Dow Jones futures rose solidly early Thursday, along with S&P 500 futures and Nasdaq futures, with Treasury yields retreating, in part on U.K. government budget buzz. All eyes will soon turn to the September CPI inflation report.
The stock market was relatively quiet Wednesday ahead of Thursday's consumer price index, with the producer price index and Fed minutes having little impact. The major indexes, down slightly Wednesday, are close to bear market lows. But at least they avoided repeating their mistake of rallying into Fed-critical economic data.
Investors should be on the sidelines. Even the best stocks are struggling to tread water, and they can quickly go under.
Vertex Pharmaceuticals, among the strongest stocks, is falling back to its 50-day line. The VRTX stock chart is fine, but the biotech isn't making headway.
Meanwhile, two more EV-related plays broke hard Wednesday. Albemarle abruptly plunged with other lithium plays. ALB stock had been holding up well, on the edge of early buy signals. Aehr Test Systems tumbled, with the EV-exposed chip-gear giving up almost all of Friday's big earnings gap.
For its part, Tesla eked out a 0.3% gain, snapping a five-day losing streak. But Tesla stock is close to 52-week lows.
VRTX stock is on IBD Leaderboard and the IBD 50. Albemarle stock is on the Leaderboard watchlist. Both Vertex and ALB stock are on the IBD Big Cap 20.
Dow Jones Futures Today
Dow Jones futures jumped 1% vs. fair value. S&P 500 futures advanced 1% and Nasdaq 100 futures climbed 0.7%.
The 10-year Treasury yield fell 3 basis points to 3.87%.
Futures got an extra lift, while yields pulled back, amid reports that the U.K. government could scrap more of its mini-budget that had roiled the British pound and debt, spurring emergency Bank of England bond buying. The BoE has said bond buys will end Friday.
The pound jumped and U.K. yields tumbled.
The CPI inflation report is sure to swing Dow futures and Treasury yields.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
Key Earnings
Taiwan Semiconductor Manufacturing earnings and revenue topped third-quarter views. The world's largest chip foundry, which makes chips for Apple, Nvidia and many more, guided slightly higher for Q4 revenue.
TSM stock rose nearly 3% early Thursday. Shares climbed 1% on Wednesday, but were still down 8% this week, at two-year low. Weakness in PCs and other consumer electronics, along with increasing U.S. controls on chip exports to China, have slammed semiconductors.
Delta Air Lines, kicking off third-quarter results for airlines, slightly missed EPS views, at least partly due to Hurricane Ian. Revenue growth topped. Delta gave an upbeat Q4 forecasts, guiding EPS above forecasts.
DAL stock climbed 4% in premarket trade, but is not far from recent two-year lows.
Commercial Metals topped quarterly earnings views, setting the stage for steel and metal plays.
CMC stock was not yet trading early Thursday. Shares sank 1.3% on Wednesday, back below the 50-day moving average after testing a trendline Tuesday. If it weren't for the bear market and earnings on tap — two enormous ifs — CMC stock would be flirting with an early buy signal. Steel Dynamics, which reports next week, has similar chart action.
CPI Inflation Report
The Labor Department will release its September consumer price index at 8:30 a.m. ET. Economists expect the overall consumer price index to rise 0.2% vs. August. Core CPI, which excludes food and energy, is seen gaining 0.4% after August's hot 0.6% reading.
Year over year, the CPI inflation rate should cool slightly to 8.1% from August's 8.3%, with June's 9.1% marking a 40-year high. But core inflation should accelerate to 6.5% from August's 6.3%, with rents a key driver. That would match March's 39-year peak.
On Wednesday, the September producer price index rose 0.4% vs. August, double forecasts. Wholesale inflation came in at 8.5%, down slightly from August's 8.7% but just above forecasts for 8.4%. Core PPI climbed 0.3%, in line with views. Core PPI inflation cooled to 7.2% from August's 8.1%.
Fed Meeting Minutes
On Wednesday, the central bank released minutes from the Sept. 20-21 Fed meeting. Many officials. according to the Fed minutes said that "the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action." Several participants did want to "calibrate" future tightening with economic conditions.
Still, the Fed is looking for clear and convincing evidence that inflation is cooling considerably before slowing the pace of rate hikes. So far that hasn't happened.
