Dow Jones futures were little changed on Thursday morning, along with S&P 500 and Nasdaq futures. Salesforce.com headlined earnings overnight, but investors will focus on Thursday’s PCE inflation report after Fed chief Jerome Powell sparked a tech-led stock market rally on Wednesday .
The pace of rate hikes could start to slow at the December meeting, Fed Chief Powell said on Wednesday, providing more explicit support for a smaller increase at the next meeting. But Powell stuck to his view that the fed funds rate will likely hit 5% or more. The current federal funds rate range is 3.75% to 4%. Powell also noted that many inflation-promoting factors were easing. The Fed chief, who suggested a recession might be needed, said a “soft landing” is still possible.
The Nasdaq led the way, with Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA), You’re here (TSLA) and parent company of Google Alphabet (GOOGL) all exceeding the composite. Notably, the S&P 500 index climbed to clear the 200-day moving average, a key resistance zone.
Investors will get the PCE price index for October on Thursday, with the November jobs report due Friday morning.
So while Wednesday’s action was encouraging, investors should wait for the market’s reaction to the Fed’s critical data.
Salesforce.com (CRM), Snowflake (SNOW) and Box (BOX) led a number of software earnings reports. Pure storage (PSTG) and Victoria’s Secret (VSCO) also reported.
CRM shares fell sharply in premarket trading as Salesforce earnings topped, but forecasts were light. Co-CEO Bret Taylor will step down, leaving Marc Benioff as sole CEO. SNOW’s stock was also solidly lower early Thursday after initially plunging on low earnings forecasts from Snowflake. Box stock was little changed as EPS just overshot and sales fell slightly.
PSTG stock edged higher early Thursday after Pure Storage topped third-quarter views and raised its forecast. Shares fell around 1% on Wednesday after plunging intraday on weak earnings and guidance from NetApp (NTAP). VSCO stock fell slightly as Victoria’s Secret earnings topped, but sales just lagged.
Early Thursday, General dollar (DG) missed earnings and guided low on fourth-quarter EPS. DG stock fell, signaling a move below the 50-day line and possibly the 200-day line.
Chinese electric vehicle manufacturers Nio (NIO), Li-Auto (LI) and Xpeng (XPEV) announced November sales early Thursday. Nio and Li Auto, with newer models, recorded record monthly deliveries. Xpeng shipments dipped from a year earlier, but rose slightly from October and with hopes for a big jump in December. All three stocks fell in premarket trading after surging on Wednesday, along with other Chinese names, on Covid reopening hopes.
The Commerce Department will release the PCE price index, the Fed’s preferred gauge of inflation, at 8:30 a.m. ET as part of the income and spending report.
The October PCE price index is expected to post a 0.4% increase from September. Year-over-year, PCE inflation is expected to ease to 6% from September’s 6.2%. Core PCE, which excludes power and energy, is expected to rise 0.3%. The core PCE inflation rate is expected to drop to 5% from September’s 5.1%.
The PCE inflation report, along with the November jobs report on Friday, will help shape Fed rate hike expectations. The consumer price index for November will be released on December 13, a day before the announcement of the Fed’s December meeting.
Earlier Wednesday, ADP reported a sharp slowdown in private sector hiring in November. Additionally, the JOLTs survey showed that job postings fell more than expected in October. Q3 GDP growth was revised upwards more than expected, as was the report’s inflation gauge.
Dow Jones Futures Today
Dow Jones futures fell slightly relative to fair value as CRM stocks held back the blue chips. S&P 500 and Nasdaq 100 futures tipped higher.
The 10-year Treasury yield fell 11 basis points to 3.59%.
Crude oil futures rose 1%.
Remember that overnight action on futures contracts on Dow and elsewhere does not necessarily translate into actual trading in the next regular trading session.
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Stock market rally
The stock market rally was mixed for much of Wednesday’s session, then took off on comments from Fed Chief Powell, closing at session highs.
