Fed Chair Jerome Powell Sparks ‘Satisfactory’ Market Rally; Tech Futures Jump Like Meta Spikes
Dow Jones futures fell slightly after hours, while S&P 500 futures and especially Nasdaq futures rose with Facebook parent Meta platforms (META) increases on its earnings report. It followed a big day for the stock market rally as investors hailed Fed Chairman Jerome Powell’s comments.
Apple, Amazon and Google parent Alphabet (GOOGL) is on tap.
The major indexes picked up again on Wednesday, turning higher after the long-awaited Fed meeting and especially Fed chief Powell. The Federal Reserve raised interest rates by a quarter point and said it still sees “ongoing increases” ahead. Powell supported that, but said it is a “good thing” and “satisfying” that inflation is coming down even without labor markets weakening.
The market rally cleared several key levels on Wednesday, while a large number of stocks broke out or flashed other buy signals, including the Chinese search and AI giant Baidu (BIDU), manufacturer of chip gears Lamb Research (LRCX), network monitoring software maker Dynatrace (DT), Delta Air Lines (DAL) and more.
Meta Platforms revenue fell short, but revenue, sales guidance and Facebook users topped views. It also announced a $40 billion share buyback. The Facebook and Instagram parent cut its forecast for expenses, including capital expenditures. META stock was up 20% after hours. Shares rose 2.8% to 153.12 in Wednesday’s session, retracing the 200-day line for the first time in more than a year and shrugging off weak earnings from Snap (SNAP).
Qorvo (QRVO) topped financial income for the third quarter. But, like many other chip stocks, Qorvo led sharply down for the current quarter. QRVO stock fell 3^ in extended trading. Shares of the 5G and Apple iPhone chipmaker rose 4.5% to 113.53 on Wednesday.
ELF beauty (ELF) crushed earnings views and comfortably beat earnings. EPS doubled, and growth accelerated for the third consecutive quarter. Sales were up 49%, picking up pace for the fourth quarter in a row. The cosmetics manufacturer also guided up. ELF shares rose 16% to a record high in overnight action. Shares rose 1.8% to 58.58 on Wednesday, just below the Jan. 6 record high.
Early Thursday, drug giants Eli Lilly (LLY), Merck (MRK) and Bristol Myers Squibb (BMY) report. But big pharma, which fared well in 2022’s bear market, is so far lagging in a growth-led 2023 market rally. LLY stock, Merck and Bristol Myers are all below their 50-day moving averages.
Late Thursday, apple (AAPL), Amazon.com (AMZN) and Google reports. All are back in 2023, but below the 200-day mark. GOOGL stock and Amazon rose nearly 4% overnight in sympathy with Meta.
Fed interest rate hikes “in progress”
As expected, the Fed raised interest rates by a quarter point on Wednesday, lifting the Fed Funds rate to 4.5-4.75%. It follows a half-point interest rate hike by the Fed in December and four straight moves of 75 basis points before that.
The Fed’s policy statement continued to state that policymakers expect “ongoing increases” in the Fed Funds rate, a clear signal that Fed rate hikes are not finished.
Fed Chair Powell’s “Good Thing”
Fed chief Jerome Powell backed that up, saying there’s “more work to do,” later specifying that “we’re talking about a couple more rate hikes.” He added that labor markets remain “extremely tight”.
However, Powell also said that “the process of disinflation has begun.” He noted that inflation is coming down even without labor conditions having eased significantly, saying that is a “good thing” and “satisfying.” He also said that policymakers “have no incentive, desire to tighten too much.”
That statement appeared to spark an afternoon rally.
On Wednesday morning, the Department of Labor reported that job vacancies rose to 11.01 million, well above views. The January jobs report is in print on Friday. But Powell’s comments suggest that markets need not be quite as fixated on labor data as they have been.
The market overwhelmingly expects a quarter-point Fed rate hike by the end of March, with the odds rising slightly on Wednesday to 86%.
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But despite Powell backing a “couple more” hikes, investors are still leaning toward March’s Fed rate hike being the climax. That would leave the Fed Funds rate range at 4.75%-5%, below the Fed’s forecast of 5%-5.25%.
Meanwhile, both the European Central Bank and the Bank of England are expected to raise interest rates by 50 basis points on Thursday morning.
