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Dow Jones Futures: Stock rally awaits Fed pivot signals; AMD, Devon move ahead with earnings




Dow Jones futures were little changed overnight, along with S&P 500 futures and Nasdaq futures, with attention focused on Wednesday’s Federal Reserve meeting and whether policymakers will confirm or dash the Fed’s pivot hopes.




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The share price rally turned lower from early gains on Tuesday, as stronger-than-expected economic data was not what the Fed wants to see. The megacap technologies continue to weigh on the indexes, especially the Nasdaq. Amazon.com (AMZN) and Google parent Alphabet (GOOGL) fell to fresh bear market lows while apple (AAPL) and Microsoft (MSFT).

Advanced Micro Devices (AMD), lithium producer Alive (LTHM), pharmaceutical distributor McKesson (MCK), Paycom software (PAYC), and producer of shale oil and gas Devon energy (DVN) had headline earnings overnight.

AMD shares rose despite weak results. Life fell as the hot income growth was not quite hot enough. Devon Energy stock pulled back on dividends, but. PAYC stock rose on strong earnings while MCK stock was yet to trade on mixed results.

The DVN share is on the IBD 50.

Meanwhile Tesla (TSLA) rival BID (BYDDF) will soon report October sales, after insufficient deliveries from Nine (NIO), Li Auto (LI) and Xpeng (XPEV). BYD shares rose 2.6% on Tuesday, while Tesla shares closed up 0.1%, both off intraday highs.

Cool meeting

The Federal Reserve is expected to raise interest rates by 75 basis points for a fourth consecutive meeting. But the market is divided about whether politicians will raise interest rates by 50 or 75 basis points in December.

Some relatively tame inflation data and various central bank moves around the world — including a few hints from Fed officials — have bolstered hopes for a Fed pivot to smaller rate hikes.

The Fed’s policy statement is due at 2pm ET on Wednesday, with Fed Chairman Jerome Powell’s press conference at 2:30pm. Investors will be watching for any Fed pivot hints. Powell may not want to give clear signals to maintain maximum flexibility.

The Fed chief is likely to include reservations about reacting to key data. The employment report for October comes on Friday, after a stronger than expected JOLTS survey in September.

Dow Jones Futures today

Dow Jones futures were reduced relative to fair value. S&P 500 futures and Nasdaq 100 futures were steady.

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

The stock market recovery retreated on Tuesday. The major indexes opened solidly higher, driven by lower government yields and unconfirmed talk that China could be moving towards easing its strict zero-Covid policy.

But at 10 a.m. ET, September vacancies unexpectedly emerged, while the ISM manufacturing index remained above the break-even 50 level in October. Treasury yields rebounded and stocks quickly turned lower.

The Dow Jones Industrial Average fell 0.2 percent in Tuesday’s trading. The S&P 500 index fell 0.4 percent. The Nasdaq composite retreated 0.9%. The small-cap Russell 2000 climbed 0.25%, its eighth straight gain.

Amazon shares slid 5.5%, paring Friday’s low to its worst level since April 2020. That’s after earnings plunged 13% last week. AMZN stock has fallen for five straight sessions on heavy volume.

Google shares fell 4.3% for the worst since January 2021, after falling 4.8% last week.

Apple shares fell 1.75%, turning from near the 200-day line to close just below the 50-day. AAPL stock fell 5.75% last week.

Microsoft shares gave up 1.7%, not far off market lows. MSFT stock fell 2.6% last week.

The 10-year Treasury yield fell 3 basis points to 4.05%, but ended near session highs. The 10-year yield fell to 3.955% shortly after the open, but once again found support at its 21-day moving average. The US dollar pared early losses.

US crude oil prices rose 2.1% to $88.37 a barrel. Crude futures rose on hopes that China will adjust its Covid policy, as well as a report that Saudi Arabia is on high alert for an Iranian attack. Natural gas futures plunged 10% after rising nearly 12% on Monday.


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ETFs

Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) climbed 0.6%. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell 1.3%, with the MSFT stock a core holding. The VanEck Vectors Semiconductor ETF ( SMH ) rose 0.7%, with AMD stock a key component.

