Dow Jones futures fell solidly early Thursday, along with S&P 500 and Nasdaq futures, as investors continued to ponder news from the Federal Reserve on Wednesday. Weak Chinese economic data and upcoming US economic reports were also in focus, along with Elon Musk’s latest Tesla sales.
The stock market rally reversed on Wednesday after the Federal Reserve hit 5.1% as the new peak rate target and Fed Chief Jerome Powell demanded “much more evidence” that inflation is under control.
But stocks pared losses in the seesaw action as investors also pondered more of Powell’s comments and hoped for even slower rate hikes to start 2023. You’re here (TSLA) CEO Elon Musk revealed late Wednesday that he had sold more than $3.5 billion worth of TSLA stock this week as shares tumbled to new lows in the bear market. Apple (AAPL) fell below its 50-day moving average.
But solar stocks were strong, with ETF Invesco Solar (TANNING) flashing a buying opportunity, like Enphase Energy (ENPH), SolarEdge Technologies (SEDG), First Solar (FSLR) and Network technologies (ARRY) all pink.
Fed rate hike, peak rate
The central bank raised the federal funds rate by 50 basis points, to 4.25%-4.5% on Wednesday afternoon, as expected. But policymakers, in the new quarterly projections, also now see a peak rate of 5.1%, down from 4.6% at the September Fed meeting. Fed chief Powell had said in recent weeks that the peak rate was likely to rise. But 5.1% was above market expectations, especially after Tuesday’s relatively subdued inflation report.
Fed Chief Powell Hawkish, Dovish
Powell, speaking shortly after the Fed meeting announcement and projections, said the full effects of this year’s Fed rate hikes have yet to be felt, “but we have more to TO DO”. The Fed chief noted the “welcome reduction” in price gains in the last two CPI reports, but said policymakers needed “much more evidence to have confidence that inflation is on a sustained downward path.”
Powell did not rule out a further decline in rate hikes, to just a quarter point in February. But where the fed funds rate peaks and how long it stays high is more important, he pointed out. Notably, Powell sees no rate cuts in 2023.
But he also said: ‘Our policy is falling into place pretty well now.
Markets are pricing in a 74% chance of a quarter-point Fed rate hike, to a range of 4.5% to 4.75%, up from 60% on Tuesday. Notably, investors are expecting another quarter-point rise at the end of March, but now see a decent chance of not moving at all.
The Fed continues to see slower growth in 2023, not a true recession.
Major indexes, all up modestly ahead of the Fed meeting announcement and Powell’s speech, fell in volatile trading. For a second consecutive session, the S&P 500 index exceeded the 200-day moving average but closed below this key level.
Investors should be careful adding exposure to the current market, with indices volatile and close to key levels.
Dow Jones Futures Today
Dow Jones futures fell 0.7% from fair value. S&P 500 futures fell 0.9% and Nasdaq 100 futures slipped 1.2%.
Crude oil futures rose slightly.
The 10-year Treasury yield fell 1 basis point to 3.49%.
Chinese retail sales fell 5.9% in November from a year earlier, much worse than expected and deteriorating from October’s 0.5% drop. Industrial production rose 2.2%, with growth slowing much more than expected from October’s 5%.
The China Covid shutdowns have weighed heavily on the economy. Covid rules have eased rapidly over the past few weeks, but now China is bracing for a massive wave of infections.
Investors will get U.S. retail sales data for November, the Philly Fed manufacturing index for December and weekly jobless claims, at 8:30 a.m. ET.
Stock market rally
The stock market rally rose ahead of the Fed meeting announcement, then reversed lower into volatile action the rest of the session.
The Dow Jones Industrial Average fell 0.4% on Wednesday stock market trading. The S&P 500 index lost 0.6%. The Nasdaq composite lost 0.8%. Small cap Russell 2000 fell 0.7%.
Apple shares fell 1.55% to 143.21, back below the 50-day moving average.
U.S. crude oil prices climbed 2.5% to $77.28 a barrel.
The 10-year Treasury yield closed at 3.5%.