Dow Jones Futures today
Dow Jones futures fell 0.1% relative to fair value. S&P 500 futures rose 0.2 percent. Nasdaq 100 futures rose 0.8%, led by META shares, along with Google and AMZN shares.
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
Stock gains fell modestly before the Fed news, but rallied when Fed Chairman Powell spoke.
The Dow Jones Industrial Average rose a fraction in Wednesday’s trading, but after being down more than 1% intraday before the Fed announcement. The S&P 500 jumped just over 1%. The Nasdaq composite rose 2%. The small-cap Russell 2000 rose 1.5%.
U.S. crude fell 3.1% to $76.41 a barrel as domestic crude inventories rose for a sixth straight week. Natural gas prices fell 8%, continuing an epic collapse. Copper futures fell 2.8% and prices settled ahead of the Fed rate hike announcement.
The 10-year government yield fell 13 basis points to 3.4%. The two-year Treasury yield, more closely tied to Fed policy, fell 10 basis points to 4.11%. It is well below the current interest rate range for fed funds.
The US dollar fell to an eight-month low.
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.5%. The iShares Expanded Tech-Software Sector ETF ( IGV ) rose 2.85%. VanEck Vectors Semiconductor ETF (SMH) rose 4.7%. Lam Research and AMAT shares are major SMH holdings, with QRVO shares also a component.
ARK Innovation ETF ( ARKK ) reflected more speculative story stocks, sprinting 4.4% and ARK Genomics ETF ( ARKG ) gained 2.4%.
SPDR S&P Metals & Mining ETF (XME) 1.8% and Global X US Infrastructure Development ETF (PAVE) 1.5%. The US Global Jets ETF (JETS) rose 1%, with the DAL stock a top component. The SPDR S&P Homebuilders ETF (XHB) rose 2%. The Energy Select SPDR ETF (XLE) fell 2% and the Financial Select SPDR ETF (XLF) was flat. The Health Care Select Sector SPDR Fund ( XLV ) rose 0.5%.
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Market rally analysis
The major indexes continued to build momentum, with big improvements after Fed Chair Powell began speaking.
The Nasdaq appears decisively above its 200-day moving average and the end of the 2022 highs. The Russell 2000 has clearly cleared that level.
The S&P 500 also appears to be leaving its 200-day line behind. The benchmark index also moved off its December highs.
The Dow Jones, now the laggard, tested its 200-day line before bouncing for a small gain.
Remember that the market often has a day-two reaction to Fed meetings.
Meanwhile, the rest of the week is jam-packed with news. Big earnings on Thursday night are due to Apple, Amazon, Google, Qualcomm (QCOM), Ford Motor (F) and more, with the January jobs report on Friday.
The S&P 500’s biggest daily gainers and losers over the past couple of weeks have been dominated by income movers.
DT stock, OI Glass (HI), Striking (SYK) and Atkore (ATKR) went out of bases on earnings on Wednesday.
But there were plenty of good non-earnings moves on Wednesday, especially after Fed Chair Powell’s remarks.
LRCX storage and other equipment giant Materials used (AMAT) broke out of bottom bases, while DAL is making and JB Hunt Transport Services (JBHT) and Performance Food Group (PFGC) trusted traditional purchase points. The BIDU share also broke out.
Arista Networks (A WEB), Clean storage (PSTG) and Global Foundries (GFS) all cleared early entries Wednesday. However, Meta Platforms’ reduced capex plans could hit Arista and Pure Storage. ANET shares fell modestly after hours.
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What to do now
The stock rally continues to increase, with the Nasdaq, Russell 2000 and leading stocks leading the way. The Fed meeting is out of the way, while there is increasing clarity about the central bank’s end game.
There is growing evidence that the current market rally will be a lasting uptrend.
So investors could have added new positions on Wednesday, benefiting from a fresh harvest of buying opportunities. It’s still a good idea to do it gradually, don’t buy extended or get too concentrated. If this market rally has legs, ever-increasing exposure could quickly earn you your full investment or more. If this market rally falters, even if only for a short while, you won’t be caught out. With Apple and Google earnings looming and the Nasdaq rising so quickly in 2023, a pullback wouldn’t be a surprise.
Before you buy stocks, you need to find them and study them. Have the watch lists ready and the battle plan ready.
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