Dow Jones futures edged higher Thursday morning, along with S&P 500 futures and Nasdaq futures. Salesforce.com grabbed headlines overnight, but investor focus will be on Thursday’s PCE inflation report after Fed Chair Jerome Powell sparked a tech-led stock market rally on Wednesday.
The pace of rate hikes could begin to slow at the December meeting, Fed Chairman Powell said on Wednesday, giving more explicit support for a smaller increase at the upcoming meeting. But Powell stuck to his view that the Fed Funds rate is likely to reach 5% or more. The current interest rate range for fed funds is 3.75%-4%. Powell also noted that many factors supporting inflation are diminishing. The Fed chief, who has suggested a recession may be necessary, said a “soft landing” is still possible.
Nasdaq led the way, with apple (AAPL), Microsoft (MSFT), Nvidia (NVDA), Tesla (TSLA) and Google parent Alphabet (GOOGL) all outperform the composite. In particular, the S&P 500 index shot up to clear the 200-day moving average, a key area of resistance.
On Thursday, investors will get the October PCE price index, with the November jobs report due Friday morning.
So while Wednesday’s action was encouraging, investors should await market reaction to Fed-critical data.
Salesforce.com (CRM), Snowflake (SNOW) and Box (BOX) led a string of software earnings reports. Clean storage (PSTG) and Victoria’s Secret (VSCO) also reported.
CRM stock fell solidly in premarket trading as Salesforce earnings topped out, but guidance was weak. Co-CEO Bret Taylor will step down, leaving Marc Benioff as sole CEO. SNOW shares fell modestly early Thursday after initially diving Wednesday night on conservative Snowflake earnings guidance. Box inventory was little changed as EPS just peaked and sales missed a bit.
PSTG stock rose modestly early Thursday after Pure Storage topped Q3 views and raised guidance. Shares fell about 1% on Wednesday after plunging intraday on weak results and guidance from NetApp (NTAP). VSCO stock fell modestly before the open as Victoria’s Secret earnings peaked, but sales were barely down.
early Thursday, Dollar General (DG) missed earnings and guided low on Q4 EPS. DG stock fell, signaling a move below the 50-day and perhaps the 200-day.
Chinese electric car manufacturers Nine (NIO), Li Auto (LI) and Xpeng (XPEV) reported November sales early Thursday. Nio and Li Auto, with newer models, reported record monthly deliveries. Xpeng deliveries plunged compared to a year earlier, but increased slightly compared to October and with hopes of a big jump in December. All three stocks fell in pre-market trading after soaring Wednesday, along with other Chinese names, on Covid reopening hopes.
The Commerce Department will release the PCE price index, the Fed’s favorite inflation gauge, at 8:30 a.m. ET as part of its income and expenditure report.
The PCE price index for October should show an increase of 0.4% compared to September. Year over year, PCE inflation should cool to 6% from September’s 6.2%. Core PCE, which excludes food and energy, is expected to be up 0.3%. The core PCE inflation rate falls to 5% from September’s 5.1%.
The PCE inflation report, along with the November jobs report on Friday, will help shape expectations for Fed rate hikes. The consumer price index for November will be released on December 13, a day before the Fed’s December meeting announcement.
Earlier on Wednesday, ADP reported a sharp decline in private sector hiring in November. The JOLTs survey also showed that vacancies fell more than expected in October. GDP growth in the third quarter was revised up more than expected, along with the report’s inflation gauge.
Dow Jones Futures today
Dow Jones futures rose less than 0.1% relative to fair value, reversing from small losses, even with CRM stocks pulling blue chips. S&P 500 futures and Nasdaq 100 futures rose 0.1%.
The 10-year government yield fell 11 basis points to 3.59%.
Gold and silver prices jumped as the dollar fell, threatening to undermine recent lows.
Crude oil futures rose 1%, with natural gas up 3%.
Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session.
