Dow Jones Futures: Nasdaq Breaks Lower; China Covid Shutdowns Are New X Factor

Dow Jones futures rose slightly overnight, along with S&P 500 futures and Nasdaq futures. The stock market rally attempt suffered a big blow Monday as energy, commodity and tech stocks all retreated as China's new Covid lockdowns overshadowed Russia's Ukraine invasion and a looming Fed rate hike.



Apple stock, which looked resilient until recently, undercut key support levels Monday. Tesla stock is approaching recent lows but still looks much better than EV rivals such as Xpeng (XPEV) and aggressive growth plays generally.

UNH stock, Vertex Pharmaceuticals (VRTX), Costco Wholesale (COST), Danaos (DAC) and Travelers (TRV) are showing strength. UnitedHealth Group (UNH), Vertex and COST stock are near possible entries, while TRV stock cleared a buy point and Danaos arguably is actionable.

But investors should be extremely cautious about buying any stock until market conditions improve dramatically.

China Covid Lockdowns

China's Covid cases are now above 1,000 a day, the highest in nearly two years. While still modest compared with most of the world, Beijing continues its zero-Covid policy.

China has locked down Shenzhen, a major tech and supply-chain hub, after 86 cases were detected there on Sunday. The country has also locked down Changchun, an industrial province in the northeast. Beijing residents have been urged to stay inside as much as possible. Apple (AAPL) iPhone maker Foxxconn closed its Shenzhen factory, while some automakers cut output as well.

Starting Tuesday, China ordered Langfang, a large city near Beijing to go on lockdown. Xi'an, which had a strict lockdown late last year, ordered residents not to leave the city unless necessary.

If China can quickly contain the latest outbreaks and lift shutdowns, it would be a big boost for the global economy and financial markets. But the fear is that the country, sticking to a zero-Covid strategy, will expand shutdowns further and keep them in place for an extended period.

With China growth at risk, crude oil, copper and other commodity prices plunged, hitting energy, mining, fertilizer and metals stocks. U.S.-listed China stocks from Alibaba to XPEV, already hammered by revived delisting fears, continue to crash. Container shipping firms such as Matson (MATX) and DAC stock rallied.

Meanwhile a U.S. official reportedly said Washington has informed NATO and other allies that China has signaled it's willing to offer military and economic aid to Russia to support the Ukraine invasion. But other reports suggested China would not do so. The U.S. could be publicizing possible China support for Russia's invasion to try to discourage Beijing from going through with it.

Fed Rate Hike Looms

The Federal Reserve begins its two-day policy meeting on Tuesday, with an announcement due at 2 p.m. ET on Wednesday. Fed chief Jerome Powell signaled last week that he favors a quarter-point rate hike. Analysts expected a slew of Fed rate hikes in 2022, subject to swings in inflation and economic growth amid a lot of variables.

Compared with the Russia-Ukraine war and coronavirus lockdowns in China, a major Fed tightening cycle seems relatively predictable.

Tesla (TSLA) and VRTX stock are on IBD Leaderboard. MATX stock, UnitedHealth, Vertex and Costco are on the IBD 50. UNH stock was Monday's IBD Stock Of The Day.

The video embedded in this article discusses the market action and analyzes UnitedHealth, Costco and DAC stock.

Dow Jones Futures Today

Dow Jones futures edged up 0.15% vs. fair value. S&P 500 futures climbed 0.2%. Nasdaq 100 futures rose 0.45%.

U.S. crude oil prices fell more than 2%.

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

Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live

Stock Market Rally

The feeble stock market rally attempt had another weak session.

The Dow Jones Industrial Average closed up one point in Monday's stock market trading, with UnitedHealth and TRV stock among the top performers. The S&P 500 index fell 0.7%. The Nasdaq composite tumbled 2%, with AAPL stock among the many drags. The small-cap Russell 2000 also lost 2%

Apple stock fell 2.7% to 150.62, hitting four-month lows and closing below its 200-day line for the first time in nine months. That follows its worst weekly loss in over a year. The relative strength line, reflecting AAPL stock's performance vs. the S&P 500 index, also has hit a four-month low, though it's still not far from highs.

U.S. crude oil prices tumbled 5.8% to $103.01 a barrel after briefly undercutting $100. Crude futures are continuing a sharp sell-off from late last week and the March 6 peak of $130.50. In addition to China's Covid lockdowns weighing on energy and other commodities, the U.S. has been mulling whether to ease sanctions on Venezuelan crude oil.

The 10-year Treasury yield jumped 14 basis points to 2.14%, hitting its highest level since July 2020.


ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) slumped 2.8%, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 1.8%. The iShares Expanded Tech-Software Sector ETF (IGV) and VanEck Vectors Semiconductor ETF (SMH) both gave up 2.9%.

The SPDR S&P Metals & Mining ETF (XME) tumbled 5.75%, and Global X U.S. Infrastructure Development ETF (PAVE) dipped 0.6%. U.S. Global Jets (JETS) edged up 0.6%. SPDR S&P Homebuilders (XHB) gave up 1.1%. The Energy Select SPDR ETF (XLE) slumped 3%, and the Financial Select SPDR ETF (XLF) climbed 1.3%. The Health Care Select Sector SPDR Fund (XLV) rose 0.7%.

ARKK, Tesla Stock

Reflecting stocks with more speculative stories, the ARK Innovation ETF (ARKK) plunged 5.9% and ARK Genomics (ARKG) plummeted 6.2%, both to 22-month lows. In addition to the ongoing market correction and China shutdown concerns, fast-rising Treasury yields are bad news for highly valued growth stocks.

Tesla stock remains the No. 1 holding across Ark Invest's ETFs. Tesla fell 3.6% to 766.37 on Monday, continuing to retreat from its 200-day line but still above its Feb. 24 low of 700. ARK also owns some XPEV stock. Xpeng plunged 14% to its lowest level since October 2020, not far from record lows.

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