The Dow Jones Industrial Average jumped 2.2% in Wednesday’s stock trading. The S&P 500 index jumped 3.1%. The Nasdaq composite jumped 4.4%. The small cap Russell 2000 rose 2.7%.
Apple stock climbed 4.9% and Google stock gained 6.1%, both back above their 50-day mark. Microsoft and Nvidia shares, already above their 50-day lines, jumped 6.2% and 8.2% respectively. Tesla stock rose 7.7%, resuming its 21-day line.
U.S. crude oil prices jumped 3% to $80.55 a barrel, but fell 6.9% for the month. China Covid reopening hopes also lifted copper futures.
Treasury yields and Fed rate hike odds
The 10-year Treasury yield reversed lower, falling 5 basis points to 3.7%. The two-year Treasury yield, more closely tied to Fed policy, fell to 4.33%, though Powell expects a top federal funds rate of at least 5%.
The probability of a 50 basis point Fed rate hike is now around 79% versus 66% after Tuesday. Markets still see another half-point move as a slight favorite in February, but the odds of a quarter-point move have exceeded 45%.
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Among the top ETFs, the Innovator IBD 50 ETF (FFTY) gained 1.8%, while the Innovator IBD Breakout Opportunities ETF (BOUT) climbed 2%. The iShares Expanded Tech-Software Sector ETF (IGV) jumped 4.4%, with Microsoft and CRM stocks being the two main components. ETF VanEck Vectors Semiconductor (SMH) jumped 5.7%, with Nvidia stock topping the list.
The SPDR S&P Metals & Mining ETF (XME) gained 3.75% and the Global X US Infrastructure Development ETF (PAVE) gained 2.4%. ETF Energy Select SPDR (XLE) edged up 0.5% and ETF Financial Select SPDR (XLF) rose 1.7%. The SPDR healthcare sector fund (XLV) added 2.4%.
Reflecting more speculative stocks, ARK Innovation ETF (ARKK) climbed 7.7% and ARK Genomics ETF (ARKG) climbed 6.5%. Tesla stock remains a major holding in Ark Invest’s ETFs.
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Market rally analysis
The stock market rally made a big bullish move in volume on Wednesday on comments from Fed Chief Powell.
The S&P 500 index rebounded near its 21-day line to break above the 4,000 level and cross above its 200-day line for the first time in seven months.
The Nasdaq composite, the laggard of the market rally, led the rise on Wednesday. It recovered its 21-day line and the 11,000 level to settle at a two-month closing high. Shares of Apple, Microsoft, Google, Nvidia and Tesla posted strong gains on Wednesday, but it’s unclear which of them will be the current uptrend leader.
The Russell 2000, which had undermined its 21-day intraday line, rebounded to resume its 200-day line. The Dow, which led the current market rally, is back to a new seven-month high.
The advancers beat the losers with large-scale gains. Many top stocks that had come under pressure firmed on Wednesday.
Although there was plenty of positive action on Wednesday, the S&P 500 remains below its 200-day moving average. Thursday’s October PCE inflation report and Friday’s November jobs report could reinforce Wednesday’s bullish bounce or trigger a bearish retreat.
Keep in mind that the current market rally saw many big gains in one day, but then struggled to progress over the next few days or weeks.
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What to do now
The stock market rally had a strong session, with major indices and stocks making encouraging moves.
Investors were likely tempted to increase their exposure on Wednesday, and that could work.
But there are still good reasons not to increase exposure yet. The S&P 500 is above its 200-day line, but not decisively. This would likely mean going over a long falling trendline on a weekly chart. Breaking decisively above this zone could be a strong signal that the current uptrend is more than a bear market rally.
But that will require a positive reaction to the upcoming PCE inflation data and jobs report.
Investors should work hard on their watchlists, looking at promising stocks from various sectors. But definitely stay engaged. The market rally could be at a turning point, but which way will it turn.
Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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