Dow Jones Fades Gains Into Close After Powell’s Recession Warning

The Dow Jones Industrial Average was on track to close higher Wednesday but slipped back into the negative near the end of the session. Medical stocks in the Dow like UnitedHealth Group (UNH), Johnson & Johnson (JNJ) and Merck (MRK) outperformed. Fed Chairman Powell said a recession in the U.S. remains a “possibility” on Wednesday during his comments before lawmakers. That hindered markets.

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Dow Jones Today

The Dow Jones Industrial Average closed down 0.2% while the S&P 500 lost 0.1%. Small caps showed small losses, with the Russell 2000 down 0.2%. The tech-heavy Nasdaq composite also saw a 0.1% decline. Volume was higher on the Nasdaq and lower on the NYSE vs. the close on Tuesday, according to early data.

The indexes started off the shortened trading week with strong gains of over 2% on Tuesday. A new rally attempt is underway, which means investors should be on the look out for a possible follow-through day. This would restore IBD’s market outlook to uptrend from correction. Until then, investors should be watching for new bases and buy opportunities to form in stocks.

The yield on the benchmark 10-year Treasury note slid 16 basis points to 3.15%. Meanwhile, West Texas Intermediate crude fell around 3.7% to trade at about $105 per barrel. Economic reports, including new U.S. home sales and U.S. consumer sentiment, will be released on Friday at 10 a.m. ET.

Investors are also looking ahead to Jerome Powell’s semiannual monetary policy report to the Senate tomorrow at 10 a.m. ET. When testifying before the Senate Banking Committee today, Powell mentioned that the central bank’s fight against inflation is “unconditional” but also that a soft landing would be “very challenging” to achieve. Powell said a recession in the U.S. remains a “possibility.”

These Dow Jones Stocks Rally

Medical-related stocks led the upside among blue chips, with UnitedHealth closing up almost 2%, following a 6.2% jump on Tuesday. Shares just reclaimed their 200-day line and are nearing a retake of their 50-day line. However, shares could be met with resistance here and move lower. The gains occurred in very strong volume both days, which is a promising sign.

Johnson & Johnson is also having a strong week as the stock rose 1.6%, following higher-volume gains on Tuesday as well. JNJ’s relative strength line notched a new high, which shows power in price performance at this time. Shares reached the 50-day line once again, but faded from this area into the close. Shares are 6% below a 186.79 buy point, but there appears to be a possible downward trendline entry as well.

In addition, Merck was the only one able to reclaim its 50-day line, which is a bullish sign. The stock is just shy of regaining a 89.58 buy point of a cup-with-handle base. Shares already broke out from this area near the end of April. But, amid market weakness, it triggered a sell signal.

Outside the Dow Jones, IBD 50 leader Harmony Biosciences (HRMY) was among IBD 50 stocks to score a breakout. Shares moved past a 47.21 entry of a cup-with-handle, up 4.7%. A blue dot on the stock’s RS line shows its hitting a new high, which is a good sign.

Follow Rachel Fox on Twitter at @IBD_RFox for more Dow Jones and stock market commentary.

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