Dow Jones Dives 450 Points As Powell Opens Door To Higher, Faster Rate Hikes; Tesla Price War Hits Warren Buffett Stock

The Dow Jones Industrial Average dived nearly 1.5% at 1:30 p.m. ET after Fed Chair Jerome Powell warned Tuesday that interest rates may need to climb at a higher rate than expected.

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The chances of a 50-basis point hike in the March 21 Fed meeting rose dramatically to 66%, according to the CME FedWatchTool. That would bring the rate to 5.00%-5.25%.

Among major stocks, Apple (AAPL) was down 1% after a three-day winning streak. The Dow Jones leader extended further plans to exit the area known as iPhone City in Zhengzhou, China, and got recent analyst upgrades.

Dow Jones component Salesforce (CRM) was flat and is still in a buy zone. IBD Leaderboard stock Fluor (FLR) rose over 0.5% and also is in a buy zone. Solar stock Nextracker (NXT) also offers an entry from an IPO base.

Tesla (TSLA) China insurance registrations increased for the second straight week. Tesla price cuts have started a price war among EV makers, including Warren Buffett stock BYD (BYDDF).

Powell Testimony: Faster Pace Of Hikes Possible

Powell started his testimony in Congress Tuesday.

The stock market appeared to react to one part of Powell’s prepared testimony. He cautioned that “the latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”

Powell spoke before the Senate Banking Committee on Tuesday and appears Wednesday before the House Financial Services Committee.

The yield on the benchmark 10-year Treasury note fell 4 basis point to 3.94%.

Powell’s responses to congressional questioning remain on watch.

Other key data on watch ahead of the next Fed meeting are the jobs report on Friday and inflation report on March 14, followed by retail sales on March 15. The International Monetary Fund raised global GDP growth estimates to 2.9% from 2.7%. Concerns about the war in Ukraine offset China’s reopening economy.

The S&P 500 fell over 1% at 1:30 p.m. ET, while the Nasdaq rose off lows to trade 0.7% lower. All S&P 500 sectors were lower, with financials and real estate lagging behind the rest.

The small-cap Russell 2000 fell 0.5%, while the Innovator IBD 50 (FFTY) outperformed and was down fractionally.

Volume was lower on the NYSE and higher on the Nasdaq compared to the same time on Monday.

Crude oil plunged 3% to $77.94 a barrel.

Stocks Moving Outside Dow Jones

Dick’s Sporting Goods (DKS) broke out of an ascending base after earnings came in higher than analysts’ estimates. The stock topped the 138.53 buy point and is already above a buy zone that peaked at 145.46. Volume is on pace to be the highest so far this year, and the relative strength line made new highs. Both are positive signs for the breakout.

EV stocks are falling as EV makers follow Tesla price cuts to remain competitive.

In January, Citi analyst Jeff Chung saw a spillover effect from Tesla’s first price cuts as buyers would start canceling orders. Nio (NIO) and Xpeng (XPEV) have cut prices. Xpeng cut up to $5,300 from the price of its bestselling P7 sedan in January while Nio offered discounts on some models. Nio stock fell a sharp 20% in February while XPEV fell 15%. Both stocks are down further on Tuesday.

BYD makes its own chips and batteries and can control costs to some extent. Nonetheless, the stock was also down 15% in February while Tesla rose nearly 20% during the month. For most EV makers, according to Robert Mumford, an investment manager at GAM Hong Kong, “lower input prices to date are not likely to offset a negative hit to margins.”

Buffett’s Berkshire Hathaway (BRKB) has been selling BYD shares, but still had an 11.87% position in the stock in its latest filing.

EV maker Rivian (RIVN) plunged over 10% on plans to sell bonds worth $1.3 billion. Falling stock prices and price wars can set off a trend toward consolidation among EV makers.

Dow Jones Leader In Focus

Shares of Apple are set to end a three-day winning streak as the Dow Jones leader takes the next step to exit iPhone City. Taiwan electronics manufacturer Foxconn says it will invest $700 million in a new India plant for assembling iPhones. On Monday, Morgan Stanley maintained an overweight rating and raised the target price on Apple to 180 from 175. Also on Monday, Goldman Sachs initiated coverage with a buy rating and a 199 price target.

Shares of Meta Platforms (META) pared back some of its early 1% gain on news of a fresh round of job cuts. The stock was up less than 0.5% in the afternoon.

Best Buy (BBY) is working with Atrium Health on a new venture for at-home care. Shares rose 1% at noon.

Please follow VRamakrishnan on Twitter for more news on the stock market today.

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