Dow Jones futures were little changed overnight, along with S&P 500 futures and Nasdaq futures. Salesforce.com headlined overnight gains, but investor attention will turn to Thursday’s PCE inflation report after Fed Chair Jerome Powell sparked a tech-led stock market rally on Wednesday.
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Fed chief Powell on Wednesday said he had more clear support for a smaller hike at the upcoming meeting, suggesting the pace of rate hikes could begin to slow at the December meeting. But Powell remained optimistic that the federal funds rate would be 5% or more. The current Fed funds rate range is 3.75%-4%. Powell also noted that many of the drivers of inflation are diminishing. Suggesting a recession may be necessary, the Fed chief said a “soft landing” was still possible.
Paved the way with Nasdaq apple (AAPL), Microsoft (MSFT), Nvidia (NVDA), Tesla (TSLA) and parent Google Alphabet ( GOOGL ) all beat the composite. Notably, the S&P 500 rose to clear the 200-day moving average, a key area of resistance.
Investors will receive October’s PCE price index on Thursday, with the November jobs report due Friday morning.
So while Wednesday’s move was encouraging, investors should wait for the market’s reaction to the Fed’s critical data.
Basic Earnings
Salesforce.com (CRM), Snowflake (SAR) and Box (BOX) has led a series of software earnings reports. Clean Storage (PSTG) and Victoria’s Secret (VSCO) also released information.
CRM shares fell sharply in overnight trade as Salesforce’s earnings fell flat, but guidance was light. Co-CEO Bret Taylor will step down and Marc Benioff will remain as sole CEO. The SNOW fund initially went long due to weak Snowflake earnings guidance, but has pared losses significantly. Box stock was little changed as EPS just rose and sales missed a bit.
PSTG shares rose modestly overnight after Pure Storage beat Q3 views and raised guidance. Shares closed down about 1% after falling on the day on weak results and guidance NetApp (NTAP). VSCO shares fell slightly as Victoria’s Secret’s earnings peaked, but sales fell short.
early Thursday, Dollar General (DG) and Kroger (KR) is available. Chinese EV manufacturers Nio (NIO), Lee Auto (LI) and Xpeng ( XPEV ), with those stocks and other Chinese names reporting higher November sales on Wednesday on hopes of a Covid reopening.
Inflation Report
The Commerce Department will release the PCE price index, the Fed’s favorite inflation gauge, at 8:30 a.m. as part of its income and spending report.
The October PCE price index should show an increase of 0.4% compared to September. Year-over-year PCE inflation should cool to 6% from September’s 6.2%. Core PCE, which excludes food and energy, is expected to increase by 0.3%. The core PCE inflation rate is seen falling to 5% from 5.1% in September.
The PCE inflation report, along with Friday’s November jobs report, will help shape Fed rate hike expectations. The November consumer price index will be released on December 13, a day before the announcement of the Fed’s December meeting.
Earlier Wednesday, ADP reported that private sector hiring fell sharply in November. Also, the JOLTs survey showed that jobs fell more than expected in October. Q3 GDP growth was revised higher than expected, along with the report’s inflation measure.
Dow Jones Futures today
Dow Jones futures were flat against fair value, CRM stock dragged on blue chips. S&P 500 futures were up 0.1%, while Nasdaq 100 futures were up 0.1%.
Remember that an overnight move in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join IBD’s experts as they analyze the stocks that made the most of the stock rally on IBD Live
Stock market rally
The stock market rally was mixed for much of the session on Wednesday, after comments from Fed Chair Powell began and closed at session highs.
The Dow Jones Industrial Average rose 2.2% in stock market trading on Wednesday. The S&P 500 rose 3.1%. The Nasdaq composite rose 4.4%. The small-cap Russell 2000 rose 2.7%.
Apple shares rose 4.9% and Google shares gained 6.1%, both hitting 50-day highs. Microsoft shares and Nvidia have already breached their 50-day lines, jumping 6.2% and 8.2%, respectively. Tesla shares retook their 21-day line, rising 7.7%.
US crude oil prices rose 3% to $80.55/barrel, but fell 6.9% for the month. Hopes of a Chinese Covid reopening also lifted copper futures.
Treasury Yields And Fed Interest Rate Hikes
The 10-year Treasury yield fell 5 basis points to 3.7%. The two-year Treasury yield, which is more closely tied to Fed policy, fell to 4.33%, despite Powell’s expectation of a peak fed funds rate of at least 5%.
The probability of a 50 basis point Fed rate hike after Tuesday is around 79% to 66%. Markets still see another half-point move in February as a slight favorite, but the probability of a quarter-point move has crossed 45%.
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ETFs
Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) gained 1.8% and the Innovator IBD Breakout Opportunities ETF ( BOUT ) gained 2%. The iShares Expanded Tech-Software Sector ETF ( IGV ) gained 4.4% with both core components Microsoft and CRM stocks. The VanEck Vectors Semiconductor ETF ( SMH ) jumped 5.7%, with Nvidia shares the top gainer.
The SPDR S&P Metals & Mining ETF ( XME ) rose 3.75%, while the Global X US Infrastructure Development ETF ( PAVE ) rose 2.4%. The Energy Select SPDR ETF (XLE) rose 0.5%, while the Financial Select SPDR ETF (XLF) rose 1.7%. The Healthcare Select Sector SPDR Fund ( XLV ) added 2.4%.
Reflecting more speculative story stocks, the ARK Innovation ETF ( ARKK ) gained 7.7% and the ARK Genomics ETF ( ARKG ) rose 6.5%. Tesla stock remains a key holding in Ark Invest’s ETFs.
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Market rally analysis
Stocks rallied on Wednesday with a big, bullish move on heavy volume on Fed Chair Powell’s comments.
The S&P 500 rebounded from near its 21-day line to reach 4,000 and broke above its 200-day line for the first time in seven months.
Lagging the market rally, the Nasdaq composite led gains on Wednesday. It recovered its 21-day line and the 11,000 level to reach its two-month closing high. Shares of Apple, Microsoft, Google, Nvidia and Tesla posted strong gains on Wednesday, but it’s not clear that any of them will lead the current rally.
The Russell 2000, which broke its 21-day line during the day, bounced back to retrace its 200 day. The Dow Jones, which led the current market rally, returned to a seven-month high.
Advancers beat losers with broad-based gains. Many leading stocks under pressure firmed on Wednesday.
While 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 fuel Wednesday’s bullish bounce or trigger a bearish pullback.
Note that the current market rally has seen many large one-day gains, but has struggled to carry forward 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 leading stocks making encouraging moves.
Investors likely wanted to increase exposure on Wednesday, and doing so may have paid off.
But there still remain good reasons not to increase exposure. The S&P 500 is above its 200-day line, but not decisively. Doing so would likely mean reaching long, declining highs on the weekly chart. A decisive break above this area can 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 feverishly on their watchlists, looking at promising stocks from various sectors. But definitely stay engaged. The market rally may be at a turning point, but which way will it turn?
Read The Big Picture daily to stay in sync with market direction and leading stocks and sectors.
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