Futures: Inflation Peak Finally Here?

Futures: Inflation Peak Finally Here?

Dow Jones futures edged higher overnight, along with S&P 500 futures and Nasdaq futures, with a big inflation report on tap before Wednesday’s open.




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The stock market rally lost ground, pulling back from resistance levels as Micron Technology (MU) triggered a sell-off in chip stocks.

On the upside, some natural gas-related stocks showed strength, including Range Resources (RRC), EQT Corp. (EQT) and Equinor (EQNR), which all broke downtrends in handles, flashing potential early entries. However, RRC stock was the only one moving on OK volume. Golar LNG (GLNG) cleared some short-term levels, still near its 50-day line, but earnings are due Thursday.

Apple (AAPL) and Microsoft stock edged higher, with the Dow Jones tech titans helping to minimize losses on the major indexes. Tesla (TSLA) continued a recent reversal to the downside while China’s Li Auto (LI) sold off hard.

Key Earnings

Celsius (CELH) and Exelixis (EXEL) headlined notable earnings after the close, along with fallen growth plays Coinbase (COIN), Roblox (RBLX) and Trade Desk (TTD).

CELH stock rose slightly in overnight action after initially retreating. Celsius earnings’ triple-digit EPS and sales growth topped Q2 views. But gross margins came in a little light. Celsius stock tumbled 7.8% on Tuesday to 93.38, pulling back from the Aug. 2 high of 109.74 but the highly valued energy drinks maker has soared in the past three months. That was capped by the early August run on a PepsiCo (PEP) investment and distribution deal with Celsius.

EXEL stock rose modestly in extended trade after Exelixis earnings topped expectations. Shares fell 2.3% to 21.06 on Tuesday. Exelixis stock is working on a messy cup-with-handle base with a 22.57 buy point. Investors could use a downward-sloping trendline to find a slightly lower early entry.

COIN stock fell solidly overnight as Coinbase posted revenue below views and a loss that was much worse than expected. Shares of the cryptocurrency exchange skidded nearly 11% to 87.68 on Tuesday. Coinbase stock had doubled since late June, but is far below its April 2021 opening day peak of 429.54.

RBLX stock plunged in extended action as Roblox reported a wider-than-expected loss while revenue fell short. Bookings and user growth also missed. Shares fell 3.35% to 47.26 on Tuesday. RBLX stock had more than doubled since bottoming in early May. But shares of the video game platform are far below their November 2021 peak of 141.60.

TTD stock surged in overnight trade as Trade Desk met EPS views, but beat revenue views and gave bullish guidance. That would still be below its 200-day line. Trade Desk stock fell 0.9% to 54.50 on Tuesday, but has run up sharply from a 52-week low of 39 on July 14.

EQNR stock is on the IBD Leaderboard watchlist. RRC stock is on SwingTrader and is Tuesday’s IBD Stock Of The Day. Microsoft (MSFT) is an IBD Long-Term Leader. CELH stock and Equinor are on the IBD 50.

The video embedded in the article discussed Tuesday’s market action and analyzed RRC stock, Costco Wholesale (COST) and Hyatt (H).

Dow Jones Futures Today

Dow Jones futures tilted higher vs. fair value. S&P 500 futures advanced 0.1% and Nasdaq 100 futures climbed 0.1%.

The Labor Department will release the July CPI inflation report at 8:30 a.m. ET. The inflation data will surely have a big impact on Dow futures and Treasury yields.

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


Inflation Report

Economists expect the July consumer price index to show a 0.2% increase vs. June, after the prior month’s 1.3% spike. The CPI inflation rate is expected to cool to 8.7% from June’s 40-year high of 9.1%. These slowdowns reflect the decline in gasoline prices, which will also provide some relief in August.

But core CPI, which excludes food and energy, should show a 0.5% gain after June’s 0.7% advance. Core inflation is seen picking up to 6.1% from 5.9%.

So while headline inflation has likely peaked, underlying price pressures will likely remain fierce.

Markets give a 67.5% chance of another 75-basis-point Fed rate hike on Sept. 21, followed by quarter-point moves in November and December.

Stock Market Rally

The stock market rally gave up ground Tuesday, led by chip stocks.

Micron was a catalyst for Tuesday’s slide, warning on revenue and cutting capital spending. That came a day after Nvidia (NVDA) slashed its sales forecasts. MU stock fell 3.7% while chip stocks were big losers Tuesday, especially memory-focused equipment makers such as Lam Research (LRCX) and KLA Corp. (KLAC).

