Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures. The stock rally suffered heavy losses on Wednesday after the Federal Reserve meeting.
The major indexes rebounded after the Fed raised interest rates aggressively once again, but signaled it could begin to slow the pace of rate hikes. However, Fed chief Jerome Powell indicated that interest rates will peak at an even higher level than previously predicted.
Investors should be cautious as the stock market recovery suffers. But it’s not finished yet.
Albemarle (ALB), CF Industries (CF), Qualcomm (QCOM), Sarepta Therapeutics (SRPT), Fortinet (FTNT), Robinhood Markets (HOOD), World Wrestling Entertainment (WWE) and elf beauty (ELF) reported after the conclusion. There were several losers with both the ELF share and Robinhood winning.
Before Thursday’s opening, Cheniere energy (LNG) and Quanta services (PWR) report. Both Cheniere and PWR stocks are traded near buy points in shallow cups with handles.
LNG stocks are on the IBD Leaderboard, while ALB stocks, Sarepta Therapeutics and CF Industries are on the Leaderboard watch list. CF and SRPT stocks are on the IBD 50.
Fed swings to slower rate hikes
As expected, the Federal Reserve raised interest rates by 75 basis points for a fourth consecutive meeting, to a range of 3.75%-4%.
The Fed hinted at a slower pace of rate hikes citing the lagged effect of “cumulative” tightening this year.
“In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” according to the Fed’s post. – meeting statement.
Powell sees higher peak frequency
Fed Chairman Jerome Powell, speaking shortly after announcing the Fed meeting, agreed that policymakers could slow rate hikes as soon as December. He said the “velocity” of rate hikes is less important now than where rates end up.
But Powell hinted that the Fed Funds rate could end up higher than the Fed’s September estimate of 4.6%. That suggests a fed funds rate of 4.75%-5%.
Markets now expect a 57% chance of a 50 basis point rate hike in December, up slightly from just over 50% on Tuesday. That will push the Fed Funds rate to 4.25%-4.5%. The odds currently favor at least 50 basis points at the February meeting, at 4.75%-5%.
Friday’s jobs report will be important in setting expectations for interest rate increases. The jobs report from November, as well as two CPI reports, will also come before the next rate hike decision on 14 December.
Dow Jones Futures today
Dow Jones futures fell 0.2% relative to fair value. S&P 500 futures fell 0.2% and Nasdaq 100 futures lost 0.1%.
The 10-year government yield rose 5 basis points to 4.11%.
Crude oil futures fell 1 percent.
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
Stocks rallied first on the Fed rate hike and dovish policy statement, then fell sharply as Powell signaled a higher end point for the Fed Funds rate.
The Dow Jones Industrial Average fell 1.55% in Wednesday’s trading. The S&P 500 index fell 2.5 percent. The Nasdaq composite sold 0ff 3.4%. The small-cap Russell 2000 skidded 3.3%.
The 10-year Treasury yield rose 1 basis point to 4.06%, picking up from an intraday low of 3.98% just after the Fed meeting. The US dollar also bounced higher.
The US crude oil price rose 1.8 percent to 90 dollars a barrel. Natural gas futures rose 9.7%, continuing this week’s trend of huge daily moves.
Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) retreated 2.1%, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) gave up 2%. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell 4.6%. VanEck Vectors Semiconductor ETF (SMH) slid 2.9%, with QCOM stock a notable SMH share.
The SPDR S&P Metals & Mining ETF ( XME ) plunged 6.1% and the Global X US Infrastructure Development ETF ( PAVE ) 3.1%. The US Global Jets ETF (JETS) fell 2.9%. The SPDR S&P Homebuilders ETF (XHB) fell 3.8%. The Energy Select SPDR ETF (XLE) fell 2.4% and the Financial Select SPDR ETF (XLF) lost 1.3%. The Health Care Select Sector SPDR Fund ( XLV ) was down 1.7%.
The ARK Innovation ETF ( ARKK ) reflected more speculative story stocks, falling 4.9% and the ARK Genomics ETF ( ARKG ) falling 3.4%.
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Albemarle earnings reported rising earnings, easy to beat, but the lithium giant’s booming earnings fell short.
ALB shares fell 4% in overnight trading. Shares retreated 4.5% to 266.52 on Wednesday, back below the 50-day mark. The Albemarle share partly fell behind Alive (LTHM) sales missed impressions late Tuesday. ALB stock has a buy point of 308.34, according to MarketSmith analysis. But a move above Thursday’s high of 287.88 could offer an early entry.
