Dow Jones futures fell modestly on Thursday, S&P 500 futures and especially Nasdaq futures rose with parent company Facebook Meta platforms (META) rose on its earnings report. It followed a big day for the stock market rally as investors cheered comments from Fed chief Jerome Powell.
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Mother of Apple, Amazon and Google Alphabet (GOOGL) is clicked.
Major indexes rose again on Wednesday, rising after the long-awaited Fed meeting and especially Fed chief Powell. The Federal Reserve raised rates by a quarter point and said it still sees “continued hikes” ahead. Powell backed that up, but said it was “a good thing” and “encouraging” that inflation was falling even without labor markets weakening.
Wednesday’s market rally mostly cleared key levels, with many stocks out or giving other buy signals, including the Chinese search and AI giant. Baidu (BIDU), a chip-gear manufacturer Lam Research (LRCX), a maker of network monitoring software Dynatrace (DT), Delta Airlines (DAL) and more.
Basic Earnings
Meta Platforms’ gains were short-lived, but revenue, sales guidance and Facebook user views overlapped. It also announced a $40 billion share buyback. The parent of Facebook and Instagram cut its forecast for expenses, including capital expenditures. META shares rose 19% after hours. Shares rose 2.8% to 153.12 in Wednesday’s session, clawing back the 200-day line for the first time in more than a year and retracting weak earnings guidance. Snap (SNAP).
Gorvo (QRVO) beat its fiscal 3rd quarter earnings. However, like many other chip stocks, Qorvo fell sharply for the current quarter. Shares of QRVO fell 3% in extended trading. Shares of the 5G and Apple iPhone chipmaker rose 4.5% to 113.53 on Wednesday.
ELF Beauty ( ELF ) crushed earnings views and comfortably beat revenue. EPS doubled, growth accelerated in the third quarter. Sales increased 49%, accelerating for the fourth quarter in a row. The cosmetics manufacturer also took the lead. ELF shares surged 16% to a record high overnight. Shares rose 1.8% to 58.58 on Wednesday, just off a record high set on Jan. 6.
early Thursday, Merck ( MRK ) modestly beat Q4 views, but guided downwards in 2023 EPS. Eli Lilly ( LLY ) beat earnings views but missed sales, but rose slightly in 2023 EPS. Bristol Myers Squibb (BMY) beat. MRK shares fell sharply. LLY shares declined modestly. BMY rose slightly.
Big pharma, which performed well in the bear market of 2022, is lagging behind today, leading to growth in the 2023 market rally. LLY shares are below their 50-day moving averages, Merck and Bristol Myers.
late Thursday apple (AAPL), Amazon.com (AMZN) and Google report. All recover in 2023, but below the 200-day line. GOOGL shares and Amazon rose more than 4% overnight in favor of the Meta.
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Dow Jones Futures today
Dow Jones futures were down 0.4% at fair value, MRK shares and Honeywell (HON) acts as drag. S&P 500 futures rose 0.4%. Nasdaq 100 futures rose 1.25%, led by META shares, along with shares of Google and AMZN. Tesla (TSLA) was also helped by gains in Blackstone, which disclosed a large TSLA stake.
Meanwhile, the Bank of England raised rates by 50 basis points on Thursday morning. The European Central Bank is also expected to do so before the US markets open.
Remember that an overnight move in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular trading session.
The Fed’s rate hike continues
As expected, the Fed raised interest rates by a quarter point on Tuesday, raising the Fed funds rate to 4.5% to 4.75%. That follows the Fed’s half-point rate hike in December and four straight 75-basis-point moves before that.
The Fed’s policy statement said policymakers still expect “continued increases” in the Fed funds rate, a clear signal that the Fed’s rate hikes are far from over.
“Good thing” from Fed Chair Powell
Fed chief Jerome Powell backed that up, saying “there’s more work to be done” and then saying “we’re talking about a few more rate hikes.” He added that labor markets remain “extremely tight”.
However, Powell also said that “the process of disinflation has begun.” He noted that inflation had come down even before business conditions eased significantly, saying that was “a good thing” and “encouraging”. He also said that politicians “do not have the desire or desire to become too strict”.
The statement sparked a rally in the afternoon.
