Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures. The stock market rally suffered big losses Wednesday after the Federal Reserve meeting.
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Major indices rallied after the Fed aggressively hiked rates again but signaled that it may start to slow the pace of rate hikes. However, Fed Chair Jerome Powell has hinted that rates will peak at even higher levels than previously forecast.
Investors should be cautious as stock market rally hurts. But it is not finished yet.
Albemarle (ALB), CF industries (CF), Qualcomm (QCOM), Sarepta Therapeutics (SRPT), Fortinet (FTNT), Robinhood Markets (HOOD), World Wrestling Entertainment (WWE) and eleven beauty (ELF) reports after close of trade. There were multiple losers with ELF stock and Robinhood both gaining winners.
Before opening on Thursday Chen energy (LNG) and Quanta Services (PWR) report. Both Cheniere and PWR stocks are trading near buy points in flat cup-with-henkel bases.
LNG stocks are on the IBD leaderboard, while ALB stocks, Sarepta Therapeutics and CF Industries are on the leaderboard watchlist. CF and SRPT shares are on the IBD 50.
Fed switches to slower rate hikes
As expected, the Federal Reserve hiked interest rates by 75 basis points to a range of 3.75% to 4% for a fourth straight meeting.
The Fed hinted at a slower pace for rate hikes, citing the lagged impact of “cumulative” tightening this year.
“In determining the pace of future increases in the target range, the committee will consider the cumulative tightening of monetary policy, the lags with which monetary policy is affecting economic activity and inflation, and economic and financial developments,” the Fed meeting paper said Explanation.
Powell sees higher peak rates
Fed Chair Jerome Powell agreed shortly after the Fed meeting announcement that policymakers could slow rate hikes as early as December. He said the “speed” of rate hikes is now less important than when rates end.
However, Powell hinted that the fed funds rate could end up higher than the Fed’s September forecast of 4.6%. That points to a policy rate of 4.75% to 5%.
Markets are now looking at a 57% chance of a 50 basis point rate hike in December, up slightly from just over 50% on Tuesday. That would push the policy rate down to 4.25% to 4.5%. The rates are currently favoring at least 50 basis points at the February meeting to 4.75%-5%.
Friday’s jobs report will be important in setting rate hike expectations. The November jobs report as well as two CPI reports will also arrive ahead of the next rate hike decision on December 14th.
Dow Jones futures today
Dow Jones futures fell 0.25% from fair value. S&P 500 futures were down 0.3% and Nasdaq 100 futures were down 0.3%.
The 10-year government bond yield rose 5 basis points to 4.11%.
Crude oil futures fell 1%.
Keep in mind that overnight action in Dow futures and elsewhere doesn’t necessarily translate to actual trading in the next regular trading session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
stock market rally
The stock market rally initially rebounded on the Fed’s rate hike and dovish policy statement, but then fell sharply as Powell signaled a higher end point for the fed funds rate.
The Dow Jones Industrial Average fell 1.55% in trading on Wednesday. The S&P 500 index fell 2.5%. The Nasdaq Composite sold 0ff 3.4%. Small-cap Russell 2000 slipped 3.3%.
The 10-year Treasury yield rose 1 basis point to 4.06%, recovering from a daily low of 3.98% shortly after the Fed meeting. The US dollar also recovered.
US crude prices rose 1.8% to $90 a barrel. Natural gas futures are up 9.7%, continuing this week’s trend with large daily moves.
ETFs
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) lost 2.1%, while the Innovator IBD Breakout Opportunities ETF (BOUT) lost 2%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 4.6%. The VanEck Vectors Semiconductor ETF (SMH) slipped 2.9%, with QCOM shares a notable SMH holding.
SPDR S&P Metals & Mining ETF (XME) slumped 6.1% and Global X US Infrastructure Development ETF (PAVE) slumped 3.1%. The US Global Jets ETF (JETS) fell 2.9%. SPDR S&P Homebuilders ETF (XHB) is down 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) fell 1.7%.
ARK Innovation ETF (ARKK) slumped 4.9% and ARK Genomics ETF (ARKG) 3.4%, reflecting more speculative story stocks.
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merits
Albemarle’s earnings reported rising profits that were easy to beat, but the lithium giant’s booming earnings lagged behind.
ALB shares fell 4% in overnight trading. Shares fell 4.5% on Wednesday to 266.52, back below the 50-day moving average. After that, Albemarle stock fell partially Lively (LTHM) sales missed views late Tuesday. ALB stock has a buy point of 308.34, according to MarketSmith analysis. But a move above Thursday’s high 287.88 could offer early entry.
