Dow Jones futures rose slightly early Wednesday, while S&P 500 futures and Nasdaq futures fell modestly, with Treasury yields creeping higher again. The House is set to give final passage to the $1.9 trillion Biden stimulus bill today.
The stock market rally attempt had a strong session Tuesday as Treasury yields backed off. The Dow Jones hit a record high before backing off while the S&P 500 index reclaimed key levels. The Nasdaq rebounded strongly but remains well off recent highs.
New breakouts are coming from real economy names. Specialty chemicals maker Element Solutions (ESI) and auto giant Stellantis (STLA) broke out, while steelmaker Ternium (TX) and auto dealer CarMax (KMX) extended gains within buy zones. Microsoft (MSFT) — less of a high-octane, high-value name than Tesla stock — retook a buy point as well as several key levels.
Meanwhile, General Electric (GE) confirmed it will sell its aircraft leasing business to AerCap (AER). GE will get $24 billion and a 46% stake. GE also is planning to do a 1-for-8 reverse stock split. GE stock rose early Wednesday, signaling a fresh 34-month high. AerCap, which jumped Monday on reports of a deal, fell modestly before the open.
Biden Stimulus Bill Vote
The House is set to give final passage to the $1.9 trillion Biden stimulus bill on Wednesday, voting on the Senate version of the legislation. The Senate passed the Biden stimulus bill, with a few tweaks, on Saturday. After the House vote, the stimulus bill will go to President Joe Biden’s desk for his signature.
The stimulus bill will provide $1,400 checks for many Americans, expanded jobless benefits and aid to schools and state and local governments. It also includes significant spending boosts on anti-poverty programs, ObamaCare and private pension bailouts. It also features a little money for coronavirus vaccinations and testing.
After the huge Biden stimulus bill — coming weeks after a second coronavirus aid package — congressional Democrats are mulling an even-bigger spending package later this year focused on infrastructure. That latter package also will likely include major tax increases.
The looming spending blitz has buoyed interest rates and real economy stocks, with rising Treasury yields weighing on growth names.
Dow Jones Futures Today
Dow Jones futures rose 0.2% vs. fair value. S&P 500 futures were 0.15% below break-even while Nasdaq 100 futures fell 0.45%.
The 10-year Treasury yield was at 1.57%, slightly higher after sliding Tuesday. A 10-year Treasury auction is set for today. A poorly received seven-year auction on Feb. 25 sent the Nasdaq tumbling below its 50-day line and pushing the struggling market rally to “uptrend under pressure.”
At 8:30 a.m. ET Wednesday, the Labor Department will release the February consumer price index. The CPI hasn’t moved Dow Jones futures in quite some time, but Treasury markets have been signaling some concern about future inflation.
Coronavirus cases worldwide reached 118.24 million. Covid-19 deaths topped 2.62 million.
Coronavirus cases in the U.S. have hit 29.80 million, with deaths above 540,000.
Stock Market Tuesday
The stock market rally attempt had a generally encouraging session Tuesday, though the fade into the close wasn’t great. The 10-year Treasury yield fell 6 basis points to 1.53% after climbing for several days. That was a catalyst for growth stocks.
The Dow Jones Industrial Average edged up 0.1% in Tuesday’s stock market trading, fading badly in the final minutes after briefly hitting another record high. The S&P 500 index popped 1.4%, bouncing above its 50-day and 21-day lines. The Russell 2000 climbed 2.1%, above its 21-day.
The Nasdaq composite surged 3.7%, but is still below its 50-day line.
Tesla stock spiked nearly 20%, its biggest percentage gain in 13 months, fueled by the overall growth rally as well as strong China sales. Nio stock leapt 17%. Nvidia jumped 8% and Zoom stock tacked on 10%. But all four stocks are still well below their 50-day lines and need time to repair their damaged charts. Nvidia stock managed to reclaim its 200-day average, while Zoom was still stuck below that.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) popped 4.2%, while the Innovator IBD Breakout Opportunities ETF (BOUT) gained just over 5%, both closing in on their 50-day lines. The iShares Expanded Tech-Software Sector ETF (IGV) rallied 4.4%, with Microsoft its top holding and ZM stock a notable component. The VanEck Vectors Semiconductor ETF (SMH) jumped 5.9%, with Nvidia a major holding.
