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Dow Jones Futures: Market rally falls with Fed ready for “All” rate hike after high inflation




Dow Jones futures fell modestly overnight, along with S&P 500 futures and Nasdaq futures. The stock market boom saw more losses, but closed down as investors tried to weigh the implications of a hot inflation report and the Federal Reserve was even more aggressive with interest rate hikes. Treasury yields sent higher recession signals.




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JPMorgan Chase (JPM) and Morgan Stanley (MS) reports results for the second quarter early Thursday, and starts large bank revenues. Taiwan semiconductor (TSM) revenue will provide insight into chipmakers. JPM stock, Morgan Stanley and Taiwan Semi are in long downward trends.

Li Auto (LI) reboundly bullishly on Wednesday, while EV giants Tesla (TSLA) and BYD (BYDDF) tries to find support at key levels. Shockwave Medical (SWAV), AstraZeneca (AZN) and McKesson (MCK) showed constructive action near buying points. Olaplex (OLPX) flashed with positive signals after the listing in 2021 was sold for large parts of this year.

The LI share was added to SwingTrader on Wednesday. Li Auto, AstraZeneca and MCK shares are at IBD 50. Li Auto was also Wednesday’s IBD Stock Of The Day.

Inflation report

Overall CPI inflation rose to 9.1% in June from maize 8.6%, a new 40-year high and higher outlook for 8.8%. Core inflation, which removes food and energy, fell to 5.9% from 6%.

With crude oil and petrol prices falling significantly from mid-June, overall CPI growth may finally slow somewhat in July. But June’s broad-based price gains are an ominous sign of long-term inflation.

Core prices rose 0.7% compared with May, the third month in a row with an accelerating rise, on a sequential, unrounded basis. Service prices excluding energy increased to 5.5% compared with a year earlier.

Prospects for Fed rate hike

As a result, the CME FedWatch Tool now sees a 78% chance of an interest rate increase of 100 basis points at the end of the 26-27 meeting. July, up from 8% on Tuesday. The markets had been locked in a movement of 75 basis points before Tuesday’s inflation data.

The CPI Inflation Report raised the odds of a full-point increase, but they rose higher on Atlanta Fed President Raphael Bostic. Bostic said on Wednesday that “everything is in play,” and explicitly confirmed that “everything” includes a possible move of 100 basis points.

Cleveland Fed President Loretta Mester, regarding an increase in percentage points, told Bloomberg that “We do not need to make that decision today.” But she stressed that the KPI report was “uniformly bad”.

For September, the markets see an increase of 75 basis points as very likely, a transition from 50 basis points before the CPI Inflation Report.

The bottom line, the markets appear to be pricing in 175 basis points in interest rate increases over the next two meetings against 125 basis points before the inflation data.

Also worth noting: the Bank of Canada raised interest rates by 100 basis points on Wednesday, more than expected.

Dow Jones Futures today

Dow Jones futures fell 0.55% vs. fair value. S&P 500 futures fell 0.6 percent. Nasdaq 100 futures fell 0.65 percent.

At 08:30 ET, the Ministry of Labor will release the producer price index for June and weekly requirements for unemployment. Will the PPI show any cooling in wholesale inflation? Unemployment requirements will remain low, but should continue to show a trend of slowly declining labor markets.

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


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Stock market rally

The rise in the share price was sold on Wednesday morning on the warm inflation report, and went back to mixed large parts of the afternoon before fading.

The Dow Jones Industrial Average fell 0.7% in Wednesday’s trading session. The S&P 500 index fell 0.45 percent. The Nasdaq composite fell 0.15 percent. Small-cap Russell 2000 fell 0.1 percent.

The US crude oil price rose 0.5% to 96.30 dollars per barrel in an up-and-down session. Gasoline futures fell almost 1%, with prices at the pump likely to continue to slide at least in the short term.

Treasury Yields

The 10-year government interest rate fell 5 basis points to 2.9% after a brief increase to 3.05% on the CPI data. Meanwhile, the two-year interest rate rose by 11 basis points to 3.15%. The one-year government interest rate rose by 12 basis points to 3.2%.

The yield curve has now been inverted from 1-year to 10-year, while 2-year to 10-year inversion is the sharpest since 2000. The 6-month exchange rate (up 18 basis points to 2.95%) is now above the 10-year interest rate.

All this action from the Ministry of Finance signals increasing recession risk.

ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) lost 1 cent to 26.53, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 0.2%. iShares Expanded Tech-Software Sector ETF (IGV) fell 1%, extending its weekly loss to 6.2%. VanEck Vectors Semiconductor ETF (SMH) rose 0.8%.

ARK Innovation ETF (ARKK) reflects more speculative history stocks, fell 0.7% and ARK Genomics ETF (ARKG) rose 1.1%. The Tesla stock is one of the largest holdings across Ark Invest’s ETFs. Cathie Wood’s Ark also owns some BYD shares.

