The stock market seesawed on Thursday, with the Nasdaq composite index ultimately ending the volatile session in negative territory, down more than 0.5%. Escalating tensions in the Middle East appeared to be a major factor driving the erratic trading day.
Reports surfaced that Israel is planning a counterattack on Iran as soon as Monday, sparking concerns about potential disruptions to global oil supplies. Crude oil futures ticked up slightly in response, reaching $82.24 per barrel, while natural gas prices rose 1% to $1.78 per million BTUs.
The energy sector has continued to outperform the broader stock market in 2024, with light sweet crude oil futures up an impressive 15% year-to-date.
Thursday’s declines capped off a difficult week for the tech-heavy Nasdaq, which has now fallen more than 3% over the last five sessions – its worst performance since sliding over 3.2% in the first week of January.
Investor’s Business Daily’s market outlook has shifted to an “uptrend under pressure” designation, suggesting a recommended stock market exposure level of just 20%-40%.
Lingering Doubts About the Economic Outlook
The ups and downs on Wall Street reflect persistent doubts among investors about the resilience of the U.S. economy and its ability to navigate a tricky path between curbing inflation and avoiding a severe recession.
The benchmark 10-year U.S. Treasury yield rose 5 basis points to 4.64% on Thursday as traders braced for the Federal Reserve to potentially extend its aggressive campaign of interest rate hikes.
According to CME Group’s FedWatch tool, traders currently see only a 15.3% probability that the central bank will cut rates by at least a quarter percentage point at its June 12 meeting. The fed funds rate currently stands in a target range of 5.25%-5.5%.
With recession fears looming, investors are scrutinizing corporate earnings reports and forward guidance even more intensely than usual. Netflix and Intuitive Surgical are among the major companies slated to report results after the closing bell on Thursday.
Bitcoin Futures Rise Ahead of “Halving” Event
Crypto markets were also in focus, with the newly launched bitcoin spot exchange traded funds attracting attention ahead of the much-anticipated “bitcoin halving” event expected to occur around May 2024.
The halving refers to a pre-programmed adjustment that cuts the rate at which new bitcoin tokens enter circulation roughly every four years. Some analysts believe this forced scarcity could provide a boost to bitcoin’s price over the longer term.
The ProShares Bitcoin Strategy ETF, which tracks bitcoin futures contracts, rallied 3% to $27.50 on Thursday, positioning it to potentially snap a four-session losing streak. The fund has surged as much as 91% since clearing a $17.70 buy point from a long double-bottom base pattern.
Despite the day’s ups and downs, the major stock indexes initially opened higher, aided by better-than-expected economic data. The Philadelphia Fed’s manufacturing index unexpectedly jumped to 15.5 in April, easily topping forecasts of a flat reading.
Weekly jobless claims also came in slightly below estimates at 212,000, though the tight labor market remains a key inflationary pressure that could keep the Fed hiking for longer.
Nvidia Tests Key Technical Level
Within the stock market, semiconductor giant Nvidia was an active trader as it briefly dipped below, then recovered back above, its 50-day moving average – a key technical support level viewed as a potential buy signal by many analysts.
Nvidia shares ultimately closed with a modest 0.6% gain, though volume ran about 9% below average levels. The artificial intelligence and accelerated computing leader, which maintains a sizeable position in the IBD Leaderboard model portfolio, is scheduled to report fiscal first quarter earnings on May 22.
Wall Street is forecasting explosive year-over-year earnings growth of 473% for Nvidia in the April quarter, along with a 240% surge in revenues to $24.5 billion. Estimates call for profits to jump another 107% in the July quarter as sales approach $27 billion.
Taiwan Semi Slashes Outlook, Triggering Sell Signal
While Nvidia managed to tread water on Thursday, fellow chip giant Taiwan Semiconductor Manufacturing was not so fortunate. TSM shares plunged nearly 6% at the open before paring losses, but still closed down around 5% on heavy volume.
More concerningly for the stock’s technical picture, it gapped down sharply through both its 50-day and 10-week moving averages – a distribution day that represented a clear sell signal for traders following the cup-and-handle base it had been etching.
The selloff came despite Taiwan Semi reporting a 9% year-over-year increase in March quarter earnings of $1.38 per share. However, revenues were flat at $20.4 billion and the company cut its 2024 sales outlook, citing impacts from the recent earthquake in Taiwan that ruined chip batches and pressured profit margins.
Financials Provide a Bright Spot
While the chip sector presented a mixed picture, financial stocks helped prop up the overall market on Thursday, led by a strong performance from regional banking player Comerica.
Comerica shares jumped over 2% after the Detroit-based firm topped earnings estimates by 17 cents per share, despite slightly missing on the top-line. The better-than-feared results provided a lift to major sector peers like JPMorgan Chase, Wells Fargo, and Bank of America.
Wells Fargo, up over 2% on heavy volume, even rallied past a 58.44 buy point from a tight five-week consolidation – representing a potential opportunity for investors looking to initiate or add to a position.
On the economic reopening front, homebuilder D.R. Horton also caught traders’ attention by surging as much as 6% out of the gate. While the gains faded somewhat through the session, the strong March quarter results reinforced the stock’s legitimate breakout attempt from a nine-week cup base.
D.R. Horton crushed Wall Street’s expectations with earnings growth of 29% year-over-year and a 14% revenue increase that topped even the highest analyst projections. The better-than-forecast gross margins of 26% were another positive sign for the housing sector.
Auto Parts Play Breaks Out
One of the day’s biggest stock market winners was Genuine Parts Company, the leading distributor of automotive replacement parts. Shares rocketed over 12% higher on massive volume, blasting clearly through an initial buy point at $157.77.
The diversified Atlanta-based firm reported earnings of $2.22 per share for its latest quarter, up 4% annually, as revenues also inched higher by $18 million to $5.78 billion. The combination of accelerating profits and sustained sales growth was evidently more than enough to satisfy investors seeking exposure to the auto market’s recovery.
With cross-currents buffeting practically every sector of the market, volatility is likely to remain a persistent theme in the trading days ahead. As companies continue opening their books on the January-March period, their forward outlooks could prove critical for determining whether Wall Street’s concerns about economic weakness or intractable inflation prove better founded.