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Stock market rally
Stocks were mixed for much of Wednesday’s session, then picked up on Fed Chair Powell’s comments, closing at session highs.
The Dow Jones Industrial Average fell 2.2% in Wednesday’s trading. The S&P 500 index rose 3.1 percent. The Nasdaq composite rose 4.4 percent. The small-cap Russell 2000 rose 2.7%.
Apple shares rose 4.9% and Google shares rose 6.1%, both back above 50-day highs. Microsoft shares and Nvidia, already above their 50-day lines, rose 6.2% and 8.2%, respectively. Tesla shares went 7.7% higher, retracing their 21-day line.
US crude oil prices rose 3% to $80.55 a barrel, but fell 6.9% for the month. China Covid reopening hopes also lifted copper futures.
Treasury Yields and Fed Rate Increases
The 10-year government yield reversed lower, falling 5 basis points to 3.7%. The two-year Treasury yield, more closely linked to Fed policy, fell to 4.33%, despite Powell expecting a peak fed funds rate of at least 5%.
The odds for an interest rate increase of 50 basis points are now around 79% compared to 66% after Tuesday. Markets still see another half-point move as a slight favorite in February, but the odds for a quarter-point move have topped 45%.
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Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) rose 1.8%, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) rose 2%. The iShares Expanded Tech-Software Sector ETF ( IGV ) rose 4.4%, with Microsoft and CRM stocks both main components. The VanEck Vectors Semiconductor ETF ( SMH ) rose 5.7%, with Nvidia stock as a top holding.
The SPDR S&P Metals & Mining ETF (XME) rose 3.75% and the Global X US Infrastructure Development ETF (PAVE) gained 2.4%. The Energy Select SPDR ETF (XLE) rose 0.5% and the Financial Select SPDR ETF (XLF) rose 1.7%. The Health Care Select Sector SPDR Fund ( XLV ) gained 2.4%.
ARK Innovation ETF ( ARKK ) reflects more speculative stock stocks, up 7.7% and ARK Genomics ETF ( ARKG ) 6.5%. Tesla stock remains a large holding across Ark Invest’s ETFs.
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Market rally analysis
The stock rally made a big, bullish move in heavy volume Wednesday on Fed Chairman Powell’s comments.
The S&P 500 Index rebounded from near the 21-day line to top the 4,000 level and moved above the 200-day line for the first time in seven months.
The Nasdaq composite, the laggard in the market rally, led the upside on Wednesday. It regained its 21-day line and the 11,000 level to settle at a two-month closing high. Shares of Apple, Microsoft, Google, Nvidia and Tesla had strong gains on Wednesday, but it is not clear that any of them will lead the current uptrend.
The Russell 2000, which had undercut its 21-day line during the day, bounced back to make up its 200-day mark. The Dow Jones, which has led the current market rally, is back to a new seven-month high.
The progressive kingdom plowed through losers with broad-based gains. Many leading stocks that had come under pressure strengthened on Wednesday.
While there was plenty of positive action on Wednesday, the S&P 500 remains below its 200-day moving average. The October PCE inflation report on Thursday and the November jobs report on Friday could reinforce Wednesday’s bullish pullback or trigger a bearish retreat.
Remember that the current market rally has seen many big one-day gains, but has struggled to pull through over the next few days or weeks.
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What to do now
The stock rally had a strong session, with the major indexes and leading stocks making encouraging moves.
Investors were likely tempted to increase their exposure on Wednesday, and that may be fine.
But there remain good reasons not to increase exposure completely just yet. The S&P 500 is above its 200-day line, but not decisively. Doing so would likely mean topping a long trend line with falling tops on a weekly chart. Decisively breaking above this area can be a strong signal that the current uptrend is more than a bear market rally.
But that will require a positive reaction to the upcoming PCE inflation data and jobs report.
Investors should work furiously on their watchlists, looking at promising stocks from a variety of sectors. But stay committed. The market recovery may be at a turning point, but which way will it turn.
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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