Dow Jones futures fell modestly early Thursday, while S&P 500 futures and especially Nasdaq futures rose with parent Facebook. Meta Platform (META) rose on its earnings report. That followed a big day for the stock market rally as investors welcomed comments from Fed chief Jerome Powell.
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Apple, Amazon and Google parents Alphabet (GOOGL) are on tap.
The major indices rebounded on Wednesday, turning higher after the much-anticipated Fed meeting with especially Fed chief Powell. The Federal Reserve raised rates by a quarter point and said it still sees “continued increases” ahead. Powell backed that up, but said it’s a “good thing” and “happy” that inflation is coming down even without weakening the labor market.
The market rally cleared more key levels on Wednesday, while a large number of stocks broke out or flashed other buy signals, including China’s research-and-AI giant. Baidu (BIDU), chip-gear maker Blade Research (LRCX), network-monitoring software maker Dynatrace (DT), Delta Air Lines (DAL) and more.
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Meta Platform’s earnings fell short, but revenue, sales tips and Facebook users exceeded expectations. It also announced a $40 billion share buyback. The parent of Facebook and Instagram reduced its forecast for expenses, including capital expenditures. META stock rose 19% after hours. Shares rose 2.8% to 153.12 in Wednesday’s session, retracing the 200-day line for the first time in more than a year and shrugging off weak earnings guidance. snap (SNAP).
Qorvo (QRVO) exceeded fiscal Q3 earnings. But like many other chip stocks, Qorvo guided sharply lower for the current quarter. QRVO stock fell 3% in extended trading. Shares of 5G and iPhone-chip maker Apple jumped 4.5% to 113.53 on Wednesday.
Download the game ELF Beauty (ELF) broke earnings views and comfortably beat on revenue. EPS doubled, and growth accelerated for a third straight quarter. Sales were inflated 49%, picking up the pace for the fourth quarter in a row. The cosmetic maker also guided up. ELF shares surged 16% to a record high overnight. Shares rose 1.8% to 58.58 on Wednesday, just below the Jan. 6 record.
Early Thursday, Merck (MRK) modestly tops Q4 views but guides low on 2023 EPS. Eli Lilly (LLY) was on top from a profit point of view but missed sales, but guided slightly higher on 2023 EPS. Bristol Myers Squibb (BMY) beat. MRK stock and LLY stock declined slightly. BMY edge higher.
Big pharma, which fared well in the 2022 bear market, is lagging so far in a 2023-led market rally. LLY, Merck and Bristol Myers stocks are all below their 50-day moving averages.
late thursday, Apple (AAPL), Amazon.com (AMZN) and Google reports. All will rebound in 2023, but below the 200 day line. GOOGL and Amazon stock rose 4% overnight in sympathy with Meta.
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Dow Jones Futures Today
Dow Jones futures fell 0.3% against fair value, and stock MRK and Honeywell (HON) acts as drag. S&P 500 futures rose 0.6%. Nasdaq 100 futures jumped 1.6%, with META shares leading the way, along with shares of Google and AMZN. Tesla (TSLA) also helped, riding on Blackstone disclosed a large stake of TSLA.
The 10-year Treasury yield dipped 1 basis point to 3.39%.
Gold futures rose solidly and silver jumped. Copper prices also rebounded. Much of this likely reflects metals prices catching up to the Fed-led rally. Metals futures settle at 1:30 pm ET.
Meanwhile, the Bank of England raised rates by 50 basis points Thursday morning. The European Central Bank is expected to do the same before the US market opens.
Remember that overnight actions in Dow futures and elsewhere do not necessarily translate into actual trading in the next regular stock market session.
Fed hikes are ‘continuous’
As expected, the Fed raised rates by a quarter point on Wednesday, raising the fed funds rate to 4.5% -4.75%. That follows a half-point Fed rate hike in December and four 75-basis-point rightward moves before that.
The Fed’s policy statement consistently states that policy anticipates “continued increases” in the fed funds rate, a clear signal that the Fed’s rate hikes are far from over.
Fed chief Powell’s ‘good thing’
Fed chief Jerome Powell backed off, saying there is “more work to do,” later specifying that “we’re talking about a couple more rate hikes.” He added that the labor market remains “very tight.”
However, Powell also said that “the process of deflation has begun.” He noted that inflation is going down even without work conditions eased substantially, saying that it is a “good thing” and “gratifying.” He also said that policymakers “have no incentive, desire too tight.”
This statement appeared to trigger an afternoon rally.
On Wednesday morning, the Labor Department reported that job openings rose to 11.01 million dollars, well above their views. On Friday, the January jobs report is on tap. But Powell’s comments suggest that markets need not be as fixated on the jobs data as they have been.
