Dow Jones futures rose slightly on Thursday, as did S&P 500 futures and Nasdaq futures. The stock market rally suffered heavy losses on Wednesday after the Federal Reserve meeting.
The major indexes rose after the Fed raised rates aggressively again but signaled that it may start to slow the pace of rate hikes. However, Fed chief Jerome Powell then suggested that rates will peak at a higher level than previously predicted.
Investors should be careful because the stock market rally is damaged. But it is not finished yet.
Albamarle (ALB), CF Industries (CF), Qualcomm (QCOM), Sarepta therapy (SRPT), Fortress (FTNT), Robinhood Markets (HOOD), World Wrestling Entertainment (WWE) and Beauty elf (ELF) reported after the closing. There were a lot of losers with both ELF stocks and Robinhood earnings winners.
Before Thursday’s opening, Cheniere Energy (LNG) and Quanta Services (PWR) report. Both Cheniere and PWR stock are trading near buy points in a shallow cup-to-handle base.
LNG stock is on the IBD Leaderboard, while ALB, Sarepta Therapeutics and CF Industries are on the Leaderboard watch list. CF and SRPT stock are on the IBD 50.
Fed Pivot To Slower Rate Hikes
As expected, the Federal Reserve raised interest rates by 75 basis points for the fourth straight meeting, to a range of 3.75%-4%.
The Fed signaled a slower pace of rate hikes citing the weakening effect of “cumulative” tightening this year.
“In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lag time in which monetary policy affects economic activity and inflation, and economic and financial developments ,” according to the Fed post. -meeting statement.
Powell Sees Higher Peak Rate
Fed chief Jerome Powell, speaking shortly after the Fed meeting announcement, agreed that policymakers could slow rate hikes as early as December. He said the “pace” of rate hikes is less important now than when rates end.
But Powell suggested that the fed funds rate could end up being higher than the Fed’s September projection of 4.6%. That implies a fed funds rate of 4.75%-5%.
Markets now expect a 57% chance of the Christmas rate rising by 50 basis points, up slightly from just over 50% on Tuesday. That would push the fed funds rate to 4.25%-4.5%. Options favor at least 50 basis points at the February meeting, to 4.75%-5%.
Friday’s jobs report will be important in setting rate hike expectations. The November jobs report, as well as two CPI reports, will also come before the next rate hike decision on December 14.
Dow Jones futures today
Dow Jones futures rose 0.2% vs. fair value. S&P 500 futures climbed 0.2% and Nasdaq 100 futures rose 0.3%.
Crude oil futures fell fractions.
Hong Kong’s Hang Seng index fell about 3% during the day.
China’s top health official said the “no-Covid” policy will continue, after unconfirmed chatter on social media sent Chinese stocks tumbling on Tuesday-Wednesday.
Caixin’s private sector services purchasing managers’ index for China fell 0.9 points in October to 48.4, falling below the break-even level of 50. Reports of manufacturing and other services in China also showed contraction last month.
Remember that overnight activity in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
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Stock Market Rally
The stock market rally first came together on a Fed rate hike and a dovish policy statement, then fell sharply as Powell signaled a higher end point for the fed funds rate.
The Dow Jones Industrial Average fell 1.55% in stock market trading on Wednesday. The S&P 500 index fell 2.5%. The Nasdaq composite shed 0ff 3.4%. The small-cap Russell 2000 slipped 3.3%.
The 10-year Treasury yield rose 1 basis point to 4.06%, coming off an intraday low of 3.98% soon after the Fed meeting. The US dollar also bounced higher.
US crude oil prices rose 1.8% to $90 a barrel. Natural gas futures rose 9.7%, continuing this week’s trend of huge daily moves.
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) returned 2.1%, while the Innovator IBD Breakout Opportunities ETF (BOUT) gave up 2%. The iShares Advanced Technology Software Sector ETF ( IGV ) fell 4.6%. The VanEck Vectors Semiconductor ETF (SMH) slipped 2.9%, with QCOM stock a significant SMH holding.
The SPDR S&P Metals & Mining ETF (XME) fell 6.1% and the X US Global Infrastructure Development ETF (PAVE) fell 3.1%. US Global Jets ETF (JETS) was down 2.9%. SPDR S&P Homebuilders ETF (XHB) sank 3.8%. The Energy Select SPDR ETF (XLE) fell 2.4% and the Financial Select SPDR ETF (XLF) lost 1.3%. The Health Care Selective SPDR Fund (XLV) was down 1.7%.
Reflecting a more speculative story stocks, ARK Innovation ETF (ARKK) fell 4.9% and ARK Genomics ETF (ARKG) declined 3.4%.
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Albemarle reported surging earnings, easily beaten, but the lithium giant’s booming revenue fell short.
