Dow Jones Futures: Market Rises Strong as Powell Hints at Slower Fed Rate Hikes, But Watch Out for ‘Day 2’

Dow Jones futures fell slightly overnight along with S&P 500 futures and Nasdaq futures, with Meta Platforms and Qualcomm reporting gains.




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The stock market rally saw big gains on Wednesday after the Federal Reserve raised interest rates by 75 basis points for a second consecutive meeting. Fed chief Jerome Powell said policymakers are aiming to slow the pace of road tightening, even as the economy remains stressed and inflation is focused.

Major indices were already slightly to strong higher, fueled by positive reactions to earnings from Microsoft (MSFT), Google parent Alphabet (GOOGL) and Enphase Energy (ENPH).

sen. Joe Manchin, DW.V., announced a deal late Wednesday with Senate Leader Chuck Schumer on a tax, climate and energy reconciliation bill. The deal, which may face a number of hurdles, includes a minimum corporate tax rate of 15%, drug price controls, increases in the ObamaCare subsidy, and pro-solar and green energy supplies.

Fed meeting

The Federal Reserve raised interest rates by 75 basis points on Wednesday afternoon, raising interest rates to a target of 2.25%-2.5%.

The central bank lowered its view on the economy slightly, noting that “spending and production have softened”. But “job numbers have been robust” while “inflation remains high”.

Speaking after the Fed meeting, Fed chief Powell emphasized that policymakers are “committed to cutting inflation”. He said the economy is “resilient” and labor markets are “extremely tight”.

Powell said it will likely be “appropriate” to delay Fed rate hikes as they become “more restrictive”. He expects Fed rates to be “moderately restrictive” by the end of the year, which he believes would be between 3 and 3.5%.

Following the Fed’s rate hike and Powell’s comments, the likelihood of a 50 basis point move on Sept. 21 rose to 56% from about 50-50 before the Fed’s announcement. Beyond that, markets expect modest moves in the last two Fed meetings of the year, to close the year around 3.25%-3.5%.

Main income

Metaplatforms (META) and Qualcomm (QCOM) headlined top earnings, with chip equipment maker Lamb Research (LRCX), Service now (NOW), O’Reilly Auto (ORLY), Ford Motor (F) and Teladoc Health (TDOC) also reports late Wednesday.

Meta-shares pulled back sharply after the Facebook parent company lost revenue, reported its first-ever revenue decline and bottomed out.

Qualcomm shares fell modestly overnight on weak earnings guidance.

The LRCX share fell slightly after better-than-expected quarterly results.

NOW shares plummeted as the business software giant cut its subscription revenue guidance after slightly beating second-quarter displays.

Ford shares skyrocketed after easily beating the displays, with a 423% gain in earnings per share.

ORLY shares fell after earnings disappointed and the auto parts retailer fell.

TDOC shares plunged after the telemedicine specialist headed towards the low end of its full-year targets. Teladoc reported a huge loss in the second quarter due to a large write-down, although sales slightly outperformed.

In the meantime, Best Buy (BBY) lowered its full-year forecast, citing weaker consumer spending amid high inflation. BBY shares fell modestly.

early thursday, Pfizer (PFE) and Merck (MRK) are on tap. Pfizer stocks are near a trendline entry. Merck stocks are trading near the 50-day line as it consolidated over the past two months.

late Thursday, Apple (AAPL) and Amazon.com (AMZN) are on tap. Apple shares are modestly below the 200-day mark after breaking past the 50-day mark earlier this month. AMZN shares are also slightly above the 50-day line.

Dow Jones Futures Today

Dow Jones futures fell 0.1% from fair value. S&P 500 futures fell 0.1%. Nasdaq 100 futures lost 0.3%.

At 8:30 a.m. ET, the Department of Commerce will announce its second-quarter GDP. Economists expect a 0.5% year-on-year gain, after a 1.6% decline in the first quarter. A back-to-back decline in GDP would not officially mean a recession in the US. Economists at the National Bureau of Economic Research decide changes in the business cycle, usually long after.