The SPDR S&P Metals & Mining ETF (XME) rose 2.2% while the Global X US Infrastructure Development ETF (PAVE) withdrew 0.5%. US Global Jets ETF (JETS) fell 0.8%. SPDR S&P Homebuilders ETF (XHB) rose 0.2%. Energy Select SPDR ETF (XLE) fell 0.2% and Financial Select SPDR ETF (XLF) lost 0.5%. The Health Care Select Sector SPDR Fund (XLV) fell 1%, with the MCK share in the ETF.


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Li bilager

Li Auto shares rose 2.8% to 38.03, rising from just above the 21-day moving average, giving an aggressive entry. After more than doubling from the beginning of May to the end of June, the LI share has consolidated. Ideally, the Chinese hybrid SUV manufacturer would form a new base and let the 50-day line close the gap. Investors can look at the current action as a handle on a consolidation back to the end of 2020.

Meanwhile, Tesla shares turned higher, climbing 1.7% to 711.12. The TSLA stock took back its 21-day moving average. Shares declined from near the 50-day line. The Tesla stock took back that key level on Friday, but fell back below it on Monday.

The TSLA stock fell 1% late Wednesday. Tesla AI chief Andrej Karpathy tweeted that he has left the EV giant. Karpathy had been on a month-long sabbatical year, and speculated that he was on his way out.

The BYD share rose 0.9% to 34.80 on Wednesday, and found support on its 200-day line. Shares of China EV and battery giant plunged 11% on Tuesday due to rumors that Warren Buffett Berkshire Hathaway (BRKB) may sell part or all of its large BYD share. Investors want some clarity on this. But the BYD share must forge a new base.


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Shares close to buy points

Shockwave Medical shares rose 0.4% to 195.93 after falling to 186 intraday. SWAV storage can work with a handle from July 8, but needs a few more days before it is formed. It also coincides with a downward trend line entry, from the peaks in November 2021 and April to 8 July. The relative strength line, the blue line in the charts, has reached record highs, even with SWAV stocks far away at all times. .

AstraZeneca shares fell 0.6% to 66.30, but recovered after an intraday test of the 21-day moving average. The AZN stock is trading at a buy point of 67.50 from a base with a double bottom. The British pharmaceutical giant has crossed this list three times in recent weeks, but has never closed in the shopping area.

The MCK stock fell 0.7% to 325.18, and jumped intraday from another 50-day test. The McKesson stock has a buy point of 340.04 from a flat base, but investors can use 335.67, just above Monday’s high intraday, as a slightly early entry.

Olaplex rose 6.6% to 15.31, returning above its 21-day and 50-day lines. The volume was well below the average for the OLPX share, but was better than in recent days. The shares are trading at a buy point of 17.47 from a bottom base. The Olaplex share closed on Wednesday just above a short downward trend line in that base. Along with being close to the 50-day line, it can offer an aggressive entrance.

The manufacturer of exclusive hair care products was announced at 21 per share in September 2021, reaching a record 30.41 just before the end of the year. But the OLPX eruption went quickly, with stocks plummeting to 11.73 on May 10. Earnings growth and estimates have remained strong, with the once-high OLPX share-to-income ratio down to 32.

Market Rally Analysis

The stock market held up relatively well on Wednesday, given the warm inflation reading, “everything” Fed and strong recession signals.

The large indices came well after the morning bottoms. Technologies led, perhaps jumping on the lower 10-year government return. But the long-term return falls on expectations that interest rate hikes from the Fed will drive the economy into a recession. This is not exactly good news.

The major indices are still below their 21-day lines. The 10-week line is still a major obstacle, with Nasdaq reversing lower from that level this week.

Markets, like the economy, are changing. The major indices may rebound or rebound to test or even exceed the 10-week line again. They can also move sideways in a choppy manner for an extended period of time. This will allow the markets to have more clarity in the economy and interest rate increases from the Fed, while more bases can be formed. But in the short term, stocks can be very choppy, luring investors in and shaking them out.

The medical sector remains the clear leader, with a wide range of stocks and groups showing positive action.


Time market with IBD’s ETF market strategy


What to do now

The market upturn is still hanging around, but under pressure. There is no real direction in recent weeks, while the long-term trend remains negative.

The earnings season is increasing aggressively, creating a wave of new uncertainty and volatility in the coming weeks.

Adding exposure is not a good time. A few stocks, mostly medical, show positive action, but even they can have some large daily fluctuations. So consider taking at least partial profits quickly. Do not buy extended and do not get too invested in a particular sector or theme.

Stay engaged and be prepared. Keep working on these watchlists, look for stocks that are rising and showing relative strength.

Read The Big Picture every day to stay in sync with the 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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