Market Correction Intensifies; What To Do Now
Dow Jones futures will open on Sunday evening, along with S&P 500 futures and Nasdaq futures, with the upcoming Fed meeting in focus. The stock market correction intensified last week, as the major indexes sold off again, plunging into Friday’s close.
Two market rally attempts failed almost as soon as they started. Investors should stay nearly or entirely on the sidelines until the market offers clear signals of a sustained uptrend.
Warren Buffett’s Berkshire Hathaway (BRKB) will report earnings on Saturday. China EV makers Nio (NIO), Xpeng (XPEV) and Li Auto (LI) should release April deliveries on Sunday, with China’s lockdowns affecting production and shipments. EV giant BYD (BYDDF), which will report April sales around Tuesday, appears to have been less affected. Tesla (TSLA) China production and sales, among the hardest hit, will be released a little later in May.
NTR stock fell 5.4% to 98.25 last week, but is finding support around its 50-day line after a big run. MOS stock skidded 6.5% last week, but closed around its 50-day line as well. CF stock rebounded to end the week down just 0.2%, slightly above its rising 50-day line.
The video embedded in this article discusses the volatile market action and analyzes BRKB stock, Exxon Mobil (XOM) and Nutrien.
But the big event this week for investors is the Federal Reserve meeting on May 3-4. Policymakers almost certainly will hike interest rates by 50 basis points and are expected to agree to start cutting the central bank’s massive balance sheet. Wall Street will key in on the Fed statement and Fed chief Jerome Powell’s news conference for clues about future rate hikes.
Markets have priced in at least two more 50-point Fed rate hikes, but there’s a chance that policymakers could go ahead with a 75-basis point increase in the near future. Policymakers are worried about inflation becoming entrenched, even if year-over-year increases may be peaking. But aggressive rate hikes could derail the economy, especially with China’s Covid shutdowns and the ongoing Russia-Ukraine war.
Berkshire earnings will be released Saturday ahead of the company’s annual shareholder meeting, where Buffett will hold court once again.
Berkshire is an insurance giant that owns BNSF railroad, among other companies, with its top stock investment in Apple (AAPL). Those were strong areas of the market in March. But since then, Apple stock and rail operators have come down, while insurers have struggled.
Buffett has focused on Berkshire stock buybacks, limiting big new purchases, though he has taken a big stake in Occidental Petroleum (OXY). Will he continue big buybacks in the coming year, or does he see buying opportunities with share prices coming down?
Will Buffett, 91, and Vice Chairman Charlie Munger, 98, provide more details on a succession plan?
BRKB stock cleared a flattish consolidation in early March with a buy point around 325, rising to 362.10 on March 29. But shares have pulled back. Last week, Berkshire stock fell 4.1% to 321.90, breaking below the 50-day line and round-tripping the March breakout.
The relative strength line has held at multiyear highs, as BRKB stock retreated in line with the S&P 500 index. So Berkshire stock is still worth watching.
Dow Jones Futures Today
Dow Jones futures open at 6 p.m. ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
Stock Market Last Week
The stock market suffered a week of big ups and downs, but sold off hard for the week. Friday’s losses accounted for all of the major indexes’ losses and then some.
The Dow Jones Industrial Average sank 2.5% in last week’s stock market trading. The S&P 500 index skidded 3.3%. The Nasdaq composite tumbled 3.9%. The small-cap Russell 2000 slumped 3.9% as well.
The 10-year Treasury yield fell 2 basis points to 2.89%, but after falling to 2.72% during the week.
U.S. crude oil futures rose 2.6% to $104.69 a barrel last week.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) tumbled 5.4% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) lost 2.5%. The iShares Expanded Tech-Software Sector ETF (IGV) retreated 1.9%. The VanEck Vectors Semiconductor ETF (SMH) shed 2.1%.
SPDR S&P Metals & Mining ETF (XME) slumped 3.8% last week. The Global X U.S. Infrastructure Development ETF (PAVE) fell 2.8%. U.S. Global Jets ETF (JETS) descended 3.9%. SPDR S&P Homebuilders ETF (XHB) dipped 0.1%. The Energy Select SPDR ETF (XLE) slipped 1.35% and the Financial Select SPDR ETF (XLF) retreated 4.4%. The Health Care Select Sector SPDR Fund (XLV) gave up 2.5%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) dived 10% last week and ARK Genomics ETF (ARKG) 11.15%, both to two-year lows. Tesla stock is still the No. 1 holding across Ark Invest’s ETFs. Cathie Wood also has stakes in Nio stock, Xpeng and BYD.
