Dow Jones futures were up solidly overnight, along with S&P 500 futures and Nasdaq futures. The stock market teetered on Wednesday after the Federal Reserve raised interest rates by the most since 1994, but turned higher as Fed Chair Jerome Powell signaled policymakers could hike rates slightly less at the Fed’s late July meeting.
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Treasury yields fell sharply on Wednesday after rising to multi-year highs on Tuesday.
Enphase Energy (ENPH), Harmony Life Sciences (HRMY), AutoNation (A), Ultimate beauty (ULTA) and onsemi (ON) are five stocks to watch. All are in consolidations and holding above or near their 50-day moving averages with their relative lines of strength at or near highs.
ON shares are on the watch list of the IBD Leaderboard. AN-Aktie and Harmony Biosciences are listed in the IBD 50. AutoNation is the IBD stock of the day on Wednesday.
Tesla (TSLA) staged a solid recovery on Wednesday, despite the National Highway Traffic Safety Administration reporting that the EV giant is dominating driver-assistance system accidents.
Dow Jones futures today
Dow Jones futures rose 0.7% versus fair value. S&P 500 futures were up 0.7% and Nasdaq 100 futures were up 0.9%.
The 10-year government bond yield fell 8 basis points to 3.31%. The two-year yield fell 7 basis points to 3.21%.
US crude prices rose 1%.
Bitcoin traded above $22,000 on Wednesday night after hitting a fresh 18-month low of $20,087.90 earlier this week.
Keep in mind that overnight action in Dow futures and elsewhere doesn’t necessarily translate to actual trading in the next regular trading session.
Fed meeting
Policymakers voted to hike rates by 75 basis points to a range of 1.5% to 1.75% for the first time since 1994 at the end of the two-day Fed meeting.
This came after the June 10 consumer price index showed inflation unexpectedly rising to a 40-year high of 8.6%.
Fed Chair Powell said at a news conference after the policy meeting the central bank is raising rates “swiftly” and opting for “frontload” hikes. He said “inflation is way too high” and labor markets are very tight.
But Powell said the Fed could hike rates by 50 or 75 basis points at the late July Fed meeting. He also stressed that the policy will be “sensitive and flexible”. Prior to these comments, markets had fully priced in 75 basis points at next month’s meeting, according to the CME FedWatch tool. Markets still see a 70% chance of a three quarter point move in late July.
All Fed officials see interest rates rising to at least 3% by year-end, with a median estimate of 3.4%. They see 3.8% by the end of 2023.
The central bank now sees inflation at 5.2% for this year, as measured by the consumer spending index. That’s more than its target of 4.3% in March and 2.6% last December.
Policymakers expect their favorite measure of inflation, the core PCE index, to ease to a still-high 4.3% rise in the fourth quarter and slow to 2.7% by the end of 2023.
The Federal Reserve and Fed Chair Powell tried to strike a delicate balance on Wednesday. On the one hand they wanted to take a big step against inflation and restore lost credibility. On the other hand, Powell and his fellow politicians don’t want to crush the economy. A surprise drop in retail sales was among several weak economic reports on Wednesday.
The central bank has convinced Wall Street for at least one afternoon. The main indexes, which fell to mixed following the Fed’s rate hike and as Powell began speaking, surged to intraday highs as a “flexible” Fed chair left the possibility of a half-point move open. Stocks closed their best levels but were still solid or significantly higher.
Treasury yields fell sharply on Powell’s 50 or 75 comment, particularly the two-year yield.
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Stock market Wednesday
The stock market faltered after the rate hike announcement but rallied after Powell’s comments.
The Dow Jones Industrial Average rose 1% in trading on Wednesday. The S&P 500 index rose 1.5%. The Nasdaq Composite rose 2.5%. Small-cap Russell 2000 is up 1.5%.
The 10-year government bond yield fell 9 basis points to 3.39%. The two-year yield, which is more closely tied to Fed interest rate moves, slipped 15 basis points to 3.28%.
US crude prices fell 3% to $115.31 a barrel. Natural gas prices rose slightly after falling 16% on Tuesday.
Among the best ETFs, Innovator IBD 50 ETF (FFTY) closed flat, while Innovator IBD Breakout Opportunities ETF (BOUT) fell 0.2%. The iShares Expanded Tech-Software Sector ETF (IGV) is up 2.65%. The VanEck Vectors Semiconductor ETF (SMH) is up 1.8%.
