Dow Jones Futures: Fed rate hike hits market rally; Elon Musk sells more Tesla shares

Dow Jones futures were little changed in extended trade, along with S&P 500 futures and Nasdaq futures. Stocks rallied lower on Wednesday after the Federal Reserve hiked 5.1% as the new top rate and Fed chief Jerome Powell called for “significantly more evidence” that inflation is coming under control.

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But stocks offset whipsaw losses as investors also weighed in on other Powell comments and hoped for even slower rate hikes to start 2023. Tesla (TSLA) CEO Elon Musk revealed late Wednesday that he sold more than $3.5 billion worth of TSLA stock this week, as the stock has fallen to new bear market lows. apple ( AAPL ) fell below its 50-day moving average.

But solar stocks were strong, with the Invesco Solar ETF (TAN) showing a buying opportunity, which Enphase Energy (ENPH), SolarEdge technologies (SEDG), First Solar (FSLR) and Array technologies (ARRY) everyone stepped.

Fat interest rate increase, peak interest rate

The central bank raised the Fed Funds rate by 50 basis points, to 4.25%-4.5% on Wednesday afternoon, as expected. But policymakers, in new quarterly forecasts, now also see a peak rate of 5.1%, up from 4.6% at the September Fed meeting. Fed chief Powell had stated in recent weeks that the top interest rate was likely headed higher. But 5.1% was above market expectations, especially after Tuesday’s relatively tame inflation report.

Fed chief Powell Hawkish, Dovish

Powell, speaking shortly after announcing the Fed meeting and projections, said the full effects of this year’s Fed rate hikes have not yet been felt, “but we have more work to do.” The Fed chief noted the “welcome reduction” in price gains in the last two CPI reports, but said policymakers need “substantially more evidence to have confidence that inflation is on a sustained downward path.”

Powell did not rule out a further reduction in rate hikes, to just a quarter of a point in February. But where the fed funds rate peaks, and how long it stays high, is more important, he stressed. In particular, Powell does not see any interest rate cuts in 2023.

But he also said “Our politics are in a pretty good place now.”

Markets are pricing in a 74% chance of a Fed rate hike of 4.5%-4.75%, up from 60% on Tuesday. In particular, investors expect another quarter-point rise in late March, but now see a decent chance of no move at all.

The Fed continues to see a slowdown in growth in 2023, not an actual recession.

The major indexes, all up modestly heading into the Fed meeting and Powell’s speech, were lower in volatile trade. For a second straight session, the S&P 500 moved above its 200-day moving average but closed below that key level.

Investors should be cautious about adding exposure in the current market, with indices volatile and close to key levels.

Dow Jones Futures today

Dow Jones futures tipped higher relative to fair value. S&P 500 futures edged lower and Nasdaq 100 futures fell 0.1%.

Crude oil futures fell 1 percent.

Chinese retail sales fell 5.9% in November from a year earlier, far worse than expected and worsening from October’s 0.5% decline. Industrial production rose 2.2%, and growth slowed far more than the forecast from October’s 5%.

China’s Covid shutdown had serious consequences for the economy. The Covid rules have eased rapidly in recent weeks, but now China is preparing for a massive wave of infections.

Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session.

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

Stock market rally

Stocks rallied heading into the Fed meeting announcement, then turned lower in volatile action for the rest of the session.

The Dow Jones Industrial Average fell 0.4 percent in Wednesday’s trading. The S&P 500 index gave up 0.6 percent. The Nasdaq composite lost 0.8 percent. The small-cap Russell 2000 returned 0.7%.

Apple shares fell 1.55% to 143.21, back below its 50-day moving average.

The US crude oil price rose 2.5% to $77.28 a barrel.

The 10-year government yield closed flat at 3.5%.

Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) fell 0.4%, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) was down 0.1%. The iShares Expanded Tech-Software Sector ETF ( IGV ) lost 0.2%. The VanEck Vectors Semiconductor ETF ( SMH ) fell 1.7%.

