Dow Jones futures tilted higher early Friday, while S&P 500 futures and Nasdaq futures rose further, amid volatile overnight trading. Tesla headlined key earnings after hours, while investors continue to mull a hawkish Fed.
The stock market erased sharp intraday gains Wednesday while Treasury yields jumped after the Federal Reserve said it "expects" to raise interest rates soon with Fed chief Jerome Powell signaling that aggressive rate hikes and balance sheet cuts are coming.
The major indexes closed off the very worst levels and didn't undercut Monday's lows, but it was another disappointing session for the unproven stock market rally attempt.
Microsoft had fueled market gains and optimism before the Fed decision. MSFT stock rebounded back above its 200-day moving average, even though it closed near session lows.
Tesla earnings comfortably beat views late Wednesday. Tesla stock edged lower in volatile overnight trade.
Meanwhile, Seagate Technology, Lam Research, Teradyne, Intel, Silicon Motion Technology, United Rentals, Ameriprise Financial, Vertex Pharmaceuticals, Edwards Lifesciences and ServiceNow also reported earnings late Wednesday.
STX stock and ServiceNow were notable winners overnight, while Edwards, LRCX stock, Silicon Motion and especially Teradyne were losers.
Tesla stock and Microsoft are on IBD Leaderboard. Microsoft and NOW stock are on IBD Long-Term Leaders.
Fed Meeting
The Fed meeting ended Wednesday afternoon with policymakers signaling a March rate hike, saying "it will be soon be appropriate." Asset purchases will wind down in early March, as planned, despite some speculation that bond buys could end in February.
Fed chief Jerome Powell followed up in his press conference, saying there's "quite a bit of room" to raise rates without hurting the job market. He wouldn't rule out raising rates at every meeting in 2022, starting in March.
Powell once again said the Fed could move soon and faster to cut its huge balance sheet than during the last cycle, saying the economy is stronger now. He stressed that the Fed has not made any decision about speed or timing of any balance sheet cuts, but said they will come after the first rate hike.
Powell didn't say anything surprising, but he sounded like a Fed chief focused on fighting high inflation, not bending over backward to soothe jittery markets.
The 10-year Treasury yield rose 7 basis points to 1.85%, mostly as Powell spoke. That's slightly below the two-year high of 1.87% set on Jan. 19. The 2-year Treasury yield jumped 13 basis points to 1.15%, as the yield spread continues to narrow.
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Dow Jones Futures Today
Dow Jones futures were up 0.2% vs. fair value, swinging between modest gains and losses all morning. S&P 500 futures climbed 0.5%. Nasdaq 100 futures rose 0.7% after tumbling nearly 2% Wednesday night.
The 10-year Treasury yield dipped 2 basis points to 1.83%, but the 2-year yield continue to run up, adding 4 basis points to 1.19%.
Crude oil futures rose slightly, continuing their strong advance into multiyear highs.
At 8:30 a.m. ET, the Commerce Department will release its first estimates for fourth-quarter GDP growth. The Labor Department will release weekly jobless claims.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
That's especially true during market corrections and new rally attempts. Dow Jones futures have been more volatile, with regular-session action showing wild intraday swings.
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Stock Market Rally
The stock market rally rose solidly for much of the session, as Microsoft led the way. The major indexes hit session highs shortly after the Fed meeting announcement at 2 p.m. ET, but then soon pulled back, erasing gains and turning negative on Fed chief Powell's hawkish comments.
The Dow Jones Industrial Average fell 0.5% in Wednesday's stock market trading. The S&P 500 index retreated 0.15%. The Nasdaq composite closed just above break-even. The small-cap Russell 2000 tumbled 1.5%.
Among the best ETFs, the Innovator IBD 50 ETF dipped 0.1%, while the Innovator IBD Breakout Opportunities ETF also edged down 0.1%. The iShares Expanded Tech-Software Sector ETF fell just over 1%, even with Microsoft stock a major component. NOW stock also is a key holding. The VanEck Vectors Semiconductor ETF rose 1.4%. Intel and LRCX stock are notable SMH components.
Reflecting more-speculative story stocks, ARK Innovation ETF retreated 2.5% and ARK Genomics ETF 2.25%. Tesla stock remains the No. 1 holding across ARK Invest's ETFs.
SPDR S&P Metals & Mining ETF slumped 2.6% and Global X U.S. Infrastructure Development ETF fell 0.9%. U.S. Global Jets ETF descended 0.7%. SPDR S&P Homebuilders ETF gave up 2.4%. The Energy Select SPDR ETF dipped 0.2% and the Financial Select SPDR ETF edged up 0.3%. The Health Care Select Sector SPDR Fund declined 0.5%.
