Dow Jones futures rose overnight, along with S&P 500 futures and Nasdaq futures. Stocks wobbled Wednesday after the Federal Reserve raised interest rates by the most since 1994, but edged higher as Fed Director Jerome Powell signaled that policymakers could raise rates. slightly less interest rates 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), Harmonious biological science (HRMY), AutoNation (ONE), Ulta Beauty (ULTA) and Onsemi (ABOVE) is five stocks to see. All are in consolidation, holding above or near the 50-day moving average, with relative strength line equal to or near the high.
ON stock is on IBD Leaderboard Watchlist. AN stock and Harmony Biosciences available on IBD 50. AutoNation is Wednesday IBD shares of the day.
Tesla (TSLA) rebounded sharply on Wednesday even as the National Highway Traffic Safety Administration reported that the EV giant is dominating crashes involving driver assistance systems.
Dow Jones Futures Today
Dow Jones futures are up 0.5% above fair value. S&P 500 futures were up 0.6 percent and Nasdaq 100 futures were up 0.7 percent. Futures hit a high as bond yields fell to a low.
The yield on the 10-year Treasury note fell 3 basis points to 3.36%, from an evening low. Two-year yields reversed evening losses to increase 2 basis points to 3.3%.
US crude oil prices rose 1%.
Bitcoin was trading back above $22,000 on Wednesday night after hitting an 18-month low of $20,087.90 earlier this week.
Remember that action overnight in Dow futures contract and elsewhere that doesn’t necessarily translate into actual trading the next week stock market meeting.
Fed meeting
Policymakers voted to increase the rate rose 75 basis points for the first time since 1994, at the end of the Fed’s two-day meeting, to a range of 1.5%-1.75%.
That comes after the consumer price index for May on June 10 showed inflation unexpectedly rising to a 40-year high of 8.6%.
Fed chief Powell, speaking at a news conference after the policy meeting, said the central bank was raising interest rates “urgently”, deciding to increase the “preload”. “Inflation is too high,” he said, with the labor market very tight.
But Powell said the Fed could raise rates by 50 or 75 basis points at the Fed’s late-July meeting. He also stressed that the policy would be “sensitive and flexible.” In light of those comments, the market priced in a full 75 basis points at next month’s meeting, according to CME FedWatch Tool. Markets still see a 70% chance of hitting three-quarters of a point by the end of July.
All Fed officials see rates rising to at least 3% by year-end, with the median estimate at 3.4%. They see 3.8% at the end of 2023.
The central bank now has 5.2% inflation this year, as measured by the personal consumption expenditure price index. This is up from the target of 4.3% in March and 2.6% in December last year.
Policymakers expect their preferred inflation gauge, the core PCE index, to ease to a still-high 4.3% gain in the fourth quarter, slowing to 2.7% year-end. 2023.
The head of the Federal Reserve and the Fed, Powell, attempted to strike a fragile balance on Wednesday. On the one hand, they want to take a big step forward against inflation and restore lost credibility. On the other hand, Powell and his fellow policymakers do not want to destroy the economy. An unexpected drop in retail sales was part of some weak economic reports on Wednesday.
The central bank has won Wall Street, at least for an afternoon. The major indexes, mixed after the Fed raised rates and as Powell began to speak, rose to their highest levels of the day as a “flexible” Fed chief left the door open for a half-point move. Stocks closed at their best but remained steady or sharply higher.
Treasury yields fell sharply on Powell’s 50 or 75 comments, especially two-year yields.
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Wednesday Stock Market
The stock market wobbled after the rate hike announcement, but recovered after Powell’s comments.
The Dow Jones Industrial Average is up 1% on Wednesday stock market trading. The S&P 500 index rose 1.5%. The Nasdaq Composite Index rose 2.5%. The small-cap Russell 2000 gained 1.5%.
The yield on the 10-year Treasury note fell 9 basis points to 3.39%. Two-year yields, more closely tied to the Fed’s rate move, slid 15 basis points to 3.28%.
U.S. crude oil prices fell 3% to $115.31 a barrel. Natural gas prices rose slightly after falling 16% on Tuesday.
Among the Best ETFsThe Innovator IBD 50 ETF (FFTY) closed unchanged, while the Innovators IBD Breakthrough Opportunity ETF (BOUT) embedded 0.2%. iShares Extension Software-Technology Sector ETF (IGV) increased by 2.65%. VanEck Vectors Semiconductor ETF (SMH) increased by 1.8%.
