Dow Jones Rises 1,300 Bps From Bear Market Lows After Hot Inflation Report; What to do now

Dow Jones futures rose slightly overnight, as did S&P 500 and Nasdaq futures. Dow giants UnitedHealth and JPMorgan Chase headline key earnings on Friday morning. The stock market plunged Thursday morning on a hot CPI inflation report, but then roared. The Dow Jones jumped more than 1,300 points from intraday bear market lows. The 10-year Treasury yield pared its gains after soaring above 4% to hit a 13-year high.


However, it’s only a good day. Investors should still be on the sidelines, but looking for new potential leaders.

There is an argument that the market could not really bottom before You’re here (TSLA), the largest and most followed high-growth stock, is collapsing. It is far too early to tell if the market or TSLA have bottomed out. But on Thursday, Tesla stock fell to just above its May lows before rebounding quickly.

Meanwhile, megacap technologies Apple (AAPL), Microsoft (MSFT) and parent company of Google Alphabet (GOOGL) staged bullish outside reversals. Not only have they surpassed the highs and lows of the previous day, but they have engulfed the weekly range.

Microsoft and Google stock are on IBD Long-Term Leaders.

Key wins

UnitedHealth (UNH) kicks off earnings for the health insurer on Friday morning. JPMorgan Chase (JMP), Citigroup (VS), Morgan Stanley (MS) and Wells Fargo (WFC) are also expected before the open.

UNH stock has been trending lower and not leading its group, but its relative strength line is at the top. Stocks hit their lowest level in nearly four months before bouncing back to their 200-day line. But UnitedHealth’s revenue and advice will be important to rivals, including Cigna (THIS). Shares of JPM, Citigroup, Wells and Morgan Stanley rebounded on Thursday, but are hovering around bear market lows amid tough economic times.

Dow Jones Futures Today

Dow Jones futures were up 0.5% from fair value. S&P 500 futures climbed 0.5% and Nasdaq 100 futures rose 0.5%.

The 10-year Treasury yield fell 2 basis points to 3.93%.

People’s Bank of China Governor Yi Gang said the central bank would provide more economic support, with a focus on infrastructure.

Remember that overnight action on futures contracts on Dow Jones and elsewhere does not necessarily translate into actual trading in the next regular trading session.

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Stock market Thursday

Heading into the open, the CPI inflation report came in much hotter than expected. Core inflation hit a 40-year high in September, with no real sign of easing underlying pressures. Futures, which had been solidly higher, plunged on the CPI data.

The stock market opened sharply lower, with all major indices hitting bearish lows, but rallied powerfully for strong gains.

The Dow Jones Industrial Average jumped 2.8% in Thursday’s stock trading. That was up 828 points, or 1,378 points from the intraday low. The S&P 500 index jumped 2.6%. The Nasdaq composite jumped 2.2%. Small cap Russell 2000 gained 2.5%.

Apple stock rose 3.4% to 142.99, but after falling to 134.38 intraday, the lowest since late June. Shares of Microsoft jumped 3.8% and Google 1.5%, after both rebounded from bear market lows.

The 10-year Treasury yield climbed 5 basis points to 3.95%. But that’s after hitting a 13-year high of 4.06% intraday. Markets locked in a fourth straight Fed rate hike of 75 basis points in November, and now view a fifth such hike as likely in December. But there are growing fears of a recession or global financial trauma. The two-year yield, more tied to Fed policy and less to the economy, jumped 19 basis points to 4.48%.

The US Dollar initially rose due to rising Treasury yields, but then reversed lower.

U.S. crude oil prices rose 2.1% to $89.11 a barrel.


Among the top ETFs, the Innovator IBD 50 (FFTY) ETF rebounded 2.5%. The iShares Expanded Tech-Software Sector ETF (IGV) rose 1.4%, with MSFT stock as the top holding. ETF VanEck Vectors Semiconductor (SMH) jumped 3.1%.