Apple stock edged up 5 cents to 164.92, continuing to trade tightly above its 200-day line. Apple’s relative strength line is already at a new high. Microsoft rose 0.7% to 282.30, still below its 200-day.

The Dow Jones Industrial Average dipped 0.2% in Tuesday’s stock market trading. The S&P 500 index lost 0.4%. The Nasdaq composite gave up 1.2%. The small-cap Russell 2000 fell 1.3%.

U.S. crude oil prices reversed lower, closing down 0.3% to $90.50 a barrel. Natural gas prices rose 3.2%.

The 10-year Treasury yield rose 3 basis points to 2.8%. The 2-year Treasury yield climbed 5 basis points to 3.27%. The yield curve is inverted from the 1-year to the 10-year, a recession warning.

ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 2%, while the Innovator IBD Breakout Opportunities ETF (BOUT) dipped 0.4%. The iShares Expanded Tech-Software Sector ETF (IGV) gave up 1.5%, with MSFT stock the top IGV holding. The VanEck Vectors Semiconductor ETF (SMH) tumbled 4.2%. MU stock is a notable SMH holding.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) skidded 5.45% and ARK Genomics ETF (ARKG) 5.4%. Tesla stock remains a major holding across Ark Invest’s ETFs.

SPDR S&P Metals & Mining ETF (XME) rose 0.8% and the Global X U.S. Infrastructure Development ETF (PAVE) dipped 0.5%. U.S. Global Jets ETF (JETS) descended 1.7%. SPDR S&P Homebuilders ETF (XHB) slumped 3.3%. The Energy Select SPDR ETF (XLE) climbed 1.8% and the Financial Select SPDR ETF (XLF) edged up 0.5%. The Health Care Select Sector SPDR Fund (XLV) dipped 0.3%.

Tesla Stock

Tesla stock skidded 2.4% to 850. On Friday, shares skidded 6.6% to below their 200-day line. On Monday, TSLA stock tried to reclaim its 200-day line but slashed big intraday gains to just 0.8%.

Li Auto stock tumbled 7%, undercutting the low of its recent consolidation and nearing its 200-day line. LI has earnings on Aug. 15. Among Li’s China EV rivals, Nio (NIO) slumped 5%, below its 50-day line, while giant BYD (BYDDF) lost 2.5%, starting to live below its rising 50-day.


Five Best Chinese Stocks To Watch Now


Market Rally Analysis

The stock market rally pulled back Tuesday, as the major indexes retreated from various resistance levels.

The Nasdaq, which erased strong morning gains on Monday, led Tuesday’s slide. It’s backed off a trendline going back to January, but is still above its early June highs. The Russell 2000, which cleared its early June peaks on Monday, is back into that resistance area. The S&P 500 and Dow Jones, which tested those levels Monday morning, also are retreating.

A market rally pause around current levels could be positive. Many leading stocks that have run up the right side of bases could use handles and tighter action.

Many beaten-down former leaders have soared from recent lows, such as RBLX stock and Trade Desk, but are nowhere near highs. A few could keep running, but many are likely due for a halt or substantial reversal.

The major indexes also could be ready for a sharper retreat. That doesn’t necessarily mean undercutting bear market lows. It’s also possible that the market pulls back, then slogs in a tricky range for a substantial period.

The sell-off in semis is a bad sign. Chip stocks usually play a significant role in any meaningful market rally. Chips’ recent advance had been encouraging.

On the upside, aerospace/defense, energy and health insurers held up well or kept advancing. Biotechs overall pulled back modestly after strong gains. Some defensive groups also are doing well.

Wednesday’s inflation report will provide a short-term catalyst, but how stocks open won’t necessarily be how they close.


Time The Market With IBD’s ETF Market Strategy


What To Do Now

The market rally has hit some resistance. This could be temporary or the start of a bigger retreat. Either way, investors may want to pare exposure and take some partial profits. If it’s just a pause, a number of new buying opportunities should soon present themselves.

There are some buying opportunities in natural gas plays such as Range Resources. If you nibble, that should probably be in the context of not increasing net exposure. And be nimble. Energy prices and market conditions could quickly change.

Keep working on watchlists. This is a confirmed market rally with a number of stocks trying to set up. You want to be ready.

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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