The SPDR S&P Metals & Mining ETF (XME) was up 2.1% and the Global X US Infrastructure Development ETF (PAVE) was up 0.8%. The US Global Jets ETF (JETS) is up 1.55%. SPDR S&P Homebuilders ETF (XHB) edged up 0.3%. The Energy Select SPDR ETF (XLE) is down 2.2% and the Financial Select SPDR ETF (XLF) is up 1.1%. The Health Care Select Sector SPDR Fund (XLV) rose 1%.
Reflecting more speculative story stocks, ARK Innovation ETF (ARKK) is up 6.6% and ARK Genomics ETF (ARKG) is up 5.2%. Tesla stock remains a top position among Ark Invest’s ETFs.
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stocks to look at
ENPH stock was up 5% on Wednesday to 188.48, recovering off its 50-day and 200-day moving averages. The solar inverter maker broke out of a double bottom on June 2 amid a larger consolidation. Enphase stock rose for a few days before falling back. Entry 193 is no longer valid. ENPH stock has formed a handle with a buy point of 217.33, just above the June 8th intraday high.
HRMY stock edged up 0.3% to 44.61, moving away from its 50-day moving average but paring gains on the day. Harmony Biosciences has a cup base with a 54.10 entry. But it needs another day to form a handle, lowering the buy point to 47.21.
AutoNation shares reversed lower on Wednesday, falling 1.45% to 113.40 to close just below its 50-day and 200-day moving averages. AN stock is in a long consolidation with a buy point of 133.58. But investors could use resistance just above 126 as an early entry. Last Friday the used car dealer giant hit 126.14 on the intraday, almost touching the early May high of 126.39 before turning back lower.
Ulta Beauty shares rose 3.3% to 405.61, reconnecting with the 50-day moving average after finding support at the 200-day moving average earlier this week. ULTA stock flirted with a 426.93 Cup with Henkel buy point last week before plunging again. A new handle entry of 429.58 is now in play.
Onsemi shares rose 2.45% to 58.04 on Wednesday, rebounding off its 50-day and 200-day moving averages. In late May-early June, ON stock rebounded from the 50-day/200-day moving average to 67.19 on June 8 and headed towards a consolidation buy point of 71.25. But the chipmaker fell behind. This has resulted in a somewhat chaotic handle with a 67.29 entry. The entry also coincides with a trend line with falling tops.
Tesla stock
Tesla shares rallied 5.5% to 699 on Wednesday, still below its 21-day moving average. Shares hit an 11-month low of 620.57 on May 24.
On Wednesday, the National Highway Traffic Safety Administration reported accidents involving driver assistance systems. Tesla vehicles with Autopilot were involved in 273 out of 392 accidents from July 20, 2021 to May 21, 2022. A key reason is that so many Tesla EVs are on autopilot.
Tesla has long claimed Autopilot improves safety, but doesn’t use apples-to-apples comparisons in terms of road type, weather conditions, and more. NHTSA recently expanded its Autopilot probe while also studying “phantom braking” in Tesla vehicles.
Separately, CEO Elon Musk tweeted Wednesday that he’s leaning towards supporting Florida Gov. Ron DeSantis for president in 2024.
Musk holds a town hall on Thursday Twitter (TWTR) employees, reaching out to employees for the first time since inking a $44 billion, $54.20 per share deal for the social site in late April. Musk, who waved due diligence, has since complained about fake accounts on Twitter. Musk may want to go out of business or significantly lower the price.
Twitter shares rose 2.1% to 37.99 on Wednesday.
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market analysis
The stock market closed higher on Wednesday following the Fed’s rate hike and comments from Powell.
A stock market rally attempt is now underway. Wednesday marked the second day of the Nasdaq’s rally attempt after tech-heavy indices surged higher on Tuesday. But the rally attempt is not a green light.
After heavy losses over the past few days, the major indices are well below their 10-day moving averages, not to mention major resistance.
Still, investors should look out for a subsequent day soon to confirm the new uptrend. However, confirmed market rallies don’t always work, as 2022 has shown.
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What now
Wednesday’s action was positive, but a decent day isn’t that telling, especially in a bear market.
If there is a following day, investors could tiptoe into the market and slowly increase their exposure as conditions start to improve.
In the meantime, stay alert and be prepared. Make these watch lists of potential leaders.
Enphase, Onsemi and the other stocks to watch have struggled on an absolute basis despite their strong relative strength. There is no guarantee that these names will hold up relatively well or that they will lead the next true uptrend.
Read The Big Picture every day to keep up to date with market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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