On Wednesday morning, the Labor Department reported that job creation reached 11.01 million, well above views. The January job report is available on Friday. But Powell’s comments suggest that markets may not be as fixated on labor data as they have been.
The market overwhelmingly expects another quarter-point rate hike by the Fed at the end of March, with odds rising slightly to 86% on Wednesday.
But despite Powell’s support for “a few more” hikes, investors are still leaning toward a culmination of the Fed’s rate hike in March. That would leave the Fed funds rate at 4.75%-5%, below the Fed’s forecast of 5%-5.25%.
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Stock market rally Wednesday
Stocks rallied modestly ahead of the Fed news, but rallied as Fed chief Powell spoke.
The Dow Jones Industrial Average was slightly higher in stock trading on Wednesday, but after falling more than 1% on the day before the Fed’s announcement. The S&P 500 rose just over 1%. The Nasdaq composite rose 2%. The small-cap Russell 2000 gained 1.5%.
U.S. crude oil prices fell 3.1% to $76.41 a barrel as domestic crude inventories rose for a sixth week. Natural gas prices fell 8%, continuing their epic slide. Copper futures fell 2.8%, settling ahead of the Fed’s rate hike announcement.
The 10-year Treasury yield fell 13 basis points to 3.4%. The two-year Treasury yield, which is more closely tied to Fed policy, fell 10 basis points to 4.11%. This is significantly lower than the current federal funds rate.
The US dollar has fallen to an eight-month low.
ETFs
Among rising ETFs, the Innovator IBD 50 ETF ( FFTY ) rose 1.5%. The iShares Expanded Tech-Software Sector ETF ( IGV ) rose 2.85%. VanEck Vectors Semiconductor ETF (SMH) rose 4.7%. Lam Research and AMAT shares are major SMH holdings, with QRVO also a component.
Reflecting more speculative story stocks, the ARK Innovation ETF ( ARKK ) sprinted 4.4%, while 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%, with DAL shares a key component. The SPDR S&P Homebuilders ETF ( XHB ) gained 2%. The Energy Select SPDR ETF (XLE) sank 2% and the Financial Select SPDR ETF (XLF) was flat. The Healthcare Select Sector SPDR Fund ( XLV ) rose 0.5%.
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Market rally analysis
Major indexes continued to build momentum with big gains after Fed Chair Powell began speaking.
The Nasdaq appears firmly above its 200-day moving average and late 2022 highs. The Russell 2000 has clearly cleared this level.
The S&P 500 also broke its 200-day line. The benchmark index also broke December highs.
Now the trailing Dow Jones tested its 200-day line before paring a slim gain.
Remember that the market often reacts to Fed meetings on the second day.
Meanwhile, the rest of the week remains packed with news. Big gains Thursday night for Apple, Amazon, Google, Qualcomm (QCOM), Ford Motor (F) and more with Friday’s January jobs report.
Over the past few weeks, the S&P 500’s biggest daily winners and losers have been dominated by earnings movers.
DT shares, OI Glass (OI), Stryker (SYK) and Atkore (ATKR) broke out of an earnings base on Wednesday.
But there was plenty of good action without earnings on Wednesday, especially after Fed Chair Powell’s remarks.
LRCX stock and other equipment giant Applied materials (AMAT) came out of bottom bases, DAL reserve and JB Hunt Transport Services (JBHT) and Performance Food Group (PFGC) cleared the traditional points of purchase. BIDU shares also crashed.
Arista Networks (ANET), Clean Storage (PSTG) and Global Foundries (GFS) cleared all early entries on Wednesday. However, Meta Platforms’ reduced capital plans could hurt Arista and Pure Storage. ANET shares fell slightly after a few hours.
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What to do now
The stock market rally continues to strengthen higher with Nasdaq, Russell 2000 and leading stocks. While there is increasing clarity on the central bank’s endgame, the Fed meeting is off track.
There is growing evidence that the current market rally will be a sustained uptrend.
Thus, investors could add new positions on Wednesday, taking advantage of the fresh crop of buying opportunities. It is still wise to do this gradually without buying for a long time or concentrating too much. If this market rally has legs, the steadily increasing exposure can quickly get you fully invested or out. If this market rally stumbles, even briefly, you won’t get caught. With Apple and Google earnings coming up in 2023 and the Nasdaq performing so quickly, a pullback wouldn’t be a surprise.
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