Dow Jones Surges 1,300 Points From Bear Market Lows After Hot Inflation Report; What To Do Now

Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures, with Dow giants UnitedHealth and JPMorgan Chase headlining key earnings Friday morning. The stock market plunged Thursday morning on a hot CPI inflation report, but then roared back. The Dow Jones surged more than 1,300 points from the bear market intraday lows. The 10-year Treasury yield slashed gains after skyrocketing above 4% to a 13-year high.

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However, it’s just one good day. Investors should still be on the sidelines, but looking for potential new leaders.

There’s an argument that the market couldn’t really bottom until Tesla (TSLA), the biggest and most-followed high-growth stock, breaks down. It’s far too early to say if the market or TSLA have bottomed. But on Thursday, Tesla stock tumbled to just undercut its May lows before quickly rebounding.

Meanwhile, megacap techs Apple (AAPL), Microsoft (MSFT) and Google parent Alphabet (GOOGL) staged outside bullish reversals. Not only did they stage exceed the prior day’s highs and lows, they engulfed the weekly range.

Microsoft and Google stock are on IBD Long-Term Leaders.

Key Earnings

UnitedHealth (UNH) kicks off health insurer earnings Friday morning. JPMorgan Chase (JPM), Citigroup (C), Morgan Stanley (MS) and Wells Fargo (WFC) are also due before the open.

UNH stock has been trending lower and isn’t leading its group, but its relative strength line is right at highs. Shares hit their lowest level in nearly four months before rebounding to retake their 200-day line. But UnitedHealth earnings and guidance will be important for rivals, including Cigna (CI). JPM stock, Citigroup, Wells and Morgan Stanley bounced Thursday, but are around bear market lows amid tough economic conditions.

Dow Jones Futures Today

Dow Jones futures dipped 0.1% vs. fair value. S&P 500 futures sank 0.2% and Nasdaq 100 futures fell 0.5%.

The 10-year Treasury yield rose 1 basis point to 3.96%.

Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.

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Stock Market Thursday

Before the open, the CPI inflation report came in much hotter than expected. Core inflation hit a 40-year high in September, with no real sign that underlying pressures are easing. Futures, which had been solidly higher, plunged on the CPI data.

The stock market opened sharply lower, with all the major indexes hitting bear lows, but they roared back powerfully for strong gains.

The Dow Jones Industrial Average jumped 2.8% in Thursday’s stock market trading. That was up 828 points, or 1,378 points from the intraday low. The S&P 500 index leapt 2.6%. The Nasdaq composite popped 2.2%. The small-cap Russell 2000 gained 2.5%.

Apple stock rose 3.4% to 142.99, but after tumbling to 134.38 intraday, the lowest since the end of June. Microsoft stock jumped 3.8% and Google climbed 1.5%, after both rebounded from bear market lows.

The 10-year Treasury yield climbed 5 basis points to 3.95%. But that’s after surging to a 13-year high of 4.06% intraday. Markets have locked in a fourth straight Fed rate hike of 75 basis points in November, and now see a fifth such hike as likely in December. But there may be a growing concern of a recession or global financial trauma. The two-year yield, more closely tied to Fed policy and less to the economy, leapt 19 basis points to 4.48%.

The U.S. dollar initially rose on the surging Treasury yields, but then reversed lower.

U.S. crude oil prices rose 2.1% to $89.11 a barrel.

ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rallied 2.5%. The iShares Expanded Tech-Software Sector ETF (IGV) rose 1.4%, with MSFT stock as its largest holding. The VanEck Vectors Semiconductor ETF (SMH) popped 3.1%.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) dipped 0.2% after tumbling to a 30-month low intraday. ARKK is getting very close to undercutting its Covid crash low. ARK Genomics ETF (ARKG) closed off 0.7%. Tesla stock is the No. 1 holding across Ark Invest’s ETFs. TSLA rose 2.1% to 221.72 after hitting a 15-month low of 206.22 soon after the open.

SPDR S&P Metals & Mining ETF (XME) climbed 1.7%. U.S. Global Jets ETF (JETS) ascended 2.25%, buoyed by strong Delta Air Lines (DAL) earnings guidance. SPDR S&P Homebuilders ETF (XHB) edged up 0.25%. The Energy Select SPDR ETF (XLE) and the Financial Select SPDR ETF (XLF) both leapt 4.1%. The Health Care Select Sector SPDR Fund (XLV) moved up 2.3%, with UNH stock the top holding.

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Stock Market Analysis

What a wild session. The stock market sold off hard at the open on the hot September inflation report, with all the major indexes and the Russell 2000 all undercutting their bear market lows. But as the 10-year Treasury yield came well off highs and the dollar retreated, stocks also rebounded.

The inflation report was grim, while Fed rate hike expectations did worsen. Perhaps stocks — or Treasury prices — were simply due for a bounce. Unlike with the August consumer price index, and several other Fed-relevant events, the market didn’t try to rally into the September CPI data. The Nasdaq had fallen for six straight sessions. If the indexes had rallied up to its 21-day line at Wednesday’s close, Thursday’s market action may have played out quite differently.

Longer-term charts offer hints that the bear market could be at least close to a bottom. The Dow Jones and Russell 2000 have undercut their pre-Covid highs. The S&P 500 and Nasdaq are not far from their February 2020 peaks, with the former finding support at 3,500 on Thursday while the latter bounced just above the 10,000 level. But there’s no reason that stocks couldn’t go a lot lower.

In any event, while the strong upside reversal was welcome, keep it in perspective. The best days in stock market history hail from bear markets. If the Nasdaq soon tumbles to fresh lows, Thursday’s gains will just be a blip.

Thursday marks day one of new stock market rally attempt for the Dow Jones, S&P 500 and Nasdaq. All the major indexes are still below their 21-day moving averages, with only the Dow even approaching that short-term level. There are several other resistance levels above the 21-day, but for now let’s see if the market rally attempt can get through day 2. A follow-through day to confirm the new market rally attempt can’t happen until next week at the earliest.

The energy sector was the first to turn positive, with Chevron (CVX) and many others powering higher. Vertex Pharmaceuticals (VRTX), Cardinal Health (CAH) and CI stock are among several strong health care names. Some steel plays are looking good, including Commercial Metals (CMC), but market conditions raise the risks considerably. Chips rebounded from steep early losses, but most are deeply beaten down. JPM stock, Citigroup and other financials are much the same way.

DoubleVerify (DV) had a nice turnaround while elf Beauty (ELF) is trading tightly near highs. World Wrestling Entertainment (WWE) is right at a buy point. AutoZone (AZO) and CF Industries (CF) also are worth looking at.

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What To Do Now

There’s no reason to rush back into the stock market yet. Yes, the indexes and many stocks had strong gains, especially from intraday lows, but we have no idea if Thursday marked the bear market low or just a brief bounce. If this ends up being a market rally with real legs, investors will have plenty of time to build up exposure. If the indexes quickly hit new lows, you’ll be glad you’re all or entirely in cash. That’s why a follow-through day makes so much sense. It’s a way to get into a new rally quickly without trying to guess the absolute bottom.

As a practical matter, there weren’t many stocks flashing buy signals on Thursday. But many could be actionable with a few good days. So work on those watchlists. Focus on relative strength. Look for stocks nearing or retaking their 50-day lines or other key support. But many relatively strong stocks will be below their 50-day and even their 200-day lines. Don’t ignore them.

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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