The market overwhelmingly expects another quarterly Fed rate hike at the end of March, with the odds rising slightly on Wednesday to 86%.
But despite Powell backing a “couple more” hikes, investors still lean on the Fed’s March rate hike being the high point. That would leave the fed funds rate range at 4.75%-5%, below the Fed’s forecast of 5%-5.25%.
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Stock Market Rally Wednesday
The stock market rally was down modestly ahead of the Fed news, but rallied as Fed chief Powell spoke.
The Dow Jones Industrial Average rose a fraction in stock market trading on Wednesday, but was down more than 1% on the day before the Fed’s announcement. The S&P 500 index jumped just over 1%. The Nasdaq composite jumped 2%. The small-cap Russell 2000 gained 1.5%.
U.S. crude oil prices slipped 3.1% to $76.41 a barrel as domestic crude inventories rose for a sixth week. Natural gas prices plunged 8%, continuing a seasonal collapse. Copper futures fell 2.8%, with prices settling ahead of the Fed rate hike announcement.
The 10-year Treasury yield slipped 13 basis points to 3.4%. The two-year Treasury yield, most closely tied to Fed policy, fell 10 basis points to 4.11%. This is well below the current rate of food.
The US dollar fell to an eight-month low.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.5%. The iShares Expanded Tech-Software Sector ETF ( IGV ) rose 2.85%. The VanEck Vectors Semiconductor ETF ( SMH ) rose 4.7%. Lam Research and AMAT stock are major SMH holdings, and QRVO stock is also a component.
Reflecting more speculative stock history, the ARK Innovation ETF (ARKK) sprinted 4.4% and the ARK Genomics ETF (ARKG) gained 2.4%.
SPDR S&P Metals & Mining ETF (XME) 1.8% and Global X US Infrastructure Development ETF (PAVE) 1.5%. The US Global Jets ETF (JETS) rose 1%, and DAL stock was higher. The SPDR S&P Homebuilders ETF (XHB) was up 2%. The Energy Select SPDR ETF (XLE) sank 2% and the Financial Select SPDR ETF (XLF) was flat. The Healthcare Sector SPDR Fund ( XLV ) rose 0.5%.
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Market gathering analysis
The major indexes continued to build momentum, with big improvements after Fed chief Powell began speaking.
The Nasdaq appears decisively above its 200-day moving average and higher at the end of 2022. The Russell 2000 has clearly cleared this level.
The S&P 500 also seems to be leaving its 200-day line behind. The benchmark index also moved above its December high.
The Dow Jones, currently the laggard index, tested its 200-day line before rebounding for a slim gain.
Keep in mind that the market often has a day-two reaction to Fed meetings.
Meanwhile, the rest of the week remains packed with news. Big earnings on Thursday night are due from Apple, Amazon, Google, Qualcomm (QCOM), Ford Motor (F) and more, with the January jobs report on Friday.
The S&P 500’s biggest daily gainers and losers over the past two weeks are dominated by earnings moves.
DT stock, OI Glass (OI), Stryker (SYK) and Adore (ATKR) gapped out from the base on earnings Wednesday.
But there was a lot of good movement without earnings on Wednesday, especially after Fed chief Powell’s statement.
Stock LRCX and fellow equipment giant Material applied (AMAT) burst into the fund base, while DAL stock and JB Hunt Transport Services (JBHT) and Performance Food Group (PFGC) authorized traditional points of purchase. BIDU stock also burst.
Arista Networks (ANET), Pure Storage (PSTG) and Global foundries (GFS) were all cleared to enter early Wednesday. However, Meta Platforms’ plan to lower its capex could hit Arista and Pure Storage. ANET stock fell modestly after hours.
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What To Do Now
The stock market rally continues higher, with Nasdaq, Russell 2000 and leading stocks in the vanguard. The Fed meeting is out of the way, while increasing clarity on the final central bank.
There is growing evidence that the current market rally will be a long-term uptrend.
So investors could add new positions on Wednesday, taking advantage of a new crop of buying opportunities. It is always wise to do this gradually, do not buy extended or become too concentrated. If this market rally has legs, increasing exposure without stopping can quickly find you fully invested or beyond. If this market rally falters, even if only for a short time, you will not be caught. With Apple and Google earnings looming and the Nasdaq running fast in 2023, a pullback wouldn’t be a surprise.
Before you buy stocks, you need to find them and study them. Have your watch list prepared and your game plan ready.
Read the Big Picture every day to stay connected with market direction and leading stocks and sectors.
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