Dow Jones futures were little changed overnight, along with S&P 500 and Nasdaq futures, as attention turned to Wednesday’s Federal Reserve meeting and whether policymakers will confirm or dash the Fed’s pivot hopes.
The stock market rally reversed from early gains on Tuesday as stronger-than-expected economic data was not what the Fed wanted to see. Megacap techs continue to weigh on the indices, in particular the Nasdaq. Amazon.co.uk (AMZN) and parent company of Google Alphabet (GOOGL) fell to fresh bear market lows as Apple (AAPL) and Microsoft (MSFT).
Advanced micro-systems (AMD), lithium producer Livent (LTHM), drug dispenser McKesson (MCK), Paycom software (PAYC), and shale oil and gas producer Devon Energy (DVN) headlined major earnings overnight.
AMD stock rose despite weak results. Livent fell because revenue growth was not high enough. Devon Energy shares fell on a dividend but. PAYC stock edged higher on strong earnings while MCK stock was yet to trade after mixed results.
DVN stock is on IBD 50.
Meanwhile You’re here (TSLA)rival BYD (BYDDF) will announce October sales soon, after mediocre at best shipments from Nio (NIO), Li-Auto (LI) and Xpeng (XPEV). BYD stock rose 2.6% on Tuesday, while Tesla stock closed up 0.1%, both off intraday highs.
The Federal Reserve is expected to raise rates by 75 basis points for a fourth consecutive meeting. But the market is split on whether policymakers will raise rates by 50 or 75 basis points in December.
Some relatively subdued inflation data and various central bank decisions around the world – including a few hints from Fed officials – bolstered hopes of a Fed pivot to lower rate hikes.
The Fed’s policy statement is due out at 2 p.m. ET on Wednesday, with Fed Chief Jerome Powell’s press conference at 2:30 p.m. Investors will be on the lookout for any hints of a pivot from the Fed. Powell may not want to give clear signals to maintain maximum flexibility.
The Fed chief will likely include caveats on reacting to key data. The October jobs report is due Friday, following a stronger than expected September JOLTS survey.
Dow Jones Futures Today
Dow Jones futures lost a fraction of fair value. S&P 500 futures fell slightly and Nasdaq 100 futures were flat.
Remember that overnight action on futures contracts on Dow Jones 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 retreated on Tuesday. Major indexes opened solidly higher, fueled by falling Treasury yields and unconfirmed rumors that China may be moving towards a relaxation of its strict zero-Covid policy.
But as of 10 a.m. ET, job gains surged unexpectedly in September, while the ISM manufacturing index remained above the breakeven point of 50 in October. Treasury yields rebounded and stocks quickly fell.
The Dow Jones Industrial Average plunged 0.2% in trading on Tuesday. The S&P 500 index fell 0.4%. The Nasdaq composite fell 0.9%. The small-cap Russell 2000 rose 0.25%, its eighth straight advance.
Amazon stock slipped 5.5%, undercutting Friday’s low to the worst level since April 2020. That’s after plunging 13% last week on earnings. AMZN stock has fallen for five consecutive sessions in heavy volume.
Google stock fell 4.3% at its worst since January 2021, after slipping 4.8% last week.
Apple stock fell 1.75% from near its 200-day line to close just below its 50-day line. AAPL stock jumped 5.75% last week.
Microsoft stock fell 1.7%, not far from bear market lows. MSFT stock fell 2.6% last week.
The 10-year Treasury yield fell 3 basis points to 4.05%, but ended near session highs. The 10-year yield fell to 3.955% shortly after the open, but again found support at its 21-day moving average. The US dollar pared its early losses.
U.S. crude oil prices rose 2.1% to $88.37 a barrel. Crude futures rose on hopes that China will adjust its Covid policies, along with a report that the Saudis are on high alert for an Iranian attack. Natural gas futures plunged 10% after climbing nearly 12% on Monday.
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Among the top ETFs, the Innovator IBD 50 ETF (FFTY) climbed 0.6%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 1.3%, with MSFT stock a core holding. The VanEck Vectors Semiconductor (SMH) ETF rose 0.7%, with AMD stock a major contributor.
The SPDR S&P Metals & Mining ETF (XME) gained 1.5% and the Global X US Infrastructure Development ETF (PAVE) gained 0.6%. ETF Energy Select SPDR (XLE) rose 1%, with DVN stock among the top 10 holdings. The SPDR health care sector fund (XLV) edged up 0.1%.
