Dow Jones futures fell slightly Wednesday night, along with S&P 500 futures and Nasdaq futures, with Lululemon, RH and GME stock among the big overnight movers. The stock market rally retreated Wednesday, with growth names among the hardest hit, but housing, industrial, steel and retail names also retreated.
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The major indexes fell amid semi-hawkish comments from a Fed official on reining in monetary signs, as well as signs that further fiscal stimulus could be far less than forecast. But IBD Long-Term Leaders such as Microsoft stock and Idexx Labs (IDXX) held up well.
Key Earnings
RH (RH), Lululemon Athletica (LULU), Copart (CPRT) and original meme stock GameStop (GME) reported earnings after the close.
Academy Sports (ASO) reports before Thursday’s open. ASO stock fell 3.85% to 43.40 on Wednesday, but closed above the official 42.85 buy point.
RH and Lululemon beat views and raised guidance. GameStop reported a wider-than-expected loss but beat on sales. Copart earnings and sales topped.
RH stock rose 1% overnight after recently undercutting its 50-day line. RH closed up 1.3% after falling more than 2% intraday.
LULU stock shot up 14% in extended trade, signaling a record high, after closing down for a sixth straight session.
GME stock tumbled 9% in overnight action after edging lower Wednesday. GameStop stock has been consolidating since its early June peak and more broadly since its late January surge to 483. Before the close, AMC Entertainment (AMC), another “traditional” meme stock, said it’s working on a possible partnership with GameStop. AMC stock fell modestly after closing down 1% Wednesday.
CPRT stock edged higher following better-than-expected Copart earnings. Shares rose 1.2% to 144.67 on Wednesday. Copart stock is finding support at its 50-day line. The official buy point is 149.16 from a flat base. But a rebound from the 50-day line, perhaps getting above some short-term resistance, would offer an early entry.
Long-Term Leaders
CPRT stock is on IBD Long-Term Leaders. Buying off the 50-day/10-week line is a good place to start a position in a Long-Term Leader.
Fellow Long-Term Leaders Idexx Labs (IDXX) and Pool Corp. (POOL) rose Wednesday, rebounding from around their 50-day or 10-week lines.
Microsoft (MSFT), another Long-Term Leader, rose 1 cent to 300.21, rebounding from its 21-day line as it drifts off highs. MSFT stock effectively has a three-weeks tight with a 305.94 buy point. Ideally, Microsoft stock would trade tight until the 10-week line catches up, perhaps forming a new flat base.
Domino’s Pizza (DPZ), a former Long-Term Leader that still shares a lot of those traits, rose modestly from its 50-day line Wednesday and broke a short downtrend, offering an early entry. DPZ stock is working on a flat base.
In addition to Long-Term Leaders, Microsoft stock is on IBD Leaderboard. Domino’s was Wednesday’s IBD Stock Of The Day.
The video embedded in this article reviewed Wednesday’s market action and analyzed Crocs (CROX), Shopify (SHOP) and DPZ stock.
Dow Jones Futures Today
Dow Jones futures fell 0.2% vs. fair value. S&P 500 futures and Nasdaq 100 futures retreated 0.2%.
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
Stimulus Concerns
St. Louis Fed President James Bullard told the Financial Times that he still favors beginning a bond taper program this year. Fed chief Jerome Powell, Bullard and several other Fed policymakers in late August backed a tapering program by year-end. But last week’s weak jobs report raised expectations that the Fed would not agree on such a plan at the September policy meeting.
Bullard, one of the more hawkish policymakers recently, is not an FOMC voting member this year. Wednesday’s afternoon lukewarm Beige Book report from the Federal Reserve reinforced views that the economic outlook has downshifted. The IBD/TIPP Economic Optimism Index, released Wednesday morning, tumbled 5.1 points in early September to a 12-month-low 48.5.
