The stock market rallied on the strength of Big Tech early Thursday, reversing gears following Wednesday’s timing clash between Treasury Secretary Janet Yellen and Fed Chair Jerome Powell. Coinbase (COIN) plummeted 14% after the SEC recommended enforcement action. A noted short seller alleged Block (SQ) committed fraud, triggering a violent decline in its stock.
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Yellen was at a separate event talking about the banking problems. Powell talked about banks as part of a wider discussion on economic risks.
Yellen upstaged Powell in the middle of his post-decision news conference Wednesday afternoon, insisting the government isn’t considering explicit guarantees for bank deposits above $250,000. Powell, for his part, took the middle road throughout the presser, trying to accommodate twin goals of inflation control and financial stability with a conciliatory but still-aggressive tone.
The blunder between former and present Fed chiefs triggered selling pressure into the close. But investors chose to look through a different lens overnight and have retaken about half of the late afternoon loss.
Stock Market Strong After Fed Decision
The Dow Jones Industrial Average surged 0.8% while the S&P 500 added 1.2% in the first hour Thursday. The Nasdaq jumped 1.8%, highlighting renewed Big Tech buying interest. The Russell 2000 small-cap index underperformed once again, gaining 0.9%.
Nasdaq volume rose while NYSE volume shrank compared to early Wednesday levels.
Initial jobless claims for the last week fell by 1,000, to 191,000, affirming tight labor market conditions.
Crude oil traded near the flatline, at $71 per barrel. The futures contract has bounced forcefully off December lows. Asian and Australian markets were mixed while European bourses ignored the U.S. bounce, trading firmly lower.
The 10-year Treasury note yield tested support at the 200-day moving average for the ninth day, hovering just below 3.50%.
Odds for a 0.25% rate hike at the May Fed meeting stand at 50/50 this morning, according to CME FedWatch.
The Nasdaq has remounted the 200-day moving average. The S&P 500 reversed Wednesday after testing the 50-day line, indicating growing bear strength. Testing like this is common after breakdowns. At the same time, the Russell 2000 is lagging after a long period of superior performance, held down by worries about pressure on startup funding.
Short Sellers Crush Block
Block got crushed, down nearly 17%, slicing below the 200-day moving average.
Hindenburg Research accused the fintech provider of facilitating “fraud against consumers.” It alleged “former employees estimated that 40%-75% of accounts they reviewed were fake, involved in fraud or were additional accounts tied to a single individual.”
Mizuho analyst Dan Dolev defended Block after the short seller piece, noting “claims & risks around high, unregulated interchange fees and definition of monthly users are well known to investors. As a reminder, the near-term bull case on SQ remains reaching better than expected profits helped by cost control. The long-term bull case remains.”
Former Twitter founder and CEO Jack Dorsey is the current co-Founder, self-named “Block Head,” Chairman and President of Block.
Ford Motor (F) rose 1.8%. The automaker is aligning accounting units with product segments, which will allow the company to isolate heavy startup losses for ramped-up electric vehicle production in the next five to 10 years.
Stock Market Today: Coinbase Plunges But Bitcoin Rallies
Coinbase dumped 18% after receiving an SEC “Wells Notice,” which warns public companies when a securities violation enforcement action is likely.
Oppenheimer’s Owen Lau downgraded Coinbase to perform from outperform after the news. He warned that “we are increasingly worried about the fairness of the enforcement actions, and the ability for the ecosystem to grow with seemingly limited and shrinking support from the banking system in the U.S.”
Despite the bearish action, Bitcoin ticked higher by 0.4% and is holding steady just below $27,500.
The ProShares Bitcoin Strategy ETF (BITO) is the most actively traded Bitcoin-linked ETF, closely tracking the cryptocurrency since its inception, according to Proshares. The fund invests “primarily in Bitcoin futures contracts” and “does not invest directly in Bitcoin.”
IBD 50 Homebuilder Highlight
IBD 50 favorite and single-family homebuilder Meritage Homes (MTH) neared the 117.32 buy point of a handle, with the cup-with-handle pattern starting all the way back in December 2021.
The stock boasts a perfect 99 Composite Rating. The 97 Earnings-Per-Share Rating reflects rapid growth, while the “A” SMR Rating (sales + profit margins + return on equity) confirms strong profitability.
Monolithic Power Systems (MPWR) continued to trade above the 21-day line. This price action could mark the final leg of a cup-with-handle pattern going back to August 2022. MPWR stock popped 4.2% in the first hour.
Follow Alan Farley on Twitter at @msttrader.
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