BYD stock is also owned by Buffett’s Berkshire.
China EV Sales
On Sunday, Nio, Xpeng and Li Auto will report April deliveries. Nio production reportedly was shut down for part of the month as Covid shutdowns hit suppliers’ output and shipments. Xpeng and Li Auto have also signaled issues with output and deliveries.
So big delivery declines vs. March are a given for these three EV startups. But how much do they see Covid shutdowns affecting operations? Revised quarterly delivery forecasts should offer clues.
Meanwhile, EV giant BYD reportedly has been relatively less affected. BYD makes its own batteries and chips. Also, its low-to-midlevel-priced models have strong demand beyond the big cities most affected by the current shutdowns. BYD will certainly report huge year-over-year growth, and could actually top March’s record sales of 104,878 vehicles.
In the latest week, BYD reported first-quarter net income soared 241% vs. a year earlier.
Nio stock fell 2.8% to 16.70. Chinese stocks initially rallied Friday on regulatory hopes, but gave up gains. China signaled Friday it may back off tech crackdowns. Also, Chinese and U.S. regulators reportedly are close to an auditing deal that would remove the risk that U.S.-listed Chinese stocks would be delisted.
Xpeng stock rose 3.1% last week. Li stock edged up 0.45%.
BYD stock, which trades over the counter in the U.S., edged down 0.85% for the week. Unlike its smaller peers, BYD stock is above its 50-day line.
Tesla China Sales
Tesla China sales for April will be released later in May as part of industry trade data on overall auto sales. The Tesla Shanghai plant was closed from March 28 to about April 21. It’s now operating with limited staff working on site. Production is still low, and it’s unclear when output could return to normal.
Tesla Shanghai production is expected to be down well more than 50% vs. March.
Tesla will likely lose its EV sales crown in the second quarter to BYD, though the Chinese firm will do so with EVs and plug-in hybrids. Even when Tesla Shanghai is fully operational, with the Berlin and Austin plants slowly ramping up output, BYD is likely to keep its unit sales edge.
Tesla stock tumbled 13.4% to 870.76 last week. CEO Elon Musk sold 9.6 million shares on Tuesday-Thursday worth about $8 billion, tweeting late Thursday that he was done for now. That came after he pledged a lot of TSLA stock as part of his $44 billion deal to buy Twitter (TWTR). Tesla stock tried to bounce Friday, but hit resistance at the 50-day line and closed slightly lower, stuck below the 200-day line.
Market Rally Analysis
Last week had some big daily swings, including some positive sessions. But ultimately, the major indexes sold off again, extending their weekly losing streaks.
After Thursday’s big jump, the Nasdaq, S&P 500 index and finally the Dow Jones, undercut Wednesday’s intraday lows, ending their short-lived rally attempts.
The Nasdaq is at its worst levels since late 2020. The S&P 500 is still above its February lows, but had its worst close since last June.
Market breadth is anemic, with losers outpacing winners and new lows trouncing new highs.
The market correction could be on the verge of a new leg down. The Nasdaq is in a full-fledged bear market.
Fear gauges such as the CBOE Volatility S&P 500 Index are trending higher, but have yet to break above peaks from earlier this year. The CBOE Nasdaq Volatility Index, or VXN, is getting close.
Energy and fertilizer stocks still look OK, but with a slew of earnings reports for both sectors this coming week. Defense giants are not far from buy points with earnings largely out of the way. Some drug stocks are showing strength, but others are struggling.
Some travel stocks are doing OK, but like most groups need a positive market tailwind to make serious headway.
REITs, which had been holding up in the market correction, sold off late in the week.
What To Do Now
Investors shouldn’t try to guess a market bottom. Don’t get sucked into morning rallies or even big daily gains like Thursday’s.
So, what should you do? Stay on the sidelines. If you’re going to dip your toe into a stock flashing buy signals amid a correction, be ready to get right back out. Being entirely in cash still makes a lot of sense.
But stay engaged. If the market rally suddenly stages a follow-through day, you want to be ready to gradually increase your exposure. So keep working on watchlists, focusing in on a select group of names that are at the top of your potential buy lists.
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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