Dow Jones futures fell modestly Thursday morning, along with S&P 500 futures and Nasdaq futures. China cut interest rates amid fresh disappointing economic data, while the European Central Bank hiked rates, a day after the Fed's "hawkish pause."
The stock market rally showed resilience Wednesday. Indexes initially gave up ground on a surprisingly hawkish Federal Reserve rate-hike outlook, but closed mixed on relatively dovish comments from Fed chief Jerome Powell.
The central bank paused after the end of its two-day policy meeting Wednesday afternoon, but policymakers signaled that two more Fed rate hikes are coming. However, Fed chief Jerome Powell stressed that officials aren't locked into a July rate hike.
Nvidia rose to a record high, a day after closing above a $1 trillion market cap for the first time. Tesla snapped a record win streak, but grudgingly.
Homebuilder Lennar reported earnings after the close.
A slew of medical products and systems makers flashed buy signals Wednesday, after Dow Jones insurance giant UnitedHealth warned that patients are spending more on medical procedures.
Shockwave Medical. Dexcom, Edwards Lifesciences, Smith & Nephew, Stryker, Zimmer Biomet Holdings, Boston Scientific and InMode flashed buy signals Wednesday morning. Most pared gains significantly, with SWAV stock closing well off intraday highs.
Tesla and Nvidia stock are on IBD Leaderboard. SWAV stock is on the IBD 50. TSLA stock is on the IBD Big Cap 20.
Dow Jones Futures Today
Dow Jones futures fell 0.15% vs. fair value. S&P 500 futures retreated 0.4% and Nasdaq 100 futures lost 0.7%. Tesla weighed on the S&P 500 and Nasdaq 100 futures.
A number of chip and hardware stocks retreated in premarket action.
The 10-year Treasury yield rose 2 basis points to 3.82%.
Crude oil rose 1%.
Bitcoin fell solidly overnight.
The European Central Bank raised its key rate by 25 basis points to 4%.
Overnight, China's central bank trimmed its key 1-year lending rate by 10 basis points to 2.65%, the first cut in 10 months. Earlier this week, the People's Bank of China cut a shorter-term rate by the same amount. That comes amid a sputtering economic rebound.
Soon after the PBOC cut, China reported May retail sales rose 12.7% vs. a year earlier, when much of the country was under lockdown. That was below views for 13.6%. Industrial production grew 3.5%, just below forecasts for 3.6%. China's youth unemployment rate rose to a new record of 20.8%.
Hong Kong's Hang Seng jumped 2.2% on the China rate cut, and perhaps hopes for fiscal stimulus.
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
As expected, Fed policymakers took no action Wednesday, leaving the fed funds rate at 5%-5.25% after raising it by five full percentage points in little more than a year.
But Fed policymakers' newly released projections show a median expectation for a fed funds rate of 5.6% by year-end, signaling two more rate hikes. Markets had been expecting one more quarter-point hike, perhaps in July, and even that wasn't a slam dunk.
Fed Chief Powell sounded more dovish. He stressed that policymakers haven't committed to a July rate hike, saying it will be a "live meeting." He said the labor market remains "very tight," but noted that it's starting to ease. Powell did note that core inflation remains stubborn.
Markets now see a 69% chance of a rate hike on July 26, up only slightly from Tuesday. Investors only see an 8% chance of two Fed hikes by year-end.
Lennar Earnings
Lennar earnings fell, but came in much-better than expected. The builder also guided higher on fiscal Q3 and full-year home deliveries.
LEN stock rose 3% in premarket trade. Shares fell 1.1% to 114.75 in Wednesday's regular session, right at the top of short consolidation. That could be viewed as a handle to a mammoth cup-with-handle base going back to late 2021. Lennar stock was actionable earlier this month with a bullish move from the 50-day line in strong volume.
The homebuilder will hold a conference call after Thursday's opening bell.
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Stock Market Rally
The stock market rally closed mixed following the Fed rate pause and Fed chief Powell's
The Dow Jones Industrial Average slumped 0.7% in Wednesday's stock market trading, dragged down by UNH stock. The S&P 500 index eked out a 0.1% gain. The Nasdaq composite rose 0.4%, with Nvidia leading the charge. The small-cap Russell 2000 fell 1.2%.
U.S. crude oil prices fell 1.7% to $68.27 a barrel.
The 10-year Treasury yield fell 4 basis points 3.8% after briefly rising to 3.85% shortly after the Fed meeting announcement.
ETFs
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF climbed 0.6%. The VanEck Vectors Semiconductor ETF popped 1.5%. NVDA stock, the top SMH holding, rallied 4.8% to 429.97 on Wednesday, but fell modestly early Thursday.
