The Dow Jones Industrial Average retreated and the broader stock market crumbled as Federal Reserve Chairman Jerome Powell gave hawkish guidance amid spiraling inflation. Tesla (TSLA) saw strong post-earnings gains fade. Elon Musk unveiled a plan to make a tender offer for Twitter (TWTR). Netflix (NFLX) continued to plunge.
Volume was higher on both the New York Stock Exchange and the Nasdaq, according to early data. This is a negative on a down day. Volatility was also higher, with the Cboe Volatility Index, or VIX, jumping 13%.
Meanwhile, the yield on the benchmark 10-year Treasury note popped six points to 2.9%. Oil was also up, with West Texas Intermediate crude rising 1.4% to almost $104 per barrel.
Powell Strikes Hawkish Inflation Pose
With inflation hitting levels not seen for decades, the Fed’s Powell has been growing increasingly hawkish on tackling the problem.
He used an International Monetary Fund panel discussion as an opportunity to give further signals on the interest rate hikes that lie ahead.
Powell signaled that a 50-basis point, or half percentage point, hike is likely when the FOMC meets next month.
He said it is “appropriate” that the central bank moves “a little more quickly” to raise rates than it has in the recent past. Powell also indicated that “there’s something in the idea of front-end-loading” in the removal of stimulus. “It’s absolutely essential to restore price stability,” Powell said.
Nasdaq Pummeled As Yields Spike
The Nasdaq saw a strong open give way to a painful close as it finished the session down 2.1%. This came after it was turned away at the 50-day moving average. Align Technology (ALGN) fared worst, falling 8.5%.
The S&P 500 also reversed lower, closing the day down 1.5%. Enphase Energy (ENPH) was the worst performer here with a 12.4% drop. Freeport-McMoRan (FCX) also struggled, giving up 9.9%.
U.S. Stock Market Today Overview
|Last Update: 4:06 PM ET 4/21/2022|
The S&P sectors were all negative. Consumer staples fared the best while communication services and energy suffered the steepest losses.
Small caps were also given a pummeling, with the Russell 2000 dropping 2.3%.
But it was growth stocks that were given the worst mauling by the rampaging bears. The Innovator IBD 50 ETF (FFTY), a bellwether for growth stocks, plunged 3.5%.
Dow Jones Today: Chevron Crushed As Oil Gains
The Dow Jones Industrial Average was forced almost 370 points lower as it gave up 1.1%.
Chevron (CVX) was one of the worst laggards as it gave up 4.6%. It finished only slightly below Salesforce (CRM), which dropped 4.8%. Dow Inc. (DOW) fared best with a gain of 2.9% though it pared gains. The company beat profit estimates.
Tesla Earnings Gains Melt Away
EV maker Tesla sprinted out of the blocks on strong results, only to be forced back by the broader onslaught. It ended the day up 3.2%.
Quarterly profit soared 246% to $3.22 a share, well above the $2.26 FactSet consensus. Revenue jumped 81% to $18.76 billion vs. the $17.595 billion consensus. It remains well shy of a 1,152.97 entry.
Tesla said factories have been running below capacity for several quarters amid supply chains issues and that it expects this to continue through the remainder of 2022. It also addressed issues at its Shanghai Gigafactory.
“While weekly production rates were strong in Q1, a spike in Covid-19 cases in Shanghai resulted in the temporary shutdown of our factory as well as parts of our supply chain,” the firm said in a news release. “Although limited production has recently restarted, we continue to monitor the situation closely.”
Elon Musk Eyes Twitter Tender
Meanwhile, Tesla CEO Elon Musk is continuing in his quest to take over Twitter. An updated SEC filing published Thursday showed the eccentric billionaire is now exploring a tender offer for some or all shares from stockholders directly.
According to the filing, he has commitments for $46.5 billion to help fund a deal. It includes $25.5 billion in debt financing through firms including Morgan Stanley Senior Funding and Bank of America.
It comes after Musk last week made an offer to buy Twitter for $54.20 a share. This would value the company at about $43 billion. The Twitter board responded by initiating a so-called poison pill in an attempt to fend Musk off.
What To Do After Market Reversal; Tesla Slashes Gain
Netflix Stock Falls Again
Netflix continued to fall, though nowhere as severely as Wednesday. It closed the session with a loss of 3.5%.
The stock was given a further body blow after news that billionaire investor Bill Ackman had to sell his firm Pershing Square Holdings’ entire investment in the streaming company just three months after announcing it.
“We have lost confidence in our ability to predict the company’s future prospects with a sufficient degree of certainty,” Ackman said in letter to investors.
The more than 3 million shares Pershing Square had in the company is estimated to have been sold at a loss of around $400 million.
Investors dumped Netflix stock after the company reported losing 200,000 subscribers in the first quarter. Wall Street and the company’s own guidance had predicted 2.5 million new subscribers in the period.
In addition, it forecast losing 2 million subscribers in the second quarter. It ended the March quarter with 221.6 million subscribers worldwide.
This Stock Passes Buy Point
Despite the difficult action, Verizon Communications (VZ) broke out of a base. The stock ended in a buy zone after passing a 55.80 cup-with-handle buy point. The relative strength line has been spiking and could soon clear consolidation highs.
Volume on the move was above average, which is a plus. Nevertheless, it was below the ideal volume rise of at least 40% above average on a breakout.
A key reason to exercise caution is that earnings are due before the open tomorrow. An approach is to use options as a strategy to reduce risk around earnings. It’s a way to capitalize on the upside potential of a stock’s move around earnings, while reducing risk.
Please follow Michael Larkin on Twitter at @IBD_MLarkin for more on growth stocks and analysis.
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