The U.S. stock market correction worsened on Thursday, as the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite all fell sharply amid rising Treasury yields and Fed tapering fears. The S&P 500 undercut its August low, signaling a possible change in trend. However, Tesla (TSLA) managed to hold a key support level and forged a new buy point.
Treasury Yields Spike After Fed Meeting
The main catalyst for the sell-off was the surge in Treasury yields, which hit their highest levels since June 2020. The 10-year Treasury yield rose to 4.5%, while the 30-year yield climbed to 6.1%. The spike in yields came after the Federal Reserve signaled on Wednesday that it could start tapering its bond-buying program as soon as November, and that it expects to raise interest rates three times in 2023.
The Fed’s hawkish stance spooked investors, who worried that higher borrowing costs and inflation could hurt the economic recovery and corporate earnings. Higher yields also make stocks less attractive relative to bonds, especially for growth-oriented sectors such as technology.
S&P 500 Undercuts August Low
The S&P 500 index fell 1.6% on Thursday, closing below its 50-day moving average and undercutting its August low of 4,423. The index had been trading in a tight range above that level since late July, forming what some analysts called a “high and tight flag” pattern. However, the breakdown below the flag’s lower boundary suggests a possible trend reversal.
According to Investor’s Business Daily, when the S&P 500 undercuts its prior low after a follow-through day, it is a sign of a failed rally attempt and a market correction. A follow-through day is a strong up day that occurs at least four days after a market bottom, indicating that institutional investors are buying stocks aggressively. The S&P 500 had a follow-through day on Aug. 29, but failed to sustain its momentum.
Nasdaq and Dow Jones Also Tumble
The Nasdaq composite also suffered heavy losses on Thursday, sliding 1.8% and closing below its 50-day line. The tech-heavy index came close to undercutting its August low of 14,559, but managed to hold above that level by a slim margin. The Nasdaq had been outperforming the other major indexes in recent weeks, thanks to the strength of big-cap tech stocks such as Apple (AAPL), Microsoft (MSFT) and Meta Platforms (META).
The Dow Jones Industrial Average dropped 1.1% on Thursday, hitting its lowest level since July. The blue-chip index also closed below its 50-day line and neared its August low of 34,269. The Dow had been lagging behind the other indexes, as many of its components are sensitive to cyclical factors such as energy prices, consumer spending and global trade.
Leading Stocks Under Pressure
Many leading stocks also came under pressure on Thursday, as investors rotated out of growth names and into defensive sectors such as utilities and consumer staples. According to IBD’s Leaderboard service, which tracks top-performing stocks based on fundamental and technical criteria, several leaders fell below their key support levels or triggered sell signals.
For instance, Nvidia (NVDA), which had been one of the strongest performers in the chip sector, slid 3.4% and closed below its 50-day line for the first time since May. The graphics chip maker also undercut its August low of $214.81, breaking a four-month uptrend.
Celsius Holdings (CELH), which sells energy drinks and other beverages, plunged 9.8% and sliced through its 50-day line. The stock had been forming a cup-with-handle base with a buy point of $95.10, but failed to break out and reversed lower.
Adobe (ADBE), which provides software for creative professionals and marketers, dropped 4% and gapped below its 50-day line. The stock had been holding above that level for several weeks, but succumbed to selling pressure after reporting its quarterly earnings on Tuesday.
Uber Technologies (UBER), which operates a ride-hailing and delivery platform, fell 3.9% and gapped below its 50-day line. The stock had been consolidating near its recent highs, but faced headwinds from regulatory challenges and labor shortages.
DraftKings (DKNG), which offers online sports betting and gaming services, slid 6.4% and gapped below its 50-day line. The stock had been forming a cup-with-handle base with a buy point of $64.88, but reversed lower amid competition from rivals such as FanDuel and BetMGM.
Visa (V), which provides payment processing and network services, declined 2% and gapped below its 50-day line. The stock had been trading in a tight range above that level, but faced resistance from its 200-day line.
Amazon.com (AMZN), which dominates the e-commerce and cloud computing markets, dipped 1.5% and gapped below its 50-day line. The stock had been struggling to reclaim that level after a disappointing earnings report in July.
Tesla Holds Key Support
One of the few bright spots in the market was Tesla (TSLA), which bucked the downtrend and edged up 0.2%. The electric vehicle maker held above its 50-day line and a prior resistance level around $730, which is now acting as support. The stock also forged a new buy point at $780.89, which is 10 cents above its Sept. 1 high.
Tesla has been showing relative strength in the auto sector, as it benefits from strong demand for its Model 3 and Model Y vehicles, especially in China. The company also has a loyal customer base and a leading position in battery technology and software innovation.
Market Outlook
The market outlook has deteriorated significantly in the past few days, as the major indexes have broken key support levels and triggered sell signals. Investors should be cautious and reduce their exposure to stocks, especially those that are showing weakness or violating their buy points. It is also important to monitor the Treasury yields and the Fed’s policy stance, as they could have a major impact on the market direction.
However, investors should not lose sight of the long-term trends and opportunities in the market, as there are still some stocks that are holding up well or forming new bases. Tesla is one example of a leader that is showing resilience and strength amid the market correction. Investors should keep an eye on such stocks and be ready to act when the market conditions improve.