Reflecting more-speculative stocks, Ark Innovation ETF soared 7.65% and Ark Genomics ETF bounded 10.4%, after both took heavy losses in recent days. Tesla stock is the No. 1 holding across ARK Investments’ ETFs.
Stocks In Buy Zones
Element Solutions stock rallied 7.2% to 20.24, running past an 18.50 cup-base buy point in heavy volume, according to MarketSmith analysis. The 5% chase zone for ESI stock runs to 20.48. The relative strength line is at a new high, reflecting its outperformance vs. the S&P 500 index. The specialty chemicals maker — touching on electric vehicles, 5G, AI and smartphones — recently reported a 41% EPS gain for the latest quarter.
Stellantis stock climbed 2.6% to 17.56, clearing a 17.31 cup-base entry. Stellantis is the result of a recent merger between Fiat Chrysler and France’s Peugeot. STLA stock has lagged Ford (F), General Motors (GM) and especially Volkswagen (VWAGY), but earnings are rebounding solidly and its RS line is at a new high.
Ternium stock rose 3.9% to 35.43, above a 34.09 cup-base buy point in heavy volume. TX stock originally broke out on March 2 then fell back a few days later. Shares just closed in buy range on Monday, but fell below the entry Tuesday morning before rebounding.
CarMax stock hit 132 intraday but reversed lower to down 0.3% to 128.82, still slightly above the 128.68 buy point. KMX stock jumped 4.85% to 129.17 on Monday. The RS line is at a high. CarMax earnings have rebounded as the tight new-car supply fuels used-car sales and prices. The used-car giant also has made a big push into digital sales during the pandemic.
Microsoft stock advanced 2.8% to 233.78, back above a 232.96 buy point. The Dow Jones tech giant also reclaimed its 50-day and 21-day moving averages, as well as breaking a short downtrend.
In many ways, the MSFT stock chart in the past few weeks looks a lot like that of the S&P 500 index. Buying Microsoft stock near the 50-day line makes sense as a Long-Term Leader. Investors also could start a stake here, then fill out the position if and when MSFT stock completes and clears a new consolidation starting with the Feb. 16 all-time high of 246.13. The RS line for Microsoft stock has lagged since July and is off its early-February levels, but has held better than many tech names in the past few weeks.
Stock Market Rally Analysis
Analyzing the current stock market rally attempt is difficult because the major indexes are so split. It’s normal to see one index lead to the upside or downside, but usually they all trend in the same direction. But that hasn’t been the pattern in recent weeks.
On Tuesday, the stock market did rally across the board. The Nasdaq led with a powerful rebound, as Tesla stock and many speculative growth names soared following several down days. The S&P 500 index rose strongly while the Dow Jones eked out a slim gain after a solid intraday gain.
But the Nasdaq and many hot stocks like Nvidia are still below their 50-day lines. The best one-day gains in history are all in bear markets, so one big day for growth stocks in a correction doesn’t mean much by itself.
Tuesday marked day three of a stock market rally attempt. Especially for the Nasdaq and growth sectors, a follow-through day to confirm the new rally is key. A follow-through could come any day now. A strong Nasdaq gain from these levels also could push the tech-heavy index to or above its 50-day and 21-day lines.
The Dow Jones, despite its lackluster finish, is trading right at record highs. Several more real economy stocks entered buy zones. To be blunt, if the Dow Jones and cyclical sectors embodied the stock market, IBD wouldn’t have declared a correction last week. With the Dow Jones and related sectors at new highs, it’s easy to argue that this major segment of the market is in an uptrend — and never was in a correction.
The S&P 500 index also looks healthier, regaining key levels. So does the Russell 2000.
What To Do Now?
Work on your stock watchlists, focusing on relative strength. Among those, pay close attention to stocks that are setting up near buy points.
Investors could choose to take some small positions in stocks breaking out or flashing other buy signals. Aside from a few names such as Microsoft, that’s generally going to be real economy names. As for growth stocks, wait for a follow-through day. Even then, many stocks such as Nio, Zoom or Tesla could take weeks or longer to forge new buying opportunities.
This is an important day to read The Big Picture to understand the market direction.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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