The Dow Jones Industrial Average dived as regional banks including PacWest (PACW) and Western Alliance (WAL) crumbled. Carl Icahn lashed out after Icahn Enterprises (IEP) cratered amid a short seller’s attack. Uber Technologies (UBER) soared on earnings.
Only one noteworthy stock was plucky enough to attempt a breakout amid the stock market chaos. Electric power gear maker Eaton (ETN) tested an entry after posting quarterly results.
Treasury yields retreated as the latest Fed meeting got underway. The 10-year yield plunged 15 basis points to 3.43% while the two-year yield also dived 15 basis points to 3.99%. The yield curve remains inverted.
“Sell in May decided it didn’t need to wait for the Fed,” Oanda senior market analyst Ed Moya said in a note to clients. “Wall Street is quickly hitting the sell button as banking turmoil appears it is not going away anytime soon and was ready to focus on the next weakest link, potentially distressed lenders with tremendous exposure to commercial real estate.”
Nasdaq Falls As Small Caps Get Spanked
The Nasdaq tumbled amid the broad bearish action, closing down 1.1%. Enphase Energy (ENPH) was among the laggards here as it dipped 4.8%.
The benchmark S&P 500 also fell 1.2%. IBD Sector Leader Arista Networks (ANET) triggered a sell signal as it fell 15.7%, gapped below its 50-day moving average and sank close to its 200-day line.
The S&P 500 sectors nearly all ended in the red. Financials and energy were the worst performers. The defensive consumer discretionary area was the only sector to end positive.
Small caps also got battered by the bears amid the regional banks sell-off, with the Russell 2000 finishing with a 2.1% loss. Growth stocks were also caned, with the Innovator IBD 50 ETF (FFTY) falling 2.1%.
Dow Jones Today: Merck Holds Up As Chevron Sinks
The Dow Jones Industrial Average did not escape the carnage. It was slapped nearly 400 points lower, or 1.1%.
Weakness in energy was reflected in Chevron being the worst performer on the Dow Jones today. The oil giant plunged 4.3%, gapping below its 50-day moving average in the process. This triggered a sell signal.
With recession fears rising, the price of oil fell. West Texas Intermediate crude was down 5.4% to under $72 per barrel.
Bank Stocks Plunge As PacWest Stock Plummets
It seems like the JPMorgan Chase (JPM) takeover of First Republic Bank has not been much of a panacea for bank stocks after all.
PacWest clambered off lows for the day, but still fell 27.7%. Trading was halted several times and the Beverly Hills-based firm lost further ground on its moving averages. PACW stock is now down more than 71% in 2023.
Western Alliance was also given a beating, falling 15.1% in heavy trading.
Regional bank stocks were getting hit after Bloomberg reported that investment management firm Cohen & Steers sold preferred shares in regional banks in recent weeks.
The SPDR S&P Regional Banking ETF (KRE) knifed 6.3% lower.
Carl Icahn Punches Back After Hindenburg Hits Stock
Legendary investor Carl Icahn is no stranger to the cut-and-thrust of short selling.
And he found himself on the wrong side of a short seller after his firm Icahn Enterprises came under fire from Hindenburg Research.
Hindenburg said in a research note released Tuesday that Icahn Enterprises had “inflated” the value of its assets. It also alleged money had been taken in from new investors “to pay out dividends to old investors.”
“Overall, we think Icahn, a legend of Wall Street, has made a classic mistake of taking on too much leverage in the face of sustained losses: a combination that rarely ends well,” Hindenburg Research said in the note.
But Carl Ichan himself hit back as he defended the company against the accusations.
“We believe the self-serving short seller report published by Hindenburg Research today was intended solely to generate profits on Hindenburg’s short position at the expense of IEP’s long-term unit holders,” Icahn, the firm’s chairman, said in a statement. “We stand by our public disclosures and we believe that IEP’s performance will speak for itself over the long term as it always has.”
He said the fact the firm has $2 billion of cash and cash-equivalents on its balance sheet means it is operating “from a position of strength.”
Icahn Enterprises stock closed down 20%, slightly off the day’s low. The stock is trading below all its major moving averages.
Uber Stock Soars On Earnings
One stock that impressed Tuesday was Uber Technologies. It soared after a positive quarterly report.
Uber closed up 11.6% after it reported a loss of 8 cents per share on revenue of $8.8 billion. Sales climbed 29% from a year earlier.
Analysts had expected a loss of 9 cents per share on revenue of $8.7 billion. Uber guided for gross bookings between $33 billion to $34 billion and an adjusted EBITDA of $800 million to $850 million for Q2.
Uber is still building a base. It is shooting for an entry of 37.68. The stock gapped above its 50-day moving average Monday, giving an early buy signal near 32, and continued rising sharply Tuesday.
Uber Technologies is an earnings options play on IBD Leaderboard.
Chegg Mate Hit Amid AI Fears
Chegg (CHGG) lost about half its value in a disastrous day for holders of the education stock.
It closed the day down 48.4% after it warned OpenAI’s ChatGPT is a threat to growth. This spooked investors, who fled for the exits in gargantuan volume.
This overshadowed a good earnings report, with EPS of 27 cents beating forecasts for 26 cents. Revenue of $187.6 million was also clear of expectations for $185.18 million.
CHGG also said it expects second-quarter revenue of $175 million to $178 million.
Chegg was not the only stock hit, with fellow education play Duolingo (DUOL) also taking a beating. It closed down 10.2%.
The IBD 50 stock flashed a sell signal by falling below its 50-day moving average and failing to rally back.
Outside Dow Jones: Eaton Stock Tests Buy Point
Breakouts were hard to come by on a painful day for the stock market.
But power management play Eaton managed to surge after it posted an earnings beat. EPS popped 16% to $1.88 while revenue climbed 13% to $5.5 billion.
This was enough to lift the stock past a double-bottom base buy point of 172.29, MarketSmith analysis shows.
The relative strength line has been moving higher while this is a first-stage pattern. Early, first and second stage, bases are more likely to succeed than later stage ones.
All-around strong performance is reflected in an IBD Composite Rating of 90 out of 99.
Please follow Michael Larkin on Twitter at @IBD_MLarkin for more analysis of growth stocks.
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