ALB stock fell 4% in overnight trading. Shares retreated 4.5% to 266.52 on Wednesday, back below the 50-day line. Albemarle stock sank in part after it Livente (LTHM) sales missed comments late Tuesday. ALB stock has a buy point of 308.34, according to MarketSmith analysis. But an early entry could be on offer with a move above Thursday’s high of 287.88.
CF earnings and lost income. The fertilizer giant announced a $3 billion buyback, but CF stock fell 5% after hours. Shares of the fertilizer major fell 4.3% on Wednesday to 103.17, leaving the 50-day line below it. CF stock is in a base with a 119.70 buy point.
Fortinet’s earnings beat expectations and the cyber security firm guided slightly higher for Q4. But Q3 bills were coming and bills guidance was light. FTNT stock fell 11% in extended action, marking a test of bear market lows. Shares already fell 5.65% to 53.23 on Wednesday, after hitting resistance again at the 200-day line on Tuesday.
Sarepta reported a wider than expected loss and also lost sales. SRPT stock fell 3.5% overnight. Shares fell 0.6% to 113.42 on Wednesday, above its 50-day high. Sarepta stock has a flat base buy point of 120.33.
Qualcomm’s earnings were in line and revenue missed fiscal Q4 comments. But the wireless chip giant guided sharply lower for the current Q1, showing more weakness. QCOM stock fell nearly 8% in extended trading. Shares fell 4.1% on Wednesday to 112.50. Qualcomm stock is off October bear market lows but below a 50-day sliding line.
The tree’s earnings were easily related to views and sales also exceeded. ELF stock jumped 11% after hours, back near highs. Shares of the affordable cosmetics maker lost 4.7% on Wednesday to 41.66.
WWE’s earnings fell slightly and revenue exceeded. WWE said it has ended an investigation into alleged misconduct by founder and former CEO Vince McMahon. Shares were not active in late action. WWE stock fell 1.5% to 77.54 on Wednesday, still in range of a 75.33 buy point from a shallow cup base.
Robinhood reported a smaller-than-expected loss and revenue did not decline. The trading app posted positive adjusted EBITDA in Q3 and lowered its guidance for full-year operating expenses. HOOD stock rose 2.6% to 17.70 overnight, indicating a move back to around the 11.73 buy point from a baseline. Shares sank 4.4% on Wednesday to 11.40, falling out of the buy zone.
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Market Rally Analysis
The stock market rally peaked on Wednesday. After rallying to session highs on the dovish Fed meeting policy statement, stocks fell to session lows on Powell’s more hawkish comments.
Investors are betting on the Fed pivoting to smaller rate hikes, but understandably they were expecting a quick transition from slower rate hikes to a complete pause. Fed chief Powell indicated that the latter is a long way off.
Arguably, Powell and his Fed colleagues achieved three goals: 1. A signal of a slower pace of rate hikes. 2. Still looking hard at inflation. 3. Don’t start a major market rally, which could undermine its inflation fight.
The Nasdaq composite, which had hit resistance near its 50-day line, fell below its 21-day line. In particular, the Nasdaq closed below its follow-up day on October 21. That is a bearish sign.
The other key indexes did not minimize their FTD, but were still damaged.
The S&P 500 jumped below its 50-day line and closed below its 21-day line. The Dow Jones went below its 200 day line. The small cap Russell 2000, which was moving near its 200 day, fell almost to its 50 day.
So far, the stock market rally has taken a hit. The Nasdaq, which had fallen on the way up, is the weakest. Megacap techs and cloud software names are struggling a lot. On the other hand, it could be argued that the Dow Jones was about to pull back.
What matters now is how the major indices and leading stocks respond.
The bullish market action may continue on Thursday. Stock and treasury yields often have large second-day reactions to Fed meetings, and the course often reverses from the first move.
Then, on Friday, the job report is very big.
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What To Do Now
There was reason to be cautious going into the FED meeting, and it turned out to be justified. Investors may be warranted to sell some stocks, to reduce overall exposure or to take profits or reduce losses in individual names.
Even aside from Fed rate hike plans and the upcoming jobs report, it’s the middle of earnings season. A number of stocks were sold in or near Wednesday’s earnings zones, including Devon Energy (DVN), Livente (LTHM), ATI (ATI) and Paycom software (PAYC).
Investors may want to review their holdings to see if any other positions should be cut, due to technical activity, emerging earnings or overall portfolio management.
The stock market could remain volatile through Friday’s jobs report.
But this is still a confirmed market rally. Many stocks are still close to buy zones despite Wednesday’s losses. So have your watch lists ready and stay engaged.
Read The Big Picture every day to stay in tune with market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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