Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures. Another inflation report, the producer price index, is on tap.

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The stock market rally lost ground Wednesday following a hot CPI inflation report. The Nasdaq and S&P 500 found key support, with the market rally’s most important stock Nvidia (NVDA) rebounding higher.

But Nvidia stock masked broad weakness, with small caps and key ETFs breaking below key levels.

Treasury yields soared on the inflation report and a weak 10-year Treasury auction. Fed minutes from the March meeting didn’t have much impact. They showed policymakers wanting to see more progress on inflation but still expecting rate cuts this year.

Markets priced out a Fed rate cut for June and July. Investors now expect the first easing in September, but it’s no slam dunk. Markets are now starting to price in a slim chance that there are no rate cuts in 2024.

In addition to Nvidia stock, Nvidia chipmaker Taiwan Semiconductor (TSM) edged higher after reporting strong sales, building the right side of a base. A third AI chip stock, recent IPO Astera Labs (ALAB), made a strong gain. Nutanix (NTNX), Axon Enterprise (AXON) and Dow tech giant Microsoft (MSFT) showed strength.

Tesla (TSLA) fell back from near resistance. Shares are still up for the week.

Nvidia stock is on the IBD Leaderboard and SwingTrader. Microsoft stock is on IBD Long-Term Leaders. Axon, Nvidia and Ares stock are on the IBD 50. Nvidia and Axon stock are on the IBD Big Cap 20. Nvidia was Wednesday’s IBD Stock Of The Day.

Economic Data

The Labor Department will release the March producer price index and weekly jobless claims at 8:30 a.m. ET Thursday.

Initial jobless claims are expected to fall 6,000 in the week ended April 6 to 215,000.

Economists expect the March PPI to rise 0.3% after February’s 0.6% jump. Core PPI, which excludes food and energy, should rise a modest 0.2% after February’s 0.3% advance. Core PPI inflation should ramp up to 2.3% vs. a year earlier, picking up from February’s 1.6%. Core PPI inflation should also hit 2.3%, up from 2%.

Key elements in the PPI report feed directly into the core PCE price index, the Fed’s favorite inflation report.

Dow Jones Futures Today

Dow Jones futures fell 0.1% vs. fair value. S&P 500 futures and Nasdaq 100 futures declined 0.1%.

The 10-year Treasury yield fell to 4.54%.

Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.

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Stock Market Rally

The stock market rally fell sharply Wednesday on the hotter-than-expected CPI inflation data, though the indexes did come off intraday lows

The Dow Jones Industrial Average fell 1.1% in Wednesday’s stock market trading, tumbling from the 50-day line to a two-month low. The S&P 500 index slumped 0.95% and the Nasdaq composite gave up 0.8%, both falling below the 21-day moving average and testing the 10-week line.

Losers trounced winners on Wednesday. The small-cap Russell 2000 gapped down 2.5%, below the 50-day line.

The Invesco S&P 500 Equal Weight ETF (RSP) slumped 1.7%, but found support at the 10-week line. The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) gave up 1.6%, breaking below the 50-day.

Nvidia and some other AI names helped mask how weak Wednesday was. It’s good to see the market rally’s most important stocks faring well. However, if Nvidia breaks lower, that could trigger a sharp exodus, perhaps fueling the first correction since the market rally began in late October.

On the downside, banks sold off on the higher rates, along with homebuilders and some consumer leaders.

U.S. crude oil prices rose 1.15% to $86.21 a barrel.

The 10-year Treasury yield leapt 19 basis points to 4.56%, its highest levels since mid-November. It was the biggest one-day gain since September 2022. The two-year Treasury yield, more closely aligned with the Fed rate outlook, surged 22 basis points to 4.97%, the highest since late November.

Markets now see just a 19% chance of a Fed rate cut at the June meeting and only 45% for a cut by the July 31 meeting. Investors barely expect two rate cuts in 2023, down from three before the CPI report. There’s now a 13% chance of no cut in 2024.

President Biden says he expects the Fed to cut rates before year-end.

