell 2000 fell back below its 21-day line.

Some leading stocks made gains. But many others reversed lower from opening gains.

The Nasdaq, S&P 500 and many growth stocks are close to breaking above key levels. But they’re also not far from breaking below important support.

Time The Market With IBD’s ETF Market Strategy

What To Do Now

This is not a rip-roaring stock market rally. The major indexes have moved sideways over the past couple of months, with big swings in sectors and leaders at various points. So while investors should be taking part, it’s not a time to be super aggressive.

How exposed should you be? If your stocks are working, your exposure might be 40%, 50%, or more depending on your risk tolerance. If you’ve been shaken out of stocks or had to cut a number of losers, your exposure might be quite less.

Either way, if and when conditions improve, you can gradually make new buys and add to your exposure. Stay engaged and remain flexible. Have your watchlists ready and your exit strategies in place.

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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