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Dow Jones Futures Rise, Techs Jump After Fed Sell; Apple, 5 Titans Mask Market Weakness




Dow Jones futures rose early Thursday, while S&P 500 futures rose modestly and Nasdaq futures rose. The stock market rally attempt took a nasty turn on Wednesday after the Fed meeting and comments from Treasury Secretary Janet Yellen. KB Home and Coinbase were key factors overnight.




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The Federal Reserve raised interest rates by a quarter point and signaled just one more increase this year. Soon after, Fed chief Jerome Powell said he remains committed to fighting inflation. But he also said that tighter conditions from banking problems are taking some pressure off monetary policy.

Meanwhile, Treasury Secretary Yellen, testifying before a Senate panel, said there will be “no blanket insurance” for all deposits, denying a report that regulators were considering such a step. On Tuesday, Yellen, Powell’s predecessor as Fed chief, signaled that regulators are ready to cover deposits more broadly in smaller banks, if necessary.

Bank stocks struggled, in particular First Republic Bancorp (FRC) and PacWest Bancorp (PACW).

More generally, the market rally attempt has been largely dependent on six megacaps: Apple stock, Microsoft (MSFT), Google parent Alphabet (GOOGL), Tesla (TSLA), Meta platforms (META) and Nvidia (NVDA). They have drifted higher in recent weeks, masking weak general breadth. apple ( AAPL ), Google and Meta shares are all actionable now, despite Wednesday’s reversals. Microsoft is just below a buy point while Tesla shares are rallying. Nvidia is significantly expanded.

Nvidia makes and Meta is on the IBD Leaderboard. AAPL shares and Meta are on SwingTrader. Microsoft and Google are on IBD Long-Term Leaders.

But even with these six megacaps, this is not yet a confirmed uptrend. Investors should be cautious.

Dow Jones Futures today

Dow Jones futures rose slightly relative to fair value. S&P 500 futures rose 0.4 percent. Nasdaq 100 futures rose 1 percent.

The 10-year government yield fell 1 basis point to 3.49%.

Crude oil futures fell 1% to around $70 a barrel.

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

Fat interest rate increase

The Fed raised interest rates by a quarter point to a range of 4.75%-5%, as expected. New quarterly estimates show that politicians expect the Fed’s key interest rate to end 2023 at 5.1%, which implies a further interest rate increase.

But even that trip is not ready. The Fed’s policy statement said that “some further policy tightening may be appropriate,” slightly less hawkish from earlier statements about “ongoing rate hikes.” Fed chief Powell said people should pay attention to “may” and “some”.

The Fed interest rate outlook will largely depend on the banking system. Fed Chairman Powell said bank deposits are “safe” because of the Fed, the FDIC and the Treasury. But he said it is too early to say how monetary policy will respond to bank stress.

The statement also noted that banking problems “will likely result in tighter credit conditions.” Powell said that means monetary policy has less to do.

Markets now see just a 44% chance of a quarter point rise in May, down from 60% on Tuesday.

Investors still see rate cuts over the summer, even with Powell signaling that is unlikely.

KB Home Income

KB Home (KBH) reported after closing. KBH shares rose 2.7% in extended trade after KB Home earnings topped views and management gave bullish guidance. Shares rose 0.4% to 36.80 on Wednesday, a day after retaking the 50-day line. KB Home stock has a 41.02 buy point in a new base after a 62% run from late September to February 2.

Darden restaurants (DRI), Commercial metals (CMC), General Mills (GIS), Accenture (ACN) and FactSet Research Systems (FDS) report early Thursday.

SEC Warns Coinbase of Potential Fees

The SEC late Tuesday issued another Wells notice Coin base (COIN), a formal warning to the cryptocurrency exchange that the regulator may take “enforcement action” for potential violations of securities laws. Coinbase said it would work normally for now.

COIN shares plunged 13% in premarket trading. In Wednesday’s session, Coinbase stock fell 8.2% as Bitcoin and other cryptocurrencies sold off following the Fed rate hike.


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


Stock market rally

The attempted stock market rally was quiet until Fed interest rates and Fed Chairman Powell’s comments, then whipped up in the final two hours of trading, closing at bottom levels. Bank stocks were significant losers on Wednesday, falling on Powell’s comments.