ETFs

Among growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) fell 1.3%. Microsoft is the No. 1 holding in IGV, with Nutanix stock also a member. The VanEck Vectors Semiconductor ETF (SMH) slipped 0.9%, with Nvidia and Taiwan Semi stock the biggest holdings.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) retreated 2.3% and ARK Genomics ETF (ARKG) slumped 4.6%. Tesla stock is still a major holding across Ark Invest’s ETFs.

SPDR S&P Metals & Mining ETF (XME) declined 1% while the U.S. Global Jets ETF (JETS) descended 2.55%. The SPDR S&P Homebuilders ETF (XHB) stepped down 2.55%. The Energy Select SPDR ETF (XLE) rose 0.3% and the Health Care Select Sector SPDR Fund (XLV) retreated 1.2%. The Industrial Select Sector SPDR Fund (XLI) fell 0.85%.

The Financial Select SPDR ETF (XLF) dropped 1.5%. The SPDR S&P Regional Banking ETF (KRE) tumbled 5%.

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Stocks To Watch

Nvidia stock rose 2% to 870.39, rebounding from the 10-week line, hitting resistance at the 21-day line. Shares are still on track for their third straight weekly loss. The company and stock that defines the AI revolution and AI market rally is on track to have a flat base soon with a 974 buy point. Investors could use a decisive move above the 21-day moving average and breaking a very short trendline as an early entry.

Taiwan Semiconductor stock edged up 0.6% to 146.22, its fourth straight advance from the 21-day line. TSM stock is working on a possible base with a potential 158.40 buy point. Early Wednesday, the foundry giant, which makes chips for Nvidia, Apple (AAPL), Broadcom (AVGO) and many others, reported strong March and first-quarter sales, fueled by demand for AI semiconductors.

Astera Labs stock popped 4.3% to 71.31 in an outside session. ALAB stock has a new IPO base with a an official 95.21 buy point, but resistance at 75 would provide an earlier entry for this AI networking chip play.

Nutanix stock climbed 1.7% to 65.57, rebounding from the 21-day line. The data storage software firm is on track to have a 66.99 flat-base buy point after this week. Investors could use 66.51 as a slightly early entry for NTNX stock.

Axon stock gained 2.25% to 318.26, rebounding from the 21-day line and breaking a very short downtrend. Investors could use that or a short-term high of 321.77 as early buy signals. The Taser and body camera maker has an official 325.63 buy point from a new flat base, according to MarketSmith analysis.

Microsoft stock edged down 0.7% to 423.26, but rebounded from the 21-day and held above a 420.82 buy point from a short consolidation. MSFT stock could be working on a three-weeks-tight pattern.

Tesla Stock

Tesla stock fell 2.9% to 171.76, retreating from near the 10-week moving average where shares have hit resistance in 2024. TSLA stock is still up 4.2% for the week, following Elon Musk’s late Friday touting of an Aug. 8 robotaxi unveiling.

Two more analysts slashed Tesla earnings estimates Wednesday, forecasting lower deliveries in 2024 in the wake of stunningly weak Q1 demand. Tesla will report Q1 earnings on April 23, but the focus will be on future growth drivers and whether a robotaxi will actually be in service within the next several years.

Market Rally Analysis

The S&P 500 and Nasdaq found support Wednesday along with a number of leaders. A few leaders, including the most important stock, Nvidia, had solid sessions.

Still, the market rally, already under pressure, suffered significant losses. The Russell 2000 and the equal-weight RSP and QQEW ETFs broke key levels.

Even just looking at the Nasdaq or Nvidia, just because an index or a stock finds support for a day — or two, three or five sessions — that doesn’t mean it will continue to do so.

Investors may want to avoid making new buys — except, possibly, swing trades — until there’s clear market strength and not significantly add exposure until the Nasdaq breaks above its current sideways pattern.

Meanwhile, you might need to cut some of your recent buys. Have an exit strategy ready for your various holdings.

Keep working on watchlists. The stock market could quickly improve with a strong session or two. So look for those emerging bases and pullbacks. Also look for stocks simply showing strong relative strength.

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

Please follow Ed Carson on Threads at @edcarson1971 and X/Twitter at @IBD_ECarson for stock market updates and more.

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