Dow Jones futures fell solidly early Thursday, along with S&P 500 futures and Nasdaq futures, as Treasury yields rose. Cisco Systems announced a big takeover deal.
The stock market retreated after the Federal Reserve meeting, with the S&P 500 and Nasdaq breaking below critical levels. The Fed stuck with forecasts for one more rate hike this year and indicated that rates would stay higher for longer. However, Fed chief Jerome Powell said the central bank will "proceed carefully."
Nvidia, Google parent Alphabet, Meta Platforms and Tesla retreated Wednesday, with further losses early Thursday. Those Magnificent Seven members are among the biggest S&P 500 winners in 2023.
Meanwhile, Celsius, one of the last stalwart leaders, sold off hard Wednesday. ELF Beauty fell for a ninth straight session. Investors should be looking to curb exposure and wait for real market strength before making new buys.
Nvidia stock, Meta, Tesla and Celsius are all IBD Leaderboard stocks. Tesla, Celsius and Meta stock are on the IBD 50. CELH stock and Tesla are on the IBD Big Cap 20.
Key News
FedEx and KB Home reported after the close.
Cisco Systems will buy data analytics and cybersecurity firm Splunk for $157 a share cash, a 31% premium to Wednesday's close. The deal has an enterprise value of $28 billion. CSCO fell solidly. SPLK stock surged more than 20%.
Google is mulling a switch from Broadcom to Marvell Technology as its supplier for Tensor Processing Unit server chips, The Information reported, aiming to save billions of dollars. AVGO stock fell solidly while Marvell rose modestly.
Hollywood studios are close to a deal to end the writers strike, CNBC reported Wednesday night. That would be good news for Walt Disney, Netflix, Paramount Global and other big media players.
Dow Jones Futures Today
Dow Jones futures were 0.6% below fair value. S&P 500 futures fell 0.85% and Nasdaq 100 futures retreated 1.1%. Cisco stock is a Dow Jones, S&P 500 and Nasdaq 100 component.
The 10-year Treasury yield rose several basis points to 4.46%, the highest since late 2007.
Crude oil futures fell slightly. Copper slumped more than 2%.
The Bank of England left rates unchanged Thursday morning, after 14 straight increases. A rate hike had been widely expected until Wednesday's lower-than-expected U.K. inflation report.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
Fed Meeting
Policymakers left interest rates steady at a 5.25%-5.5% range at the end of the two-day Fed meeting, as expected. The focus was on the Fed rate-hike outlook for the rest of the year and 2024. Twelve FOMC members still expect one more rate hike in 2023, the same as in June, vs. seven who see no change.
Fed chief Powell said policymakers can "proceed carefully," suggesting no hurry to raise rates again. But he also said one more Fed rate hike wouldn't be a big deal for the economy.
For 2024, policymakers now expect the fed funds rate to end at 5.1%, vs. the June forecast for 4.6%.
What's going on? The Fed is feeling more confident in a soft landing, reducing the downside risk of another hike and keeping rates elevated. GDP is seen rising 2.1% in 2023 and 1.5% next year, both up from June estimates of 1% and 1.1%, respectively. Unemployment should end the year at 3.8% and only creep up to 4.1% in 2024, both lower than June projections.
Meanwhile, the Federal Reserve now sees the core PCE inflation rate slowing to 3.7% in 2023, vs. the June forecast for 3.9%. But that's still above what recent annualized trends suggest. The upshot is that if inflation does undershoot the Fed's latest projections, policymakers have an easy excuse to not raise rates again.
Markets now see the odds of a Nov. 1 rate at 31% as of early Thursday, up from 29% before the Fed announcement. The odds of a December Fed rate hike increased to 46% from about 41%.
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Key Earnings Late
FDX stock rose solidly in premarket trade after FedEx topped earnings views and raised the low end of its full-year EPS target, though revenue fell more than expected. FedEx stock edged up 0.2% to 250.52 on Wednesday. Shares are working on a 270.95 flat-base buy point but are below the 50-day line.