Meanwhile, Sen. Joe Manchin, a centrist Democrat from West Virginia, said late Tuesday that he supports only $1.5 trillion in spending out of President Biden’s proposed $3.5 trillion package. Democrats need his vote to pass their latest big tax-and-spending plan. Further, if House progressives aren’t happy, they could try to sink a bipartisan $1 trillion infrastructure bill. So while the odds still favor hefty, if scaled-back, new spending, there’s now a more-than-zero chance that nothing passes by year-end.
Stock Market Rally
The stock market rally fell back amid those monetary and fiscal stimulus concerns, though a mild retreat didn’t need any trigger. The major indexes did close off lows.
The Dow Jones Industrial Average fell 0.2% in Wednesday’s stock market trading. The S&P 500 index dipped 0.1%. The Nasdaq composite dipped 0.6%. The small-cap Russell 2000 slumped 1.1%.
The 10-year Treasury yield fell four basis points to 1.33% after rising eight basis points in the prior two sessions.
A lot of stocks that had been running up fell back, including recent IPOs. But several growth stocks that had struggled to make progress suffered notable losses.
DocuSign (DOCU) fell 3.4%, and is starting to lose sight of its 50-day line. DOCU stock tumbled 6% on Tuesday, more than wiping out Friday’s bullish gain. Meanwhile, SHOP stock sank 3.8% and SQ stock 4.2%, both knifing below their 50-day lines.
Meanwhile, Pulte Group (PHM) cut guidance, citing supply chain woes. PHM stock tumbled 6%, with Lennar (LEN), Toll Bros. (TOL) and others selling off.
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Top ETFs
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.6%, while the Innovator IBD Breakout Opportunities ETF (BOUT) gave up 1.1%. The iShares Expanded Tech-Software Sector ETF (IGV) dipped 0.6%, with MSFT stock a top holding. The VanEck Vectors Semiconductor ETF (SMH) retreated 1.3%.
SPDR S&P Metals & Mining ETF (XME) skidded 2.3% and Global X U.S. Infrastructure Development ETF (PAVE) lost 0.3%. U.S. Global Jets ETF (JETS) retreated 1.5%. SPDR S&P Homebuilders ETF (XHB) shed 0.9%, with RH stock a major component. The Energy Select SPDR ETF (XLE) fell 1.3% and the Financial Select SPDR ETF (XLF) edged down 0.2%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) declined 2.8% and ARK Genomics ETF (ARKG) 2.4%. ARKK fell back below its 50-day and 200-day lines. ARKG undercut its 50-day line. Square stock is a notable ARK Invest holding.
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Market Rally Analysis
After rebounding over the prior three weeks, the stock market rally had a setback Wednesday. The Dow Jones and small-cap Russell 2000 tested their 50-day lines on Wednesday. The Nasdaq retreated, though from all-time highs. The S&P 500, just above its 21-day line, is not far from record levels either.
There were notable losses among growth, housing and commodity-related stocks.
What exactly is working? Microsoft stock and some Long-Term Leaders such as Copart are acting well. Shipping stocks are looking strong.
Tesla (TSLA) was little changed, holding in a buy zone. Fellow giants Apple (AAPL), Facebook (FB), Google (GOOG) and Nvidia (NVDA) still look solid, despite Wednesday’s slim losses. Hot IPOs had a down day, but generally remain in strong uptrends.
Still, market leadership remains narrow.
What To Do Now
The stock market rally hasn’t set off any alarm bells. But with the major indexes near highs, some leading stocks taking losses and few buying opportunities available, investors may want to be somewhat defensive in the short run. Investors might be cutting exposure automatically by exiting losing trades or taking partial profits in some recent winners, while largely avoiding new buys.
A market pause or pullback could quickly offer new buying opportunities. So keep working on watchlists. Beyond Long-Term Leaders and tech giants, make sure to keep an eye on a variety of sectors. Some areas that are struggling right now could quickly turn into winners, including chips, housing, industrial and financial plays.
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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