The Dow Jones Industrial Average fell 1.6 percent in Wednesday’s trading. The S&P 500 lost 1.6%, with FRC shares the worst performer of the day. The Nasdaq composite gave up 1.65%. Small-cap Russell 2000, heavily weighted in financials, sold 2.9%

US crude oil prices rose 1.8% to $70.90 a barrel, up 6.2% so far this week. Copper futures, which closed ahead of the Fed meeting decision, climbed 1.2%, its fifth straight gain.

The 10-year government yield fell 11 basis points to 3.5%. The 2-year government rate fell 20 basis points to 3.98%.

The US dollar fell sharply to its lowest levels since early February, extending a losing streak.

ETFs

Among growth ETFs, the Innovator IBD 50 ETF ( FFTY ) fell 1.3%, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) lost 1%. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell 2%, with the MSFT stock a core component of the IGV. VanEck Vectors Semiconductor ETF ( SMH ) fell 0.6%. Nvidia stock is a great SMH holding.

ARK Innovation ETF ( ARKK ) reflected more speculative stock stocks, falling 4.8% and ARK Genomics ETF ( ARKG ) lost 4.3%. Tesla stock is a large holding across Ark Invest’s ETFs.

The SPDR S&P Metals & Mining ETF ( XME ) retreated 2.2% and the Global X US Infrastructure Development ETF ( PAVE ) fell 2.1%. The US Global Jets ETF (JETS) fell 2.3%. The SPDR S&P Homebuilders ETF ( XHB ) gave up 1.7%. The Energy Select SPDR ETF (XLE) fell 2.1% The Health Care Select Sector SPDR Fund (XLV) 1.5%.

Bank shares

The Financial Select SPDR ETF ( XLF ) fell 2.3%. The SPDR S&P Regional Banking ETF ( KRE ) fell 5.7% after 5.8% on Tuesday.

First Republic and PACW shares, among many KRE holdings, plunged 15.5% and 17%, respectively. First Republic could get government support to facilitate an investment or takeover, Bloomberg reported Tuesday. PACW stock said Wednesday it gave up on a capital increase and raised $1.4 billion in liquidity from Atlas SP, owned by Apollo Global Management (APO). While bank deposits may be “safe,” as Powell said, bank shareholders can still take big losses or be wiped out.

FRC shares and PacWest both rose modestly overnight.


Top five Chinese stocks to watch now


Market rally analysis

The attempted stock market initially reacted well to the Fed rate hike and Chairman Powell’s comments, but sold off hard towards the end.

The S&P 500 briefly broke above its 50-day line, but reversed lower to just above its 200-day line. The Nasdaq Composite hit 12,000 before retreating.

The Dow Jones reversed back below the 200-day mark. The Russell 2000 fell sharply, well below the major moving averages.

Losers led gainers by nearly 3-to-1 on both the NYSE and Nasdaq. Breadth has been a concern throughout the market rally attempt.

Nvidia shares rose slightly on Wednesday, while Apple, Google, Meta and Microsoft shares fell and Tesla fell modestly. But over the past few weeks, these six megacaps have driven the S&P 500 and Nasdaq. But the Invesco S&P 500 Equal Weight ETF ( RSP ), which first approached its 200-day line this week, fell 2.25% on Wednesday to its worst performance in four months. Meanwhile, the major Nasdaq 100 turned lower, but after hitting its best levels in nearly seven months. The Direxion NASDAQ-100 Equal Weighted Index (QQQE) fell 2.1%, back below its 50-day.

The market often has a second-day reaction to Fed meetings that reverses the first move. But the Fed-led selloff could continue. This is still just a market rally attempt. Look for a follow-up day to confirm the new uptrend.


Time the market with IBD’s ETF market strategy


What to do now

The experiment in the stock market has shown some promising hints at times, but it remains divided, volatile and news-driven. Until the banking crisis is well in the background and the market shows broad progress, investors should be cautious.

Investors can have modest exposure, provided their positions perform. But don’t let the losses mount.

There is nothing wrong with waiting for a confirmed market uptrend to start going off the rails.

Don’t try to force the issue. Prepare for the next sustained market rally by building your watch lists.

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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