Reflecting more-speculative story stocks, ARK Innovation ETF slumped 2% and ARK Genomics ETF retreated 0.6%. Tesla stock is the No. 1 holding across Ark Invest's ETFs. TSLA stock fell 0.7% on Wednesday to 256.79 after surging 41% in a 13-day win streak. TSLA stock fell 3% early MOnady.
SPDR S&P Metals & Mining ETF retreated 1% and the Global X U.S. Infrastructure Development ETF gave up 0.6%. U.S. Global Jets ETF ascended 0.7%. SPDR S&P Homebuilders ETF stepped down 1.1%. The Energy Select SPDR ETF shed 1%.
The Health Care Select Sector SPDR Fund lost 1%. UNH stock is the No. 1 holding in XLV, but Dexcom, Boston Scientific, Edwards Lifesciences, Zimmer Biomet and Stryker also are in the ETF.
The Financial Select SPDR ETF dipped 0.4%. The SPDR S&P Regional Banking ETF slumped 2.9%.
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Stocks In Buy Zones
SWAV stock jumped as high as 315.95 Wednesday morning, clearing a 308.09 cup-with-handle buy point. But Shockwave Medical fell back, closing up 1.1% to 295.05. That's below the 300 level that marks an early entry.
DXCM stock edged up 0.9% to 127.06, moving back above a 126.44 flat-base buy point. Dexcom is trying to decisively breakout, something it's struggled to do since November.
EW stock gapped up 3.6% to 90.53, clearing a short consolidation in heavy volume a day after moving above the 50-day line. Edwards Lifesciences stock still isn't extended from the 50-day line. Investors could use the May 15 high of 89.72 as a buy point.
SNN stock gapped above the 50-day line in heavy volume, running 5.55% higher to 31.57. That offered an early entry in a flat base, part of a base-on-base formation. Smith & Nephew stock also is coming up to a trendline that would offer another early entry. The official buy point is 33.19.
SYK stock jumped 4.2% to 293.57 in heavy trade, breaking a downtrend and clearing the 50-day line. That offered an early entry, though shares closed near session lows. Stryker stock has a 306.56 official buy point from a flat base, part of a base-on-base pattern.
ZBH stock popped 3.8% to 142.01 a day after rebounding near the 50-day line. Zimmer Biomet cleared the bulk of trading in a 16%-deep consolidation, and is within range of the 50-day line. It still has some distance to the 149.25 buy point. ZBH stock also closed well off session highs.
BSX stock rose 4.2% to 53.31, moving above the 50-day line. It's the first test of the 50-day/10-week line since a late March breakout. Boston Scientific stock is working on a short consolidation.
INMD stock climbed 1.7% to 36.42, after just clearing a trendline on Tuesday. But shares came well off intraday highs. InMode stock is near a short-term high of 38.38, an area where it's hit resistance several times in 2023. The official buy point is 41.84 from a four-month base, according to MarketSmith analysis.
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Market Rally Analysis
The stock market rally showed surprising resilience Wednesday amid a hawkish rate-hike outlook.
The S&P 500 and Nasdaq composite, after briefly reversing lower, closed slightly higher on Fed chief Powell's comments.
The Nasdaq probably could use a pause or pullback. It's now 9.2% above its 50-day line and trading above the top of a regression line. The Nasdaq 100 is now 10.6% above that key level.
The Dow Jones retreated, largely on UNH stock, but bounced off lows from just above its 10-day line.
Market breadth was weak, interrupting a positive trend. Small caps retreated solidly and midcaps modestly. The Invesco S&P 500 Equal Weight ETF only dipped 0.2%. The First Trust Nasdaq 100 Equal Weighted Index ETF rose nearly 0.2%, though that lagged the Nasdaq 100's 0.7% advance.
New highs continued to easily outpace new lows.
Keep in mind that there is often a second-day reaction to Fed meetings that can radically differ from the initial market move.
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What To Do Now
Investors could have nibbled on one of the many medical product stocks flashing buy signals Wednesday, though there's a good chance that those buys were modestly underwater by Wednesday's close.
Otherwise, there weren't a lot of buying opportunities. Many leaders like Nvidia and Tesla are greatly extended while others have shot up from low in their bases to around buy points.
With the Nasdaq, overdue for a pause or pullback, investors may want to be cautious about adding exposure, especially in tech. You might consider taking partial profits on some extended winners.
But you want to credit this market rally. It's showing real strength, with breadth and leadership expanding dramatically. So while near-term caution may be in order, the market is sending strong bullish signals overall.
When a market pullback takes place, that could be an opportunity to enter or add to big winners. So stay engaged.
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