The Daily Breakdown looks at the selloff in the stock market after a hot inflation report for the month of January.
Wednesday’s TLDR
- S&P 500 fell 2% at one point yesterday
- Bitcoin makes new 52-week highs
- Lyft rallies on earnings
- Uber rides to new highs on buyback plans
What’s happening?
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The S&P 500 fell 1.4% on Tuesday, although it was down more than 2% at one point before a late-day bounce helped to ease some of yesterday’s losses.
Still, it was a tough day for the bulls as the Dow shed almost 525 points and the Russell 2000 took a 4% beating.
What drove stocks lower? A hotter-than-expected inflation report for the month of January.
Overall, inflation is still trending in the right direction, but some of the stickier components — like rent — are proving to be difficult hurdles. The fact is, this latest report showed inflation was higher than investors were expecting.
That had a negative impact on stocks because investors are looking for clarity on when the Fed will cut interest rates — something they can’t do until they feel more confident about inflation.
The idea of a rate cut has been pushed back, first by Fed Chair Jay Powell a few weeks ago, and then by this latest CPI report.
What we saw yesterday was a mix between a knee-jerk reaction and investors locking in profit, with many investors feeling that the markets are due for some type of consolidation or pullback.
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The setup — MRK
Outside of tech, healthcare has been one of the best-performing sectors so far this year. It helps that in early January, this group broke out over resistance.
With a market cap of more than $300 billion, Merck is a big player in the health field. It too recently broke out, hitting all-time highs just last week.
When it comes to a possible dip, I’m watching the $118 to $120 area. This area was resistance in May 2023 and for most of January. If we get a retest of this zone, it would represent a mild dip from the recent high.
It would also be a reasonable spot to look for potential support — particularly if it aligns with a key moving average (like the 10-week moving average shown above).
However, the risks are two-fold.
First, Merck may not dip that far, leaving hopeful bulls without their desired position. Second, shares could pull back to this area and it may not act as support, putting further pressure on the share price.
What Wall Street is watching
LYFT: Lyft is getting a big lift in pre-market trading, up more than 20% after reporting an earnings and revenue beat. However, the stock was up more than 60% at one point in after-hours trading after a clerical error initially stated that the firm’s margin outlook for the upcoming year was significantly higher than Lyft’s intended forecast.
UBER: Uber has been on fire, with the stock up more than 12% this year and up 95% over the past 12 months. It’s set for even more gains on Wednesday as the firm unveiled a new $7 billion buyback plan, with the CFO calling it a “vote of confidence in the company’s strong financial momentum.”
SHOP: Shopify shares were hit hard in Tuesday’s session after the firm reported earnings before the open. Despite beating on top- and bottom-line expectations, the stock fell hard, with some concerns attributed to its conservative cash flow margin forecast.
Disclaimer:
Please note that due to market volatility, some of the prices may have already been reached and scenarios played out.