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Tesla Earnings
Tesla earnings and revenue comfortably beat Wall Street views. CEO Elon Musk said supply chain issues were the "main limiting factor" for growth in 2021. Tesla navigated supply chain woes in 2021 better than most automakers, many of which saw noticeable production declines due to chip shortages and more.
Tesla continues to expect 50% deliveries growth annually over the next several years, easily beating that mark in 2021 with an 87% jump.
Musk on the earnings call said the Austin and Berlin plants are nearly ready to begin customer deliveries. He said Tesla will pick locations for additional production facilities by year-end.
He also expects Tesla to achieve full self-driving robotaxis this year, a claim he's made for several years.
Musk said there will be no Cybertruck or any other new models in 2022, confirming widespread reports. He said the Cybertruck "hopefully" will be out in 2023. That means it'll be roughly three years between new Tesla vehicles, following the Model Y in early 2020.
Musk also said Tesla is not currently working on a $25,000 fully autonomous vehicle.
Musk said Tesla will deliver some vehicles, presumably Model Y crossovers, with 4680 battery packs. But it's unclear if that means Tesla has solved technical hurdles with mass producing 4680 battery cells, or if it's just installing a couple of 4680 packs as a quasi-demonstration.
Tesla stock edged lower early Thursday, after falling and rising solidly Wednesday evening. Shares rose 2.1% to 937.41 on Wednesday, after hitting 987.69 intraday. TSLA stock is in a consolidation with a 1,243.49 buy point, but it could offer various earlier entries.
Other Earnings
Lam Research earnings narrowly beat, but the chip-gear giant missed on sales and gave weak guidance. LRCX stock fell solidly.
Teradyne earnings beat views, but the chip-equipment maker guided well below consensus for Q1, citing a "slower technology transition in one of our major end markets." TER stock crashed.
Intel earnings topped views, but INTC stock fell modestly overnight on weak profit guidance.
Seagate earnings slightly topped views, with the memory play raising 2022 sales guidance. STX stock jumped in extended trade.
ServiceNow earnings exceeded forecasts. NOW stock leapt in late action.
Edwards Lifesciences earnings and revenue missed views, while guidance also was light. EW stock sank.
Ameriprise earnings topped views and the financial firm announced a $3 billion stock buyback. AMP stock was not active.
Vertex earnings easily beat with the biotech guiding higher. VRTX stock climbed slightly overnight.
United Rentals earnings topped consensus. URI stock rose modestly in extended action.
Silicon Motion earnings exceeded estimates, but Q1 guidance was light. SIMO stock fell solidly overnight.
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Market Rally Analysis
The stock market fell into a correction in 2022 in no small part due to Fed tightening fears. So it's not a shock to see the nascent rally attempt erase hefty gains following hawkish Fed comments, but it is disappointing.
The Nasdaq, up more than 3% intraday to just above the 14,000 level, retreated but did eke out a gain thanks to Microsoft and Tesla. The S&P 500 index hit resistance around the 200-day line, moving from a 2.2% intraday gain to a slim loss.
Even at session highs, none of the major indexes has even approached the 10-day moving average.
Investors can still look for a follow-through day to confirm the new stock market rally attempt. A follow-through day, which involves strong price gains on one or more of the major indexes in higher volume than in the prior session, signals big institutions are willing to support the new uptrend.
But while off their Monday lows, the major indexes are all down for the week, hardly the sign of a powerful new rally.
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What To Do Now
The whipsaw action of the past few days has offered powerful bounces in short periods, but also big sell-offs. Without a crystal ball, it's hard to pick safe entries for stocks or ETFs.
Microsoft stock arguably offered an entry as a Long-Term Leader from the 200-day line, though the close wasn't inspiring. Most tech stocks look heavily damaged after near-vertical dives. Highly valued growth stocks are especially weak, though Tesla stock has avoided breaking down.
Energy stocks are clear leaders, despite pullbacks Wednesday. Many are already extended with crude oil prices surging to multiyear highs.
Among shipping stocks, Matson broke out of a base while Zim Integrated Shipping reclaimed a prior buy point after triggering the 7%-8% sell rule on Monday. More broadly, a number of shipping stocks on land also look interesting.
Financials have struggled in recent weeks, but haven't broken down. Still, a flattening yield curve isn't good for banks' lending margins.
Definitely work on your watchlists, trying to find stocks that are setting up potential entries. Keep in mind that earnings season remains in full force, with a little fruit peddler by the name of Apple reporting Thursday night.
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