Reflecting more speculative historical stocks, ARK Innovation ETF (ARKK) fell 0.2% after falling to a 30-month intraday low. ARKK is close to reducing its Covid crash level. ARK Genomics ETF (ARKG) closed down 0.7%. Tesla stock is the top position among Ark Invest’s ETFs. The TSLA rose 2.1% to 221.72 after hitting a 15-month low of 206.22 shortly after the open.

The SPDR S&P Metals & Mining ETF (XME) climbed 1.7%. The US Global Jets (JETS) ETF climbed 2.25%, supported by strong Delta Airlines (DAL) earnings forecast. The SPDR S&P Homebuilders ETF (XHB) edged up 0.25%. ETF Energy Select SPDR (XLE) and ETF Financial Select SPDR (XLF) both jumped 4.1%. The SPDR health care sector fund (XLV) rose 2.3%, with UNH stock being the top holding.

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Stock market analysis

What a wild session. The stock market sold hard at the open on the September inflation report, with all major indices and the Russell 2000 all above their bear market lows. But as the 10-year Treasury yield retreated from highs and the dollar retreated, stocks also rebounded.

The inflation report was gloomy, while Fed rate hike expectations deteriorated. Maybe stocks — or Treasury prices — were simply due for a rebound. Unlike August’s consumer price index and several other events relevant to the Fed, the market did not attempt to rally to September’s CPI data. The Nasdaq had fallen for six consecutive sessions. Had the indices rallied to their 21-day line at Wednesday’s close, Thursday’s market action could have played out very differently.

The longer-term charts suggest that the bear market may be at least close to a bottom. The Dow Jones and the Russell 2000 have surpassed their pre-Covid highs. The S&P 500 and Nasdaq are not far off their February 2020 highs, with the former finding support at 3,500 on Thursday while the latter bounced back just above the 10,000 level. But there’s no reason so that the shares don’t go down a lot.

Either way, while the strong upside reversal was welcome, keep it in perspective. The best days in stock market history come from bear markets. If the Nasdaq falls to new lows anytime soon, Thursday’s gains will be just a blip.

Thursday marks the first day of another attempt at a stock market rally for the Dow Jones, S&P 500 and Nasdaq. All major indices are still below their 21-day moving averages, with only the Dow Jones even approaching that level in the near term. There are several more resistance levels above the 21 days but for now let’s see if the market rally attempt can pass day 2. One day follow up to confirm that the new market rally attempt cannot not take place until next week at the earliest. .

The energy sector was the first to turn positive again, with Chevron (CVX) and many more powerful ones. Vertex Pharmaceuticals (VRTX), Cardinal Health (CAH) and CI stock are among several big names in the healthcare industry. Some steel games look good including Trade metals (CMC), but market conditions significantly increase the risks. Tokens rebounded from heavy early losses, but most are deeply downcast. JPM stocks, Citigroup and other financial companies are much the same.

DoubleVerify (DV) had a nice turnaround as elf beauty (ELF) is trading tight near the highs. World wrestling entertainment (WWE) is just one point away. Auto area (AZO) and CF Industries (CF) are also worth considering.

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What to do now

There is no reason to rush into the stock market yet. Yes, the indices and many stocks posted strong gains, especially from the intraday lows, but we don’t know if Thursday marked the bottom of the bear market or just a brief rebound. If this ends up being a market rally with real legs, investors will have plenty of time to gain exposure. If the indices quickly reach new lows, you’ll be glad you were all or all cash. This is why a tracking day makes so much sense. This is a way to quickly enter a new rally without trying to guess the absolute bottom.

In practice, few stocks issued buy signals on Thursday. But many could be exploitable with a few good days. So work on those watchlists. Focus on relative strength. Look for stocks approaching or resuming their 50-day lines or other key support. But many relatively strong stocks will be below their 50-day and even 200-day lines. Don’t ignore 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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