The SPDR S&P Metals & Mining ETF ( XME ) rose 1.5% and the Global X US Infrastructure Development ETF ( PAVE ) gained 0.6%. The Energy Select SPDR ETF ( XLE ) rose 1%, with DVN stock as a top 10 holding. The Health Care Select Sector SPDR Fund ( XLV ) rose 0.1%.

Reflecting more speculative storied stocks, the ARK Innovation ETF ( ARKK ) rose 1 cent while the ARK Genomics ETF ( ARKG ) rose 1.3%

Tesla stock is a large holding across Ark Invest’s ETFs. Tesla Cybertruck mass production will begin in late 2023, Reuters reported early Tuesday.

Cathie Wood’s Ark owns a small stake in BYD stock. BYD’s EV and plug-in hybrid sales have surged past Tesla’s total, although the American giant still leads in all-electric “BEV” deliveries.


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Key income

AMD’s earnings and sales slightly missed reduced views, after the chip giant reported preliminary earnings that were well below consensus. AMD also signaled Q4 revenue will fall slightly below consensus, but will be up about 14% compared to a year earlier.

AMD stock was trading overnight. Shares fell 0.7% to 59.66 on Tuesday. AMD stock has rebounded a bit from its Oct. 13 bear market low of 54.57, but not much.

Nvidia (NVDA), which competes with AMD in graphics chips, advanced somewhat.

Livet earnings soared and topped viewings, but revenue only fell despite more than doubling compared to a year earlier. The LTHM share fell solidly in extended action. Shares lost 0.8% to 31.33 on Tuesday, reversing down around the 50-day line. Livent stock has a buy point of 36.48 cups, according to MarketSmith analysis.

ALB stock, with a similar chart, was down in limited after-hours trading. The lithium giant Albemarle (ALB) reports late Wednesday.

Devon Energy earnings topped views, but oil producer cuts dividend by 13%. DVN shares fell modestly overnight. Shares were down 5 cents on Tuesday at 77.30, holding a 75.37 cup-with-handle buy point. DVN shares are still somewhat extended from a rising 50-day line.

Paycom revenue topped impressions and monetization was also strong. PAYC stock was little changed in extended trading. Shares retreated nearly 1% Tuesday to 342.72, just above the 50-day line and below a trendline. A strong move after earnings can offer an early entry. PAYC stock has a consolidation buy point at 402.88.

McKesson earnings just missed while earnings edged up slightly. MCK stock was not yet trading in overnight action. Shares fell 1.85% to 382.16 on Tuesday, but remain in range from a buy point of 375.33. The flat base is part of a base-on-base pattern.

Cardinal health (CAH), which reports Friday, also did not trade after hours. CAH stock is slightly extended from a buy point.

Market rally analysis

The major indexes opened strongly, but retreated on stronger-than-expected economic data.

The Dow Jones fell back below its 200-day line, while the Russell 2000 moved toward the level. The S&P 500 is still holding the 50-day line, while the Nasdaq is hitting resistance near this area.

Much of Tuesday’s weakness reflected weakness in AMZN stock, Google and other megacaps.

The Invesco S&P 500 Equal Weight ETF ( RSP ) rose 0.2%, trading between the 200-day and 50-day lines.

Advances in shares led to declines on the NYSE and Nasdaq.

Investors should not overthink Tuesday’s market rally, which comes ahead of the Fed meeting and Fed Chair Powell’s comments.

But the major indexes and leading stocks have risen largely in anticipation of a central bank in the Fed. If Powell gives a hawkish surprise, the stock market rally could lead to a big sell-off.

Tuesday’s stock market and Treasury yield moves may pale next to the post-Fed reaction.

The post-Fed reaction may continue, perhaps reverse, on Thursday. Friday’s jobs report is also likely to weigh on markets.

Leading stocks showed mixed action, with high earnings still driving individual names higher or lower.


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What to do now

The stock market recovery appears to be in good shape on a technical basis, despite Tuesday’s downside.

Investors should probably wait to add exposure until after the Fed rate hike and Powell’s comments. They could choose to par their exposure slightly into Wednesday’s afternoon announcement depending on their risk tolerance.

While the Fed meeting is like an earnings report for the market rally, don’t forget about actual earnings.

The earnings aren’t as market-moving as last week’s megacap releases, but still have a big impact on individual stocks.

The coming days will be key for the market rally. So have the watch lists ready. Stay engaged and ready to add or reduce exposure.

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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