CF earnings and earnings missed. The fertilizer giant announced a $3 billion buyback, but CF stock fell 5% after the close. Shares of the fertilizer giant fell 4.3% to 103.17 on Wednesday, undercutting the 50-day moving average. CF stock is in a basis with a buy point of 119.70.
Fortinet’s earnings beat forecasts, and the cybersecurity company’s fourth-quarter guidance was slightly higher. But the third-quarter billings matched while the billing forecast was light. FTNT stock fell 11% in extended action, signaling a test of bear market bottoms. Shares are already down 5.65% on Wednesday to 53.23 after encountering renewed resistance at the 200-day moving average on Tuesday.
Sarepta reported a stronger-than-expected loss, while sales also failed to materialize. SRPT shares fell 3.5% overnight. Shares fell 0.6% to 113.42 on Wednesday, holding above its 50-day price. Sarepta stock has a flat buy point of 120.33.
Qualcomm’s earnings were in line, while revenue narrowly missed fourth-quarter guidance. But the wireless chip giant led significantly lower for the current Q1 and saw further weakness in handsets. QCOM stock plummeted nearly 8% in extended trading. Shares fell 4.1% to 112.50 on Wednesday. Qualcomm stock is below October bear market lows but below a 50-day moving average.
Eleven earnings slightly outperformed views, while sales also outperformed. ELF stock is up 11% after hours, back near record highs. Shares of the affordable cosmetics maker fell 4.7% to 41.66 on Wednesday.
WWE revenue declined slightly while revenue exceeded. WWE said it has closed an investigation into alleged wrongdoing by founder and ex-CEO Vince McMahon. Stocks were not active in late action. WWE stock fell 1.5% on Wednesday to 77.54, still within the range of a 75.33 buy point from a flat cup base.
Robinhood reported a smaller-than-expected loss while revenue fell just short. The trading app delivered positive Adjusted EBITDA for the third quarter and lowered its full-year operating expense guidance. HOOD stock is up 2.6% overnight to 17.70, signaling a return to a buy point around 11.73 from a bottoming base. Shares fell 4.4% to 11.40 on Wednesday, breaking out of the buy zone.
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Analysis of the market rally
The stock market rally had a slugfest on Wednesday. After rebounding to session highs on the dovish Fed meeting policy statement, stocks plunged to session lows on Powell’s more hawkish comments.
Investors have been betting on the Fed moving to smaller rate hikes but implicitly expecting a quick transition from slower rate hikes to a full pause. Fed Chair Powell signaled that the latter was a long way off.
Powell and his Fed colleagues appear to have achieved three goals: 1. Signal a slower pace of rate hikes. 2. Still keep a close eye on inflation. 3. Don’t trigger a major market rally that could undermine their inflation struggle.
The Nasdaq Composite, which had encountered resistance near its 50-day moving average, plunged below its 21-day moving average. Remarkably, the Nasdaq closed below the low of its October 21 following day. This is a bearish sign.
The other key indices failed to undercut their FTD lows but still suffered damage.
The S&P 500 dipped below its 50-day moving average and closed below its 21-day moving average. The Dow Jones dropped below its 200-day moving average. The small-cap Russell 2000, nearing its 200-day mark, nearly crashed to its 50-day mark.
For the time being, the stock market rally has suffered a setback. The Nasdaq looks the weakest, having lagged on the way up. Megacap techs and cloud software names are in big trouble. On the other hand, the Dow Jones was probably due for a pullback.
The decisive factor now is how the major indices and leading stocks react.
It is possible that whipsaw market action will continue on Thursday. Stock and Treasury yields often have large reactions on the second day of Fed meetings, often reversing course from the original move.
The job report appears on Friday.
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What now
There was a reason to go into the Fed meeting cautiously, and it proved to be justified. Investors may have justified selling some stocks, either to reduce overall exposure or simply to take profits or limit losses on individual stocks.
Barring the Fed’s rate hike plans and the forthcoming jobs report, it’s the middle of earnings season. Several stocks that were in or near buy areas were sold on Wednesday, including Devonian energy (DVN), Lively (LTHM), ATI (ATI) and Paycom software (PAYC).
Investors may wish to review their holdings to determine if other positions should be reduced due to technical measures, looming profits, or overall portfolio management.
The stock market could remain volatile through Friday’s jobs report.
However, this is still a confirmed market rally. Many stocks are still near buy areas despite Wednesday’s losses. So have your watch lists ready and stay tuned.
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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