Fed Rate Hike Expectations
Fed rate hike expectations jumped after the hotter-than-expected August CPI inflation report on Sept. 13. The major indexes, which had rallied into the CPI data, plunged on the actual results. Treasury yields continued to run higher.
There's an 84% chance that the Federal Reserve will hike rates by 75 basis points for a fourth straight meeting in November. That's according to the CME FedWatch Tool. Markets overwhelmingly expect at least 50 basis points in December, which would bring the year-end fed funds range to 4%-4.25%. That includes a one-third chance that December will be yet-another 75-basis-point move.
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Stock Market Wednesday
The stock market was subdued Wednesday, moving between slim gains and losses as investors await Thursday's CPI report.
The Dow Jones Industrial Average dipped 0.1% in Wednesday's stock market trading. The S&P 500 index declined 0.3%. The Nasdaq composite fell 0.1%. The small-cap Russell 2000 dropped 0.3%.
Who were the big winners: Beaten-down cruise line stocks. Norwegian Cruise Line, Royal Caribbean and Carnival Corp. were the S&P 500's top performers Wednesday, all up 10% or more.
U.S. crude oil prices fell 2.3% to $87.27 a barrel, continuing to retrace much of last week's huge gains on OPEC+ production cuts.
The 10-year Treasury yield fell 4 basis points to 3.9%. The 10-year yield is still close to 12-year highs near 4%.
ETFs
Among the best ETFs, the Innovator IBD 50 ETF rose 0.6%. The iShares Expanded Tech-Software Sector ETF edged higher. The VanEck Vectors Semiconductor ETF dropped 0.6%.
Reflecting more-speculative story stocks, ARK Innovation ETF rose 1.3% and ARK Genomics ETF 0.6%. Tesla stock is the No. 1 holding across Ark Invest's ETFs.
SPDR S&P Metals & Mining ETF was flat. U.S. Global Jets ETF ascended 1.2%, with Delta Air a key component. The Energy Select SPDR ETF advanced 0.8% and the Financial Select SPDR ETF dipped 0.2%. The Health Care Select Sector SPDR Fund fell 0.5%.
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EV Plays Crash
Lithium plays were among Wednesday's biggest losers. Morgan Stanley sees lithium prices, which have been soaring to record highs, coming down at some point. ALB stock, which had looked strong, plunged 7.9%, easily the S&P 500's worst performer. Shares dived from the 50-day moving average to a two-month low. SQM, Livent and other lithium stocks sold off too.
AEHR stock tumbled 6.35%, knifing through its 50-day line. Shares of the EV-exposed chip-gear maker are down 14% for the week. On Friday, Aehr Test Systems surged 24% on blowout results, but anyone who bought that gap is now underwater.
ALB stock and Aehr Test Systems follow big sell-offs in other EV-related plays, including On Semiconductor.
Tesla stock, which a few weeks ago was flirting with aggressive entries, is now trying to hold above its May lows.
Sometimes there is a specific catalyst, such as disappointing Tesla deliveries. But, ultimately, the bear market comes for everyone.
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Stock Market Analysis
The major indexes were little changed Wednesday, with investors not willing to make big bets ahead of the CPI inflation report.
Tamer-than-expected inflation data would likely revive "Fed pivot" talk, especially with global markets straining from the aggressive Fed policy. Perhaps policymakers are looking for an excuse to take the edge off big rate hikes, but so far their rhetoric has remained decidedly hawkish.
The major indexes are all below their 21-day moving averages. The last time they closed above that short-term level? Sept. 12, the day before the August consumer price index. The Dow, S&P 500 and Nasdaq were also above their 50-day lines that day, but are now significantly below that now-declining average.
Setting aside Wednesday's tepid advance, investors aren't rallying into the Fed-critical inflation data, unlike before Fed chief Jerome Powell's Jackson Hole speech, the August CPI and last Friday's September jobs report. That could at least mitigate the potential downside from a hot CPI inflation reading.
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What To Do Now
The S&P 500 is right at bear market lows. The number of stocks setting up continues to dwindle, with even the last holdouts such as VRTX stock not making headway.
Risks are high while rewards are low.
Thursday's inflation report could be a catalyst for big gains or losses. Even if stocks rebound strongly, investors shouldn't get too excited over one good day, especially with the indexes below so many key levels.
Still, stay engaged and be ready to act when the market decisively turns higher. That means reworking watchlists. Focus on stocks with strong relative strength, even if the charts show a lot of damage.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