Reflecting more speculative history stocks, ARK Innovation ETF (ARKK) rose 1 cent while ARK Genomics ETF (ARKG) climbed 1.3%
Tesla stock is a major holding in Ark Invest’s ETFs. Mass production of Tesla Cybertruck will begin in late 2023, Reuters reported early on Tuesday.
Cathie Wood’s Ark owns a small stake in shares of BYD. Sales of electric vehicles and plug-in hybrids from BYD topped Tesla’s total, although the US giant still leads in all-electric “BEV” deliveries.
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AMD’s earnings and sales slightly missed falling views, after the chip giant reported preliminary earnings well below consensus. AMD also reported fourth-quarter revenue to be slightly below consensus, but up about 14% year-over-year.
AMD stock jumped 4% in overnight trade. Shares fell 0.7% to 59.66 on Tuesday. AMD stock rebounded slightly from the October 13 bear market low at 54.57, but not by much.
Nvidia (NVDA), which competes with AMD in graphics chips, edged higher in after-hours trading.
Livent’s revenue skyrocketed topping views, but revenue fell narrowly despite doubling from a year earlier. LTHM stock fell 6% in extended action. The shares lost 0.8% to 31.33 on Tuesday, reversing lower around its 50-day line. Livent stock has a buy point of 36.48 cups, according to MarketSmith analysis.
ALB stock, with a similar chart, fell slightly in limited after-hours trading. lithium giant Albemarle (ALB) reports late Wednesday.
Devon Energy’s earnings are top of mind, but the oil producer cuts its dividend by 13%. DVN stock fell 2.7% overnight. The shares edged down 5 cents on Tuesday to 77.30, holding within the range of a buy point of 75.37 cup with handle. DVN stock remains somewhat extended from a rising 50-day line.
Paycom’s revenue topped views, with revenue expectations also strong. PAYC’s stock was little changed in the extended trade. Shares fell nearly 1% on Tuesday to 342.72, just above the 50-day line and below a trendline. A strong post-earnings move could offer early entry. PAYC stock has a consolidation buy point of 402.88.
McKesson’s revenue narrowly missed while revenue edged higher. MCK stock was not yet trading overnight. Shares fell 1.85% to 382.16 on Tuesday, but remain within the fixed-base buy point range of 375.33. This flat base is part of a base-on-base model.
Cardinal Health (CAH), which reported Friday, was also not trading after regular business hours. CAH stock is slightly extended from a buy point.
Market rally analysis
Major indexes opened strongly, but fell on stronger than expected economic data.
The Dow Jones fell back below its 200-day line, while the Russell 2000 edged closer to the level. The S&P 500 still maintains the 50-day line, while the Nasdaq encounters resistance near this area.
Much of Tuesday’s weakness reflected weakness in AMZN stocks, Google and other megacaps.
The Invesco S&P 500 Equal Weight (RSP) ETF rose 0.2%, trading between the 200- and 50-day lines.
The rise in stocks led to declines on the NYSE and Nasdaq.
Investors shouldn’t think too hard about Tuesday’s market rally action ahead of the Fed meeting announcement and commentary from Fed chief Powell.
But major indices and stocks rallied largely in anticipation of a Fed pivot. If Powell delivers a hawkish surprise, the stock market rally could see a selloff.
Tuesday’s moves in the stock market and Treasury yields could pale next to the post-Fed reaction.
The post-Fed reaction could continue, or even reverse, on Thursday. Friday’s jobs report is also likely to disrupt markets.
Major stocks showed mixed action, with strong earnings still driving individual names up or down.
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What to do now
The stock market rally appears to be in good shape on a technical basis, despite Tuesday’s downside reversal.
Investors should probably wait to add exposure after the Fed’s rate hike and Powell’s comment. They could choose to reduce their exposure slightly ahead of Wednesday afternoon’s announcement depending on their risk tolerance.
Although the Fed meeting looks like a market recovery earnings report, don’t forget the actual earnings.
Earnings aren’t moving as much in the market as last week’s megacap releases, but are still having a huge impact on individual stocks.
The next few days will be decisive for the recovery of the market. So get your watchlists ready. Stay engaged and ready to add or reduce exposure.
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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