KBH stock fell modestly overnight. KB Home earnings and revenue fell less than expected, but average selling prices declined more than the homebuilder had projected. KB Home slipped 0.7% to 48.06 on Wednesday. Shares are near the bottom of a 16%-deep consolidation with a 55.37 buy point, according to MarketSmith.
Stock Market
The stock market retreated following the Fed meeting decision and Powell's comments, led by the Nasdaq.
The Dow Jones Industrial Average fell 0.2% in Wednesday's stock market trading. The S&P 500 index slumped 0.9%. The Nasdaq composite retreated 1.5%, its worst loss since Aug. 24
After flirting with doing so on Tuesday, the Nasdaq and S&P 500 closed below the intraday low of their Aug. 29 follow-through day. A close below the FTD low is a highly bearish signal that the market rally will ultimately fail. The Nasdaq is already closer to the Aug. 18 low than the 50-day line.
Market breadth remained weak. The small-cap Russell 2000 hit resistance at the 200-day line, then slumped 0.9%, hitting a three-month low.
The Invesco S&P 500 Equal Weight ETF fell 0.5% after rebounding back above the 200-day line before the Fed announcement.
More leaders are crumbling.. CELH stock, which had barely come off highs, tumbled 8.3% Wednesday. ELF stock skidded 6.1%, off for a ninth straight session.
On the upside, Textron, Amgen, Lululemon Athletica and Akamai Technologies cleared buy points or early entries Wednesday.
Keep in mind that the stock market often has a day-two reaction to Fed meetings that reverses the initial move.
U.S. crude oil prices fell 1% to $90.28 a barrel.
The 10-year Treasury yield fell two basis points to 4.35%, retreating from Tuesday's 15-year high. The two-year Treasury yield, more closely tied to the Fed rate outlook, edged up 1 basis point to 5.12%, a fresh 17-year high.
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ETFs
Among growth ETFs, Innovator IBD 50 fell 1.3%. The iShares Expanded Tech-Software Sector ETF declined 0.9%. The VanEck Vectors Semiconductor ETF gave up 1.6%, with Nvidia stock the No. 1 holding.
Reflecting stocks with more speculative stories, ARK Innovation declined 1.8% and ARK Genomics gave up 1.7%. Tesla stock is the No. 1 holding across ARK Invest's ETFs.
The SPDR S&P Metals & Mining ETF dropped 0.5%, and the Global X U.S. Infrastructure Development ETF slipped 0.6%. U.S. Global Jets fell 0.85%. SPDR S&P Homebuilders backed off 1.2%. The Energy Select SPDR ETF lost 0.9%, and the Health Care Select Sector SPDR Fund just edged higher.
The Industrial Select Sector SPDR Fund fell 0.4%, with FDX stock an XLI component. The Financial Select SPDR ETF declined 0.7%.
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Megacaps
Nvidia stock fell 2.9% to 422.39, holding above Monday's intraday low but hitting the lowest close in over a month. Shares are 7.1% below their 50-day line.
Meta stock reversed lower to close down 1.8% to 299.67. Shares are back below the 50-day line, but could be close to forging a handle on a cup base.
TSLA stock also turned lower, ending off 1.5% to 262.59. The EV giant is close to adding a handle to its cup base.
GOOGL stock fell 3.1% to 133.74, closing below its 21-day line. Shares are back at the top of a shelf on top of a cup-with-handle base.
All four fell 1%-2% early Thursday.
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What To Do Now
The market continues to hit resistance on the upside and break below support. More and more leading stocks are buckling. It's just not a good environment.
Yes, a number of stocks are close to setting up, or nearly so. But they need a healthy market rally to have a decent chance of success.
For now, investors should have slim-to-modest exposure, perhaps holding on to some longer-held winners. Keep working on watchlists. Look for stocks holding support levels or showing strong relative strength. Those are the names that may lead the next strong advance.
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