Dow Jones Futures: Market Rally Divided As Bond Yields Spike; GM Leads 9 Stocks In Buy Zones
Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures. The stock market rally diverged Tuesday, with the Dow Jones and S&P 500 hitting fresh record highs while the Nasdaq fell sharply, though it closed well off intraday lows. Surging Treasury yields drove much of the action.
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The 10-year Treasury yield rose 4 basis points to 1.67%, just below seven-month highs, after surging 12 basis points on Monday. Financial stocks boomed again, with Wells Fargo (WFC), Bank of America (BAC), JPMorgan Chase (JPM), Raymond James Financial (RJF) and Ameriprise Financial (AMP) breaking out or triggering trendline buy points.
Energy stocks also continued to rally as crude oil prices moved back toward recent highs. EOG Resources (EOG) and Diamondback Energy (FANG) broke out, while Pioneer National Resources (PXD) was among shale stocks breaking trendlines near their 50-day moving averages.
GM stock, Ford Motor (F) and Toyota (TM) led traditional automakers higher, booming on very heavy volume. General Motors (GM) and Toyota reported better-than-expected U.S. auto sales for the fourth quarter, with the latter becoming the first foreign automaker to be No. 1 in the U.S. for a full year.
Ford says it’ll double F-150 Lightning production capacity by mid-2023, with GM set to unveil the Silverado EV on Wednesday. GM stock jumped 7.5%, breaking out past two buy points. Ford and TM stock respectively raced higher 11.7% and 6.9%, both at highs and out of range.
Meanwhile, EV makers such as Tesla (TSLA) retreated, though TSLA stock is still in buy range. Most of Tesla’s EV peers fell much more.
Chip stocks also tumbled. Nvidia and AMD stock once again fell below their 50-day lines, though the latter closed above that key level.
Medical stocks continued to struggle broadly after faring well late last year.
Finally, the heavy selling in software continued, with late 2021 holdouts such as Fortinet (FTNT) plunging to start the new year.
Stocks To Watch
But, if you were counting, that’s nine stocks in this article that flashed buy signals on Tuesday: JPMorgan stock, Wells Fargo, BofA, Raymond James, Ameriprise, EOG, Diamondback, Pioneer Natural and GM.
Tesla, Nvidia stock, Advanced Micro Devices (AMD) and Ameriprise are on IBD Leaderboard. Ford stock is on SwingTrader. FTNT stock is on IBD Long-Term Leaders. Tesla stock and AMD are on the IBD 50. Raymond James Financial was the IBD Stock Of The Day.
The video embedded in this article discusses the bifurcated market rally and analyzes GM, EOG Resources and RJF stock.
Dow Jones Futures Today
Dow Jones futures dipped 0.2% vs. fair value. S&P 500 futures sank 0.3%. Nasdaq 100 futures fell 0.4%.
Crude oil futures edged lower overnight. The American Petroleum Institute said U.S. crude stockpiles fell more than 6 million barrels last week. The Energy Information Administration will release official stockpile and production data for crude oil and gasoline Wednesday morning.
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 Tuesday
The stock market rally saw Monday’s underlying divergence flare up in a very visible way Tuesday.
The Dow Jones Industrial Average rose 0.6% in Tuesday’s stock market trading. The S&P 500 index lost less than 0.1%. The Nasdaq composite slumped 1.3%. The small-cap Russell 2000 dipped about 0.2%.
U.S. crude oil prices rose 1.2% to $76.99 a barrel, hitting their best levels in several weeks. OPEC+, as expected, agreed to continue increasing monthly production by 400,000 barrels per day, now through February.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.1%, while the Innovator IBD Breakout Opportunities ETF (BOUT) dipped 0.2%. The iShares Expanded Tech-Software Sector ETF (IGV) skidded 2.2%, sinking to its lowest level since June. The VanEck Vectors Semiconductor ETF (SMH) dipped 0.5%. AMD and NVDA stock are major SMH components.
Reflecting stocks with more speculative stories, the ARK Innovation ETF (ARKK) skidded 4.4% and ARK Genomics (ARKG) shed 4.8%; both are near 52-week lows. Tesla stock remains the No. 1 holding across ARK Invest’s ETFs.
But outside of growth, stocks fared better.
The SPDR S&P Metals & Mining ETF (XME) rose 1.4%, and Global X U.S. Infrastructure Development (PAVE) gained 1.8%. U.S. Global Jets (JETS) ascended 1.5%. SPDR S&P Homebuilders (XHB) climbed 1.2%, despite the higher rates.
The Energy Select SPDR ETF (XLE) leapt 3.5%, with EOG and PXD stock notable holdings.
Financial Select SPDR (XLF) popped 2.6%, with JPMorgan, Wells Fargo and BAC stock top-five components.
Health Care Select Sector SPDR (XLV) sank 1.3%.
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Market Rally Analysis
Rising Treasury yields have roiled the market rally to start the new year, a time that can often be volatile.
On Monday, the 10-year Treasury yield spike slammed highly valued growth names that had triple-digit P-E ratios or no earnings at all. But the Nasdaq had a strong day, fueled by Tesla stock but also by Apple (AAPL), Nvidia and AMD.
Tuesday’s growth sell-off was much broader, with the Nasdaq tumbling more than 2% intraday. The tech-heavy index did rebound to close just above its 50-day line, as the 10-year Treasury backed off intraday highs.
The Dow Jones and S&P 500 index hit record highs, though the latter ultimately closed lower.
The Russell 2000 hit resistance at its 50-day line but is holding above its 200-day line. The small-cap index is a proxy for market breadth, which had been improving over the past two weeks after a long stretch of weakness. Winners narrowly topped losers on the NYSE but lagged on the Nasdaq.
Financials and energy stocks were big winners Tuesday. Many banks are clearly rising with Treasury yields, while rebounding oil prices are fueling energy stocks. Mining, materials and infrastructure plays also look good.
The 10-year Treasury yield is at key levels, with 1.69%, 1.7% and 1.75% the last remaining resistance levels. If the yield keeps rising, especially at a fast pace, it’ll likely take a serious toll on growth and the market rally. The early 2021 run-up in Treasury yields stalled the Nasdaq advance, which didn’t really get back on track for several months.
Traditional automakers are revving higher, especially Ford, GM and Toyota. Investors are cheering EV-related plans and overall production picking up as chip woes slowly ease.
Meanwhile, richly valued EV stocks generally fell sharply. TSLA stock retreated 4.2% to 1,149.59 after surging 13.5% Monday on blowout Q4 deliveries. But Tesla stock is back within range of a 1,119.10 handle buy point.
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What To Do Now
If you thought bifurcated market rallies and violent sector rotations would be contained to 2021, think again. It’s hard to feel confident in a market, group or specific stock in that kind of environment.
Be cautious about significantly adding exposure at this point. Some financials and energy stocks are actionable now, but don’t chase 2022’s early winners if they’re extended. These sectors look great right now, but that could quickly change if Treasury yields and crude oil prices scale back.
Growth might rebound in that scenario, but for now are struggling or reeling. Perhaps Nvidia and AMD stock, say, will rebound powerfully once again from their 50-day lines, and this time it sticks. But maybe they need time to rest. Medicals, which looked so healthy heading into 2022, have been surprising losers.
If you have stocks that are working, there’s no reason to sell them. But if positions are turning into significant losers, or wiping out modest gains, cut them loose. You don’t want to start off a new year in a hole.
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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