Keep in mind that an overnight action in Dow futures and elsewhere does not necessarily lead to actual trading in the next regular trading session.


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stock market rally

The stock market rally intensified on Wednesday, led by big tech gains, then added to gains on the Fed’s decision to hike rates and comments from Fed chief Powell.

The Dow Jones Industrial Average rose 1.4% in Wednesday’s stock market trading. The S&P 500 index fell 2.6%. The Nasdaq composite rose 4.1%. The small cap Russell 2000 won 2.3%.

The price of crude oil in the US rose by 2.4 percent to $ 97.26 a barrel. Natural gas futures were down 3.4%.

ETFs

Among the top ETFs, the Innovator IBD 50 ETF (FFTY) was up 2.3%, while the Innovator IBD Breakout Opportunities ETF (BOUT) was up 1.1%. The iShares Expanded Tech-Software Sector ETF (IGV) rose 4.3%, with Microsoft stocks a major component. The VanEck Vectors Semiconductor ETF (SMH) rose 4.7%, with QCOM stocks and Lam Research leading the way.

SPDR S&P Metals & Mining ETF (XME) gained 3.4% and the Global X US Infrastructure Development ETF (PAVE) rose 2.1%. US Global Jets ETF (JETS) rose 3.1%. SPDR S&P Homebuilders ETF (XHB) climbed 2.1%. The Energy Select SPDR ETF (XLE) bounced 2.3% and the Financial Select SPDR ETF (XLF) 1.5%. The Health Care Select Sector SPDR Fund (XLV) rose 0.6%, with large stocks from Pfizer and MRK.

As a result of more speculative story stocks, ARK Innovation ETF (ARKK) rose 6.7% and ARK Genomics ETF (ARKG) rose 3.9%.


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Meta-revenue

The earnings and revenues of its parent Facebook platform Meta Platform were disappointing, with the social media giant also experiencing low revenue in the third quarter.

Meta shares fell 4.5% in overnight action. Shares rose 6.55% to 169.58 on Wednesday, fueled by Google earnings and the general market rally. META shares had sold 13% in the previous three sessions after the weakness snap (SNAP) report and guidance.

Qualcomm earnings

Qualcomm’s earnings and earnings were slightly better than fiscal third quarter earnings and earnings, although gross margin was a little light. The wireless chip giant also had low sales in the fourth quarter.

QCOM shares fell 3% in extended trading. Shares rose 2.3% in Wednesday’s trading to 153.42 and failed to break past the 200-day line.

Market rally analysis

The stock rally made big gains on Wednesday after some noticeable losses over the past few sessions. The Nasdaq and S&P 500 recovered from nearly their 50-day lines.

But watch out for a day two reaction. Major indices also rose after the previous two Fed meetings, but were sold the next day.

While investors on Wednesday welcomed Powell’s somewhat deaf hints, they could focus on why Fed rate hikes could be slowing, which is a weak economy. That makes that second-quarter GDP report particularly important.

Meanwhile, moving above last week’s highs will be the next test for major indices, followed by the early June highs.

There are still not many stocks to buy. Growth stocks may be sticking out of three-day consolidations, but often within ugly charts.

It was encouraging to see Microsoft and Google bounce back strongly despite missing earnings figures. Combat-Sealy (TPX) recovered despite weak results and reduced guidance.


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What to do now

With the Fed meeting and many big gains out of the way, some of the hyper-uncertainty faced by investors is easing. The market rally that has endured this week of news so far is definitely positive.

There could still be a reversal of the Fed meeting on “day two.” Also, Apple and many others are still reporting this week, along with GDP data and other key economic reports.

With a limited number of great stocks in position, investors may want to increase their exposure through broad market or sector ETFs.

But if the market continues to improve, buying opportunities will arise and new positions will yield solid profits. So work on your watchlists.

Read The Big Picture every day to stay up to date on market direction and leading stocks and sectors.

Follow Ed Carson on Twitter at @IBD_ECarson for stock updates and more.

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