SPDR S&P Metals & Mining ETF (XME) increased 2.1% and the US Global Infrastructure Development ETF X (SAVE) increased by 0.8%. US Global Jets ETF (JETS) increased by 1.55%. SPDR S&P Homebuilders ETF (XHB) increased by 0.3%. The Energy Select SPDR ETF (XLE) fell 2.2% and the financial SPDR ETF (XLF) reached 1.1%. SPDR Fund for the Healthcare Sector (XLV) is more than 1%.
Reflecting a more speculative narrative on equities, the ARK Innovation ETF (ARKK) jumped 6.6% and the ARK Genomics ETF (ARKG) 5.2%. Tesla stock remains the top holding on Ark Invest ETFs.
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Stocks to watch
ENPH stock rose 5% to 188.48 on Wednesday, recovering from the 50-day and 200-day lines. Solar inverter manufacturers broke a double bottom sole in a larger consolidation on June 2. Enphase stock rallied for a few days before falling again. Entry 193 is no longer valid. ENPH stock has formed a handle, with point of purchase at 217.33, just above the June 8 high.
HRMY stock rose 0.3% to 44.61, breaking above the 50-day threshold but paring gains on the day. Harmony Biosciences has a cup base with section 54.10. But need another day to form a latch, lowering the buy point to 47.21.
AutoNation stock reversed course on Wednesday, falling 1.45% to 113.40 to close just below its 50-day and 200-day lines. AN stock is consolidating for a long time with 133.58 buy points. But investors can use the resistance just above 126 as an early entry. Last Friday, the used car dealership giant hit 126.14 on the day, close to hitting an early-May high of 126.39, before reversing lower.
Shares of Ulta Beauty rose 3.3% to 405.61, reclaiming the 50-day line after finding support at the 200-day line earlier this week. ULTA stock hit a buy point of 426.93 cup-with-handles last week before falling again. New controller entry 429.58 is currently playing.
Onsemi stock rose 2.45% Wednesday to 58.04, recovering from its 50- and 200-day highs. In late May to early June, ON stock rallied from the 50-day/200-day line to 67.19 on June 8, approaching a consolidated buy level of 71.25. But the chipmaker failed. That created a slightly messy handle with entry 67.29. The entry also coincides with the descending top trend line.
Tesla shares
Tesla shares rose 5.5% to 699 on Wednesday, still below the 21-day mark. Shares hit an 11-month low of 620.57 on May 24.
On Wednesday, the National Highway Traffic Safety Administration reported crashes involving the driver assistance system. Tesla vehicles using Autopilot were involved in 273 crashes between July 20, 2021 and May 21, 2022, out of a total of 392. One major reason is that there are a lot of Tesla EVs on the road using Autopilot.
Tesla has long claimed that Autopilot improves safety, but doesn’t use cheeky comparisons of road type, weather conditions and more. NHTSA recently expanded its Autopilot probe to also investigate “virtual braking” in Tesla vehicles.
Separately, CEO Elon Musk tweeted on Wednesday that he is leaning toward endorsing GOP Florida Governor Ron DeSantis for the presidency in 2024.
On Thursday, Musk will host a town hall with Twitter (TWTR) employees, spoke to employees for the first time since reaching a $44 billion, $54.20-a-share deal for the social site in late April. Musk, who has waved due diligence rights, has since complained about fake accounts on Twitter. Musk may want to get out of the deal or cut the price significantly.
Twitter shares rose 2.1% to 37.99 on Wednesday.
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Market analysis
Stock markets closed higher on Wednesday after the Fed raised interest rates and Powell’s comments.
An attempt at a stock market recovery is currently underway. Wednesday marked the second day of Nasdaq’s recovery attempt after the tech heavyweights edged higher on Tuesday. But the protest effort was not given the green light.
After fierce losses in recent days, the major indexes are below their 10-day moving averages, let alone more substantive resistance.
However, investors should soon look for a track date to confirm a new uptrend. Confirmed market rallies don’t always work out, however, as 2022 has shown.
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What to do now
Wednesday’s action is positive, but a good day doesn’t mean anything, especially in a bear market.
If there is a follow-up day, investors can crept into the market, slowly adding more if conditions start to improve.
In the meantime, stay awake and prepared. Build a watch list of possible leaders.
Enphase, Onsemi, and other stocks to watch have struggled on an absolute basis, despite their strong relative strength. There is no guarantee that these names will hold the price relatively well or that they will lead the way in the next real uptrend.
Read Big picture every day to stay in sync with market trends and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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