ARK Innovation ETF ( ARKK ) reflected more speculative stock stocks, giving up 1% and ARK Genomics ETF ( ARKG ) 0.7%. Tesla stock is a large holding across Ark Invest’s ETFs.

The SPDR S&P Metals & Mining ETF ( XME ) retreated 0.9%. The SPDR S&P Homebuilders ETF ( XHB ) fell 0.5%. The Energy Select SPDR ETF (XLE) retreated 0.6% and the Financial Select SPDR ETF (XLF) 1.25%. The Health Care Select Sector SPDR Fund ( XLV ) rose 0.2%.

Solar stocks

The Invesco Solar ETF rose 1.8% to 82.61 on Wednesday. TAN ETF has a buy point at 84.28 cup with handle, but investors could have taken an early entry from the 21-day moving average.

Right now, solar stocks are generally moving higher together, so TAN is a good way to play the sector with less individual stock risk.

Enphase Energy, First Solar and SEDG shares are the three largest components, accounting for almost a third of TAN’s weight.

ENPH stock is now slightly extended from its own handle cup buy point, according to MarketSmith analysis. The SEDG stock is also extended from the handle entry. FSLR shares are bouncing off their 10-week line, offering another buying opportunity.

Array Technologies is also a TAN component. ARRY stock jumped 8.3% to 23.55, just below a 23.60 cup handle buy point. But shares are 12.7% above the 21-day mark and 26% above the 50-day, making an ARRY stock purchase riskier, especially in the current market.

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Tesla shares

TSLA shares fell 2.6% to 156.80 on Wednesday. Shares are now down 12.4% for the week, continuing to set two-year lows. Tesla stock peaked at 414.46 in November 2021.

Late Wednesday, Elon Musk revealed that he sold nearly 22 million Tesla shares for over $3.5 billion in the three days ending December 14. Musk has sold more than $39 billion in Tesla shares since the stock peaked in November 2021.

Trading volume has been particularly heavy this week, with Tuesday’s trading the most in 13 months.

On Wednesday, Goldman Sachs cut its TSLA stock price target and lowered Tesla deliveries for Q4. Morgan Stanley sees Tesla stock as a top pick for 2023, but warned that “the brakes are screeching on EV demand” overall.

If you covered the TSLA ticker and just looked at the chart, you would just move on.

Top five Chinese stocks to watch now

Market rally analysis

The last two days are a good example of how it’s not the news, it’s the market’s reaction to the news.

On Tuesday, a cooler-than-expected CPI inflation report sent stocks flying, but they quickly pared their gains.

On Wednesday afternoon, the central bank raised its top estimate for the Fed interest rate more than expected. Fed chief Powell made it clear that inflation must fall much more, although he also gave more dovish signals. The major indexes sold off hard but pared losses, turning briefly positive before fading again.

The S&P 500, above its 200-day line for a second straight session, failed to close above that key level, this time reversing lower. But it found support at the 21-day line, closing the gap with the 200-day.

The Dow Jones and Nasdaq also successfully tested their 21-day lines. The Russell 2000, which has become a trailing index, fell back toward its 50-day line.

Despite the disappointment since Tuesday’s opening highs, all the major indexes are up approx. 1.6% for the week, while the Russell 2000 is 1% higher.

The stock market often has a second-day reaction to Fed meetings, especially with so much at stake.

Time the market with IBD’s ETF market strategy

What to do now

The share rise gives no reason to add exposure. In the past, the indexes would at least have one strong session to lure investors in, then cut them up with steady losses over the next several sessions.

But right now the major indexes cannot hold a gain.

If you’re buying on strength, there’s a good chance you’re buying right on a short-term top. If you buy on weakness, you may be jumping on a sinking ship.

Better to wait for the major indices to show signs of a sustained market rise. That would mean the S&P 500 breaking above its 200-day line and then all the major indexes clearing their December 1 highs. Even in the positive scenario, investors should add exposure carefully.

Read The Big Picture every day to stay in sync with market direction and leading stocks and sectors.

Follow Ed Carson on Twitter at @IBD_ECarson for stock exchange updates and more.

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