Dow Jones Futures Rise on PacWest Update After PACW Dives on Sales Report; Apple earnings on tap
Dow Jones futures rose modestly Thursday morning, along with S&P 500 futures and Nasdaq futures. PacWest Bancorp (PACW) pounced late on a report that it is considering putting itself up for sale. The California-based bank responded with an update on deposits and its plans early Thursday.
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HubSpot and Shopify led a string of top stocks that reported earnings ahead of Thursday’s market open. Apple looms large tonight.
The Federal Reserve raised interest rates on Wednesday afternoon, and the central bank and Fed chief Jerome Powell hinted at a pause. But they did not rule out further tightening, and Powell continued to push back on market calls for Fed rate cuts later this year.
Stocks turned lower near the end of Powell’s comments.
Then PACW stock plunged on the sales report and sent Western Alliance Bancorp (WAL) also plummets, with super regionals PNC Financial Services (PNC) and Comerica (CMA) is also hitting new lows overnight.
Meanwhile, HubSpot (HUBS), Free market (MELI) and Axcelis Technologies (ACLS) announced Wednesday night. All three stocks rose overnight on strong results after closing near buy points.
Shopify (SHOP), Cardinal health (CAH), Regeneron Pharmaceuticals (RAIN), Hyatt hotels (H), Country house (LNTH), TopBuild (BLD), Installed building products (IBP), Quanta services (PWR), Royal Caribbean (RCL) and Planet Fitness (PLNT) report early Thursday.
SHOP stock and Planet Fitness are near buy points, while LNTH stock is close to testing its 10-week line after a big run. CAH stock, Hyatt, TopBuild, Installed Building Products, Quanta Services and Regeneron are all in buy zones, with RCL stock flashing early.
apple (AAPL) reports Thursday evening. Apple shares are trading near an eight-month high.
MELI stock is on the IBD Leaderboard, with HUBS stock on the Leaderboard watchlist. MercadoLibre, Hyatt, Lantheus, Quanta Services and Royal Caribbean are on the IBD 50. HUBS stock is on the IBD Big Cap 20.
PACW stock dives on report, PacWest responds
On Wednesday night, Bloomberg reported that PacWest was mulling strategic options, including putting itself up for sale, a breakup or a capital raise.
PacWest Bancorp crashed more than 50%. Western Alliance plunged 22%. Superregionals PNC stock, Regions Finance (RF), Truest (TFC) and KeyCorp (KEY) suffered significant after-hours losses.
All of this followed modest to solid losses on Wednesday after PACW and WAL shares led a big sell-off on Tuesday.
Early Thursday, PacWest released an update in response. The California-based lender said management and the board are “continually reviewing strategic options.” PacWest said it “has been contacted by several potential partners and investors – discussions are ongoing.”
PacWest also said it “has not experienced unusual deposit flows following the sale of First Republic Bank.” It said deposits from core customers have increased since March 31. Total deposits are $28 billion, with insured deposits 75% of the total compared to 73% on 24 April and 71% on 31 March.
However, deposits have fallen by about $900 million since April 24. Last week, PacWest said deposits were $28.2 billion as of March 31, then increased by roughly $700 million as of April 24.
It’s unclear how PACW shares and other regional banks will react to the PacWest update. However, Dow Jones futures, already well on Wednesday night, improved fractionally after the release.
Dow Jones Futures today
Dow Jones futures rose 0.15% vs. real value, reversed from modest falls on Wednesday night. S&P 500 futures rose 0.2%. Nasdaq 100 futures rose 0.5 percent. The Nasdaq 100 includes the 100 largest non-financial Nasdaq components.
The 10-year government yield fell 7 basis points to 3.33%.
Crude oil futures rose higher.
Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session.
Pause for Fed rate hike
As expected, the Federal Reserve raised interest rates by a quarter point to 5%-5.25%. The Fed meeting policy statement used language that suggested a pause in rate hikes, but left the door open to further hikes if necessary. Politicians noted that “inflation remains high.” While stating that “the U.S. banking system is healthy and resilient,” policymakers acknowledged that “tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation.”
Fed Chairman Jerome Powell said labor markets remain tight and inflation is high. But he added that it will take time for the full effect of cumulative Fed rate hikes to take effect. Powell said it was “remarkable” that the Fed’s policy statement no longer says rate hikes may be necessary. He also said Fed staff forecasts for the May meeting are “broadly similar” to their March forecast of a mild recession later this year.
All in all, Powell and the central bank signaled that a pause in rate hikes is likely without closing the door to further tightening. Powell once again said he does not expect a rate cut later this year, although markets continue to see easing starting in September.
