Dow Jones Falls; Fed Chief Powell Minimizes Recession Risks In Inflation Fight

Dow Jones Falls; Fed Chief Powell Minimizes Recession Risks In Inflation Fight

The Dow Jones fell at the open on Wednesday, along with the S&P 500 Composite and the Nasdaq, but off pre-market lows as Federal Reserve chief Jerome Powell told Congress that politicians will move aggressively to combat the inflation, but that the US economy can handle that. Treasury yields and crude oil prices also fell significantly.


Vertex Pharmaceuticals (VRTX) and Bristol Myers Squibb (BMY) recovered its 50-day lines on Tuesday, while united therapeutics (UTHR) is in a buying range. All three pharmaceutical stocks have lines of relative strength at the tops.

In the meantime, Tesla (TSLA) and father of Google Alphabet (GOOGL) remain two mega-caps that have yet to undermine their late-May lows. That’s not market leadership, but it is a nugget of strength.

UTHR shares are listed on SwingTrader. Google shares are in the long-term leaders of EII. Vertex and BMY shares are at 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 was scheduled to begin at 9:30 am ET, just as the opening bell rang.

In his prepared remarks, Powell reaffirmed the central bank’s commitment to reining in inflation, which hit a 40-year high in May according to the consumer price index.

“At the Fed, we understand the difficulties that high inflation is causing,” Powell said in his remarks. “We are strongly committed to reducing inflation and we are moving quickly to do so.”

But he said the United States can handle large rate hikes, minimizing recession risks. “The US economy is very strong and well positioned to handle tighter monetary policy.”

On Wednesday, Citigroup sees a 50-50 chance that the United States sinks into a recession. The most likely recession would be a mild “garden variety” recession, but there are risks of “hard landing” and “stagflation.”

The Fed raised rates by 75 basis points on June 15, the biggest hike in 28 years. After the announcement of the Fed meeting, Powell said that the authorities could raise rates by 50 or 75 basis points at the end of July. Markets have almost fully priced in another 75 basis point move.

dow jones today

The Dow Jones fell 0.9%. The S&P 500 fell 0.8% and the Nasdaq Composite fell 0.8%.

US crude oil prices sank more than 6%, trading below $105 a barrel and pointing crude futures to its first monthly decline since November. Oil markets are increasingly concerned about a recession curbing demand for oil. Meanwhile, President Joe Biden has called on Congress to suspend the federal gas tax of 18.4 cents a gallon for three months.

Copper prices fell more than 3%.

The 10-year Treasury yield slumped to 3.16% from 3.31% on Tuesday.

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Vertex shares rallied above their 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 downward sloping trend line could offer a slightly lower entry.

Vertex shares lost a fraction on Wednesday morning.

BMY shares rose back above their 50-day line on Tuesday, possibly offering an early entry. Technically, Bristol shares have been on a new basis for a few weeks, but they are also arguably in a consolidation going back to early April. Stocks were little changed on Wednesday morning.

UTHR shares rose 4.3% on Tuesday to 228.84, bouncing off the 21-day line and breaking a brief downtrend. United Thera shares are still in a buying point range of 218.48. UTHR shares fell 2% on Wednesday.

Tesla shares rose 9.3% to 711.11 on Tuesday, just above its 21-day moving average. But it is still below its 50-day rapid decline line, with its 200-day average well above that. Last week, TSLA shares fell to 626.08, but held above an 11-month low of 620.57 on May 24. Stocks edged lower on Wednesday.

Google shares rose 4.1% to 2,230.88 on Tuesday, just below its 21-day line. It’s not too far from its rapidly falling 50-day line, but the 200-day line is a long way off. Last week, GOOGL shares fell to just above 2100, slightly above the May 24 low of 2037.69. Stocks were flat early Wednesday.

market rally tuesday

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

Tuesday’s strong gains were welcome, but markets have numerous one-day and short-lived rallies amid strong downtrends. Wednesday’s big drop in Dow futures suggests the stock market’s new rally attempt is already running into trouble.

Assuming the major indices don’t undermine last week’s lows, investors could look to a follow-up day to confirm the further recovery attempt.

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What to do now

Investors should remain on the sidelines, waiting for a confirmed uptrend in the market. Even then, investors need to be cautious. A relative lack of good buy stocks is probably one of them.

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

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


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