Major stock market indexes traded mixed in the first half of Monday's session. A Fed governor told traders and investors on Sunday to curb their enthusiasm after last week's spectacular price moves, fueled by a rotation out of 2022 winners, into all sorts of heavily shorted laggards.
The Dow Jones Industrial Average gained 0.2% in light trading on Monday morning while the S&P 500 shed 0.1%. The Nasdaq composite gave up 0.6%. The Russell 2000 small-cap index fared better, down 0.4%.
Volume fell sharply on the Nasdaq and the NYSE compared to Friday morning levels.
The 10-year Treasury note yield bounced back to 3.87% while crude oil fell more than 2% to $86.70 per barrel. Gold added a few bucks after hitting a three-month high on Friday.
The SPDR gold shares ETF is nearing moving average resistance. Positive action in recent weeks has carved the bottom of a 35-week consolidation pattern. But it will take weeks of buying pressure to confirm a bottom.
For now, gold bugs and other enthusiasts should keep a close eye on the critical 200-day moving average, which is at 168.
Crypto sentiment took another dive over the weekend after bankrupt exchange FTX was hacked, draining what was called hundreds of millions of dollars from exchange wallets. Bitcoin posted its worst losses in five months last week and tested Wednesday's low overnight.
The digital currency traded at $16,450 early Monday, up 0.9%.
Fed Governor Warns Investors
Fed governor Christopher Waller warned on Sunday the central bank has "a ways to go" before rate hikes end. He scolded stock market investors, telling them last week's weaker-than-expected CPI report was just one data point.
Waller agreed the Fed may slow the pace of rate hikes to 50 basis points at the December meeting but insists it would not constitute a change in fiscal policy. He also warned that Fed interest rates will keep rising and stay high until inflation drops to near the Fed's 2% target.
Finally, he notes that CPI reports in coming months will need to show inflation "is on the downslope."
Friday's The Big Picture highlighted currency tailwinds that could support higher stock market prices.
It notes "The strong dollar has been a big headwind for the stock market, but signs of peak inflation have seen the currency fall in recent days. Friday's weakness in the U.S. Dollar index extended a move that began Thursday amid cooler-than-expected U.S. consumer inflation data."
This reversal should support stocks because "many companies have seen their bottom lines hit due to expensive foreign exchange rates. If the dollar continues to weaken, it will conversely boost earnings for firms with foreign operations."
The U.S. dollar index traded higher by 0.5% on Monday morning but has fallen 7% since topping out in September.
The CME FedWatch tool now projects 80.6% odds for a 50-basis-point hike at the December meeting while the 75-basis-point crowd has dropped to just 19.4%.
IBD lifted its outlook to "market in confirmed uptrend" last week, supporting stock exposure between 20% and 40% of a portfolio, while major indexes probe long-term moving averages.
Walmart, Nvidia Top Earnings Calendar
Dow Jones components Walmart and Home Depot head a long list of retail earnings releases this week. Target, Macy's, TJX and Lowe's also report.
Meanwhile, most tech watchers will focus their attention on Cisco Systems and Nvidia, which both report Wednesday evening.
Nvidia is expected to report Q3 earnings of 71 cents per share on $5.83 billion in revenue.
The chipmaker ended a torrid growth streak last quarter when earnings shrunk 51% year over year and sales rose just 3%.
Earnings growth is forecast to fall 25% this year. But analysts are more optimistic about 2023, looking for a 31% increase. Funds are not convinced just yet, with ownership falling flat in the last two quarters.
NVDA stock is down 52% from the all-time high posted in November 2021 but it has risen 51% off October's two-year low at 108.13. However, it is still trading below the 200-day moving average.
This week's economic calendar features October retail sales, the producer price index (PPI) and housing starts.
Goldman Sachs now predicts the core personal consumption expenditures price index (CPE), the Fed's preferred inflation indicator, will drop from the current 5.1% to 2.9% in December 2023. The firm expects that clearing supply chains will lower goods prices, wage growth and rental costs, contributing to a more stable economic environment.
The New York Times recently reported that 1 million apartments are now under construction or have new permits. This marks the largest pipeline since 1974. Housing costs should ease as this massive supply comes online.
Cheap Stocks To Buy And Watch: 5 To Observe Right Now
Stock Market Movers And Shakers
The Innovator IBD 50 ETF traded higher by 0.5%.
Advanced Micro Devices surged 2.9% to a two-month high after double upgrades from UBS and Robert Baird.
AMD stock fell more than 65% between November 2021 and the October 2022 low at 54.57. It has rallied more than 20 points off the low but is still trading below the 200-day moving average.
The Earnings Per Share Rating for AMD has surged to 93, highlighting superior earnings performance in recent months. However, fund ownership has dipped after an accumulation phase and it will take months to restore lost sponsorship.
IBD 50 solar leader Enphase Energy tagged the buy zone of a cup-with-handle base and sold off Friday, setting off the 7% sell rule. ENPH stock added 3.0% Monday morning.
Friday was a bad day for most market-leading groups. However, leaders that are sold prior to year's end often become aggressive dip-buying targets. This happens because funds want them in their portfolios to show strong annual performance to their investors, a market phenomenon called window dressing.
Also in the IBD 50, Diamondback Energy has entered a buy zone, breaking past the 162.34 buy point of a 104-day cup base. FANG stock is close to an all-time high, up 0.6%.
It boasts nearly perfect Composite, EPS and Timeliness ratings but annual EPS growth is forecast to flatten in 2023, after windfall 2022 profits.
However, investors don't seem to care about that hurdle at the moment, with energy prices holding firmly at elevated levels.
Follow Alan Farley on Twitter at @msttrader.
