Fall in futures contracts; Powell testifies as fears of recession grow

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Dow Jones futures fell sharply early Wednesday, along with S&P 500 and Nasdaq futures, putting the new stock market rally on track to erase much of Tuesday’s strong gains. Treasury yields and crude oil prices also fell significantly. Federal Reserve Chairman Jerome Powell will testify before Congress amid growing fears that Fed rate hikes could push the economy into a recession.




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Vertex Pharmaceuticals (VRTX) and Bristol Myers Squibb (BMY) recovered its 50-day lines on Tuesday, while United Therapeutics (UTHR) is in a buy range. The three pharmaceutical stocks have lines of force relative to peaks.

Meanwhile, You’re here (TSLA) and parent company of Google Alphabet (GOOGL) remain two megacaps that have yet to hit their late May lows. It’s not market leadership, but it’s a nugget of strength.

UTHR stock is on SwingTrader. Google stock is on IBD Long-Term Leaders. Vertex and BMY stocks are on the IBD 50 and IBD Big Cap 20.

Fed chief Powell testifies

Fed Chief Powell will testify before the Senate Banking Committee on Wednesday, followed by the House Financial Services Committee on Thursday. The hearing begins at 9:30 a.m. ET, right at the opening bell. The Federal Reserve may release the remarks prepared by Powell earlier.

Powell will likely reaffirm the central bank’s commitment to controlling inflation, which hit a 40-year high in May according to the consumer price index. Following that surprise CPI inflation report, the Fed raised rates by 75 basis points on June 15, the biggest hike in 28 years. After the Fed meeting announcement, Powell said policymakers could raise rates by 50 basis points or 75 at the end of July. Markets almost fully priced in another 75 basis point move.

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On June 15, Powell said a soft landing was still possible, but markets decided a day later that the Fed’s aggressive anti-inflation medicine made at least a mild recession likely. Will Powell try to appease investors on economic growth?

On Wednesday, Citigroup sees a 50-50 chance that the US will slip into a recession. The most likely recession would be a slight “garden variety” type slowdown, but there are risks of a “hard landing” and “stagflation”.

Dow Jones Futures Today

Dow Jones futures fell 1.4% from fair value. S&P 500 futures fell 1.5%. Nasdaq 100 futures fell 1.4%.

U.S. crude oil prices fell more than 6%, trading below $105 a barrel and pointing crude to futures for their first monthly decline since November. Oil markets are increasingly worried about a recession dampening demand for oil. Meanwhile, President Joe Biden has called on Congress to suspend the federal gasoline tax of 18.4 cents per gallon for three months.

Copper prices fell more than 3%. The 10-year Treasury yield plunged to 3.16% from 3.31% on Tuesday.

Remember that the pre-market action of futures on Dow and elsewhere does not necessarily translate into actual trading in the next regular trading session.


Join the experts at IBD as they analyze actionable stocks in the stock market rally on IBD Live

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Stocks to Watch

Vertex stock rebounded above its 50-day line on Tuesday after a strong move on Friday. The biotech giant has a buy point of 292.85, but investors could use 279.23 as an early entry. A descending trend line could offer a slightly lower entry.

BMY stock moved back above its 50-day line on Tuesday, arguably offering early entry. Bristol’s stock is technically in a new base a few weeks away, but it’s also arguably in a consolidation dating back to early April.

UTHR stock jumped 4.3% on Tuesday to 228.84, rebounding from the 21-day line and breaking a short downtrend. United Thera stock is still just within the buy point range of 218.48.

Tesla stock jumped 9.3% to 711.11 on Tuesday, just above its 21-day moving average. But it’s still below its 50-day rapid fall line, with its 200-day average well above it. Last week, TSLA stock fell to 626.08, but held above an 11-month low of 620.57 on May 24. Shares fell 1% on Wednesday morning.

Google stock gained 4.1% to 2,230.88 on Tuesday, just below its 21-day line. That’s not too far from its rapidly falling 50-day line, but the 200-day line is a long way off. Last week, GOOGL stock fell just above 2,100, slightly above the May 24 low of 2,037.69. Shares fell 1% early Wednesday.

Market rally analysis

The Dow Jones Industrial Average rose 2.15% in trading on Tuesday. The S&P 500 index jumped 2.45%. The Nasdaq composite jumped 2.5%. The small cap Russell 2000 rose 1.8%.

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Tuesday’s strong gains were nice, but markets have plenty of one-day or short-lived rallies amid strong downtrends. Wednesday’s sharp drop in Dow Jones futures suggests that the new bid for a stock market rally is already running into trouble.

Assuming the major indexes don’t undermine last week’s lows, investors could be looking for a follow-up day to confirm the new rally attempt.


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What to do now

Investors should remain on the sidelines, waiting for a confirmed uptrend in the markets. Even then, investors should be cautious. A relative lack of good stocks in a long position would likely be one of them.

Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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