CF revenue and earnings lost. The fertilizer giant announced a $3 billion buyback, but CF shares fell 5% after hours. Shares of the fertilizer giant fell 4.3% on Wednesday to 103.17, below the 50-day mark. The CF share is in a base with a buy point of 119.70.
Fortinet earnings topped views, and the cybersecurity firm guided slightly higher for the fourth quarter. But billings in the third quarter were in line while billing guidance was light. FTNT stock plunged 11% in extended action, signaling a test of bear market lows. Shares already fell 5.65% to 53.23 on Wednesday, after once again hitting resistance at the 200-day line on Tuesday.
Sarepta reported a bigger-than-expected loss, while sales also fell. SRPT stock fell 3.5% overnight. Shares fell 0.6% to 113.42 on Wednesday, holding above a 50-day high. Sarepta stock has a buy point of 120.33 flat base.
Qualcomm earnings were in line, while earnings just missed fiscal Q4 showings. But the wireless chip giant led sharply down for the current Q1, seeing more handset weakness. QCOM shares fell nearly 8% in extended trading. Shares fell 4.1% on Wednesday to 112.50. Qualcomm shares are off October market lows but below a sliding 50-day line.
Elf earnings easily beat impressions while sales also topped. ELF shares rose 11% after hours, back near record highs. Shares of the affordable cosmetics maker lost 4.7% on Wednesday to 41.66.
WWE revenue dipped slightly while earnings peaked. WWE said it has closed an investigation into alleged misconduct by founder and former CEO Vince McMahon. The shares were not active in late action. WWE stock fell 1.5% to 77.54 on Wednesday, still in the 75.33 buy range from a shallow cup base.
Robinhood reported a smaller-than-expected loss while revenue fell just short. Handelsappen positively adjusted EBITDA in the 3rd quarter and lowered guidance for full-year operating costs. HOOD shares rose 2.6% to 17.70 overnight, signaling a move back to around 11.73 buy points from a bottom base. The shares fell 4.4% on Wednesday at 11.40, falling out of the buy zone.
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Market rally analysis
The stock market rise had a whip saw on Wednesday. After rallying to session highs on the dovish Fed meeting policy statement, stocks plunged to session lows on Powell’s more hawkish comments.
Investors have bet on a Fed pivot to smaller rate hikes, but implicitly expected a quick transition from slower rate hikes to an outright pause. Fed chief Powell signaled that the latter is far away.
Powell and his Fed colleagues arguably achieved three goals: 1. Signal a slower pace of rate hikes. 2. Still taking a hard look at inflation. 3. Don’t trigger a big market rally, which could undermine their inflation fight.
The Nasdaq composite, which had hit resistance near its 50-day line, plunged below its 21-day line. Notably, the Nasdaq closed below the low of the follow-up day on October 21. It is a bearish sign.
The other key indexes did not break their FTD lows, but still suffered damage.
The S&P 500 dipped below its 50-day line and closed below its 21-day line. The Dow Jones dipped below its 200-day line. The small-cap Russell 2000, which had been hovering near its 200-day, nearly plunged to its 50-day.
For the time being, the stock market rally has suffered a setback. The Nasdaq, which had been limping on the way up, looks the weakest. Megacap technology and cloud software names are struggling mightily. On the other end, there was no doubt reason for the Dow Jones to pull back.
What matters now is how the major indexes and leading stocks react.
It is possible that the whipsaw market will continue on Thursday. Stocks and Treasury yields often have big second-day reactions to Fed meetings, often reversing course from the first move.
Then on Friday the jobs report looms large.
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What to do now
There was a reason to be cautious heading into the Fed meeting, and it turned out to be justified. Investors may be warranted to sell some shares, either to reduce overall exposure or simply to take profits or cut losses in individual names.
Even aside from the Fed’s rate hike plans and the upcoming jobs report, it’s the middle of earnings season. Several stocks that were in or near buy areas sold off on earnings Wednesday, including Devon energy (DVN), Alive (LTHM), WE HAD (ATI) and Paycom software (PAYC).
Investors may want to review their holdings to see if other positions should be cut due to technical action, looming earnings or general portfolio management.
The stock market could remain volatile through Friday’s jobs report.
But this is still a confirmed market rally. Many stocks are still near buy ranges despite Wednesday’s losses. So have your watch lists ready and stay engaged.
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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