From best ETFsthe Innovator IBD 50 ETF (FFTY) fell 0.4%, while the Innovator IBD Breakout Opportunities ETF (FIGHT) fell slightly by 0.1%. The iShares Expanded Tech-Software Sector ETF (VIG) lost 0.2%. The VanEck Vectors Semiconductor ETF (SMH) fell 1.7%.
The SPDR S&P Metals & Mining ETF (XME) fell 0.9%. ETF SPDR S&P Home Builders (XHB) fell 0.5%. The SPDR Energy Select ETF (XLE) fell 0.6% and the Financial Select SPDR ETF (XLF) 1.25%. SPDR Healthcare Sector Fund (XLV) increased slightly by 0.2%.
The Invesco Solar ETF rose 1.8% to 82.61 on Wednesday. ETF TAN has an 84.28 mug with handle buying point, but investors could have taken an early entry from the 21-day moving average.
Currently, solar stocks generally move higher together, so the TAN is a good way to play the sector higher with less risk to individual stocks.
Enphase Energy, First Solar and SEDG are the three main components, accounting for nearly a third of TAN’s weight.
According MarketSmith Analysis. The SEDG stock is also lengthened as soon as it enters the handle. FSLR stock is bouncing off its 10-week line, providing a new buying opportunity.
Array Technologies is also a TAN component. ARRY stock jumped 8.3% to 23.55, just below a cup with handle of 23.60 point of purchase. But stocks are 12.7% above the 21-day line and 26% above the 50-day line, making buying ARRY stocks more risky, especially in today’s market.
TSLA stock fell 2.6% to 156.80 on Wednesday. Shares are now down 12.4% for the week, continuing to set two-year lows. Tesla stock peaked at 414.46 in November 2021.
TSLA stock fell 2% in premarket trading.
Late Wednesday, Elon Musk revealed he had sold nearly 22 million Tesla shares for more than $3.5 billion in the three days ending Dec. 14. Musk has sold more than $39 billion worth of Tesla stock since shares peaked in November 2021.
Trading volume has been particularly strong this week, with Tuesday’s trading being the largest in 13 months.
Earlier on Wednesday, Goldman Sachs cut its TSLA stock price target and lowered its fourth-quarter Tesla shipments forecast. Morgan Stanley sees Tesla stock as a top pick for 2023, but warned that “the brakes squeal at the request of the EV” globally.
If you covered the TSLA ticker and just looked at the chart, you would just move on.
Market rally analysis
The last two days are a prime example that it’s not the news, it’s the market’s reaction to the news.
A colder-than-expected CPI inflation report on Tuesday sent stocks flying in the open, but they quickly pared their gains.
On Wednesday afternoon, the central raised its forecast for the Fed’s peak rate more than expected. Fed chief Powell has made clear that inflation needs to come down much more, although he has also issued more dovish signals. Major indices sold hard but then pared losses, briefly turning positive before fading again.
The S&P 500 index, above its 200-day line for a second straight session, did not close above that key level, this time reversing lower. But it found support at the 21 day line, closing the gap to the 200 day.
The Dow Jones and Nasdaq also successfully tested their 21-day lines. The Russell 2000, now a lagging index, fell back towards its 50-day line.
Despite the disappointment since Tuesday’s opening highs, the major indices are all up around 1.6% for the week, while the Russell 2000 is up 1%.
The stock market often has a second-day reaction to Fed meetings, especially with so much flow.
What to do now
The stock market rally gives no reason to increase exposure. Previously, the indices would have at least one solid session to attract investors and then chop them with steady losses over the next few sessions.
But right now, the major indices can’t hold any gain.
If you’re buying hard, chances are you’re buying at a short-term high. If you buy on weakness, you could jump on a sinking ship.
Better to wait for the major indices to show signs of a sustained market recovery. This would imply that the S&P 500 breaks above its 200-day line and then all major indexes clear their December 1 highs. Even in this positive scenario, investors should add cautious exposure.
Lily The big picture every day to stay in tune with market direction and key stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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