Dow Jones futures turned lower after Wednesday’s key inflation report — the producer price index — in the wake of Tuesday’s stock market plunge from a hot consumer price index reading. The 10-year Treasury yield is on the cusp of hitting June’s 11-year high.
Stock Market Today: Inflation Report
The Labor Department released the PPI, which measures wholesale inflation, at 8:30 a.m. ET. Producer prices fell 0.1% in August vs. the previous month, matching estimates. Wholesale inflation rose 8.7% from a year ago, down from July’s 9.8% surge.
On Tuesday, the CPI inflation rate eased to 8.3%, retreating from July’s 8.5% and June’s 9.1% rate, amid falling gas prices. The consumer price index rose 0.1% on the month. But Wall Street economists had expected the CPI to show a 0.1% monthly decline, bringing the CPI inflation rate down to 8%. Worse, core inflation accelerated more than expected, to 6.3%.
As a result, markets now believe there is a 38% chance of a full percentage point increase at the Federal Reserve’s next meeting. Before Tuesday, Wall Street did not place odds on that possibility at all.
Meanwhile, electric-vehicle leader Tesla (TSLA) traded down a fraction Wednesday. Among the Dow Jones industrials, tech titans Apple (AAPL) and Microsoft (MSFT) were little changed ahead of today’s stock market open. Merck (MRK) rose 0.7% after Berenberg upgraded the stock to buy.
In the market’s current volatility, Arista Networks (ANET), DoubleVerify (DV), Palo Alto Networks (PANW) and Pure Storage (PSTG) — as well as Dow Jones stock Chevron (CVX) — are among the top stocks to buy and watch. Keep in mind the market’s increased volatility is a good reason for investors to be more defensive, especially after Tuesday’s market dive.
DoubleVerify is an IBD Leaderboard stock. Chevron and Palo Alto were featured in this week’s Stocks Near A Buy Zone column.
Dow Jones Today: Treasury Yields, Oil Prices
Ahead of Wednesday’s opening bell, Dow Jones futures turned down less than 0.1% vs. fair value, while S&P 500 futures moved up 0.2%. Nasdaq 100 futures rose 0.25% in morning action. Remember that overnight activity in Dow Jones futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
The 10-year Treasury yield ticked higher to 3.46% Wednesday morning. On Tuesday, the 10-year Treasury yield notched its highest closing level since June 14 and is just shy of the 11-year high of 3.48% set on June 14.
U.S. oil prices inched lower Wednesday, as they continue to consolidate after recent gains. West Texas Intermediate futures traded back to below $87 a barrel.
Stock Market Rally Under Pressure
On Tuesday, all three major stock indexes gapped below their 50-day moving averages, bringing a trip to their Sept. 6 lows into play. The Dow Jones Industrial Average fell 3.9%, while the Nasdaq dived 5.2%.
Ahead of the inflation report, Tuesday’s The Big Picture column commented, “It’s best to stay out of the market’s way at this point. Assess your current holdings. If you’ve got some names that are profitable and holding above short-term support levels, it’s OK to hold. In the Leaderboard portfolio, for example, we’re still holding Invesco Solar (TAN) because it’s slightly above our entry and holding above its converged 10- and 21-day lines.”
The best way to find emerging stock market leadership is by using the relative strength line. The RS line measures a stock’s price performance vs. the S&P 500. If the stock is outperforming the broader market, the RS line angles upward. If a stock lags the broad market, the line will point lower.
The RS line is plotted on all IBD and MarketSmith charts. In addition, the IBD Stock Screener includes a list of top-rated stocks with relative strength lines at new highs. MarketSmith also has the “RS Blue Line Dot” list, which screens for RS lines at new highs. (IBD MarketSmith provides free access for a full week.)
If you’re new to IBD, consider taking a look at its stock trading system and CAN SLIM basics. Recognizing chart patterns is one key to the investment guidelines. IBD offers a broad range of growth stock lists, such as Leaderboard and SwingTrader.
Dow Jones Stocks To Watch: Chevron
Dow Jones stock Chevron dropped 1.9% Tuesday, but is still holding above support at the key 50-day line. The stock is approaching its latest buy point at 166.93 — according to IBD MarketSmith chart analysis — amid a strong performance by energy stocks so far this year. The stock was flat early Wednesday.
CVX stock shows a strong 97 out of a perfect 99 IBD Composite Rating, per the IBD Stock Checkup. Investors can use the IBD Composite Rating to easily gauge the quality of a stock’s fundamental and technical metrics.
Top Stocks To Watch: Arista, DoubleVerify, Palo Alto Networks, Pure Storage
Arista Networks has added a handle to a double-bottom base, placing the correct entry at 132.97, according to IBD MarketSmith chart analysis. Arista’s relative strength line is close to highs. ANET shares were unchanged early Wednesday.
IBD Leaderboard stock DoubleVerify is holding above a 28.07 buy point in a bottoming base. Shares are in the 5% buy zone that goes up to 29.47. DV shares were flat Wednesday morning.
Cybersecurity leader Palo Alto Networks is nearing a 578.89 buy point in a cup with handle despite Tuesday’s 3.4% fall. An early entry around 560 is also in play due to a trendline, according to IBD Leaderboard commentary. Shares were unchanged Wednesday.
Pure Storage is approaching a 31.62 buy point in a cup with handle. Meanwhile, an early entry is also in play after the stock moved above a downtrend line within that handle. Shares were inactive Wednesday.
Tesla stock skidded 4% Tuesday, snapping a five-day win streak. Shares gave up their 200-day line, which they had just reclaimed. The electric-vehicle giant fell slightly Wednesday morning.
Shares are about 30% of their 52-week high.
Dow Jones Leaders: Apple, Microsoft
Among Dow Jones stocks, Apple shares stumbled 5.9% Tuesday, breaking back down below their 50- and 200-day lines. The stock is about 14% away from a buy point at 176.25 off a cup with handle. Apple stock dipped 0.2% Wednesday.
Microsoft declined 5.5% Tuesday, ending a four-day win streak. The software giant remains sharply below its 50- and 200-day lines. Shares are about 28% off their 52-week high. Microsoft shares inched up 0.1% Wednesday morning.
Be sure to follow Scott Lehtonen on Twitter at @IBD_SLehtonen for more on growth stocks and the Dow Jones Industrial Average.
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