Key income
HUBS stock bounced after HubSpot reported strong earnings and led higher. The digital marketing software maker rose 0.8% to 417.99 in Wednesday’s session, just below a 418.49 buy point just above a cup with handles. The HUBS stock has found support at the 10-week line and had been working on yet another flat base.
MELI shares rose modestly after hours. MercadoLibre revenue comfortably beat forecasts. Shares of the Latin American digital payments giant rose 1.9% to 1,279.99 on Wednesday. MELI stock, which has been consolidating in recent months, may be actionable outside the 10-week line.
ACLS shares rose modestly in extended trading. Axcelis earnings topped consensus, but the chip equipment maker gave mixed signals. Shares rose 0.7% to 122.61 on Wednesday. After rising 175% over six months to a March 21 peak of 136.38, Axcelis shares have retreated, but shares have found their footing in recent days. ACLS stock is on track to make a base after this week with a buy point at 136.48, but a decisive move above the 50-day line would offer an early entry.
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Stock market rally
The stock rally turned negative after Fed chief Jerome Powell said he does not expect interest rate cuts later this year.
The Dow Jones Industrial Average fell 0.8% in Wednesday’s trading. The S&P 500 index fell 0.7 percent. The Nasdaq composite retreated 0.5%. The small-cap Russell 2000 rose 0.4%, but closed near recessionary levels.
U.S. crude fell 4.3% to $68.60 a barrel after falling 5.3% on Tuesday. It is the lowest the industry has seen in more than six weeks. Gasoline futures fell 4.7% to the weakest in two months.
The 10-year government yield fell 4 basis points to 3.4%. The three-month Treasury yield, closely linked to Fed policy, rose 3 basis points to 5.26%. The sharp inversion of the yield curve from the three-month to the 10-year is a notable recession signal.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF ( FFTY ) rose 0.4%. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell 1%. The VanEck Vectors Semiconductor ETF ( SMH ) fell 1%.
Reflecting stocks with more speculative stories, ARK Innovation ETF ( ARKK ) fell 0.4% and ARK Genomics ( ARKG ) fell 2%.
The SPDR S&P Metals & Mining ETF ( XME ) retreated 1%. US Global Jets (JETS) rose 0.3 percent. SPDR S&P Homebuilders (XHB) climbed 0.6%. The Energy Select SPDR ETF (XLE) fell 1.9%, and the Health Care Select Sector SPDR Fund (XLV) fell 0.1%.
The Financial Select SPDR ETF ( XLF ), which includes giants such as JPMorgan, fell 1.1% to its lowest since April 10. The SPDR S&P Regional Banking ETF ( KRE ) fell 1.8% to a new 30-month low. PACW shares and WAL shares are among the many KRE components, along with CMA shares, PNC, Regions Financial, Truist and KeyCorp.
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Market rally analysis
The stock rally once again hit resistance near 2023 highs. All the major indexes fell below their 21-day moving averages on Wednesday after finding support at those levels on Tuesday.
The winners led slightly on the Nasdaq and slightly trailed the losers on the NYSE. It follows terrible width Tuesday.
The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) fell 0.35%, reversing lower after a brief retracement of the 50-day line and hitting 21-day resistance. The Invesco S&P 500 Equal Weight ETF ( RSP ) fell 0.6%, further below the 200-day after a brief recovery of the 50-day line.
The housing sector looks strong, with housebuilders, building material manufacturers and installers such as TopBuild all showing strength.
Many restaurants behave well, but by no means all.
The medical sector is showing a lot of strength, especially pharmaceutical and biotechnology giants as well as medical product and system manufacturers. These include Regeneron and Lantheus.
But tech growth stocks are tricky. Chips struggle outside Nvidia (NVDA).
In short, the market recovery remains “under pressure”. The major indices are not far from the 2023 highs, but are clearly struggling at these levels. At the same time, the breadth is poor and the market leadership narrow.
Remember that the market can often have a second-day reaction to Fed meetings. That may be especially true now, with Fed chief Powell trying to strike a delicate balance on the prospect of rate hikes. So on Friday, the April jobs report will be a market mover.
Bank problems could also keep the Fed on hold.
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What to do now
The market recovery still does not provide many reasons to add exposure. The major indices continue to encounter resistance, while not many shares are flashing buy signals. Market, sector and stock reversals are still common.
Many stocks are in or around buy zones, but market conditions – and upcoming earnings – are reasons to be cautious. But be prepared. If the market rally takes off, many stocks will flash buy signals. So you will be ready to gradually re-enter the market. On the flip side, investors need to have their exit strategies if conditions deteriorate.
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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