Dow Jones futures fell early Thursday, along with S&P 500 futures and Nasdaq futures, while Treasury yields rose sharply. The stock market rally suffered major losses Wednesday following the Federal Reserve meeting.
The major indexes rebounded after the Fed hiked rates aggressively yet again but signaled that it could start to slow the pace of rate increases. However, Fed chief Jerome Powell then suggested that rates will peak at an-even higher level than previously forecast.
Investors should be cautious as the stock market rally suffers damage. But it's not finished yet.
Albemarle, CF Industries, Qualcomm, Sarepta Therapeutics, Fortinet, Robinhood Markets, World Wrestling Entertainment and elf Beauty reported after the close. There were several losers with ELF stock the big earnings winner.
Before Thursday's open, Cheniere Energy and Quanta Services released results. Liquefied natural gas giant Cheniere reported a surprise loss and revenue well below views. Quanta Services reported in-line earnings with revenue just topping. LNG stock lost a fraction while PWR stock was not yet active.
Both Cheniere and PWR stock are trading near buy points in shallow cup-with-handle bases.
Tesla sold 71,704 China-made vehicles in October, according to industry data, up 32% vs. a year earlier but down nearly 14% vs. September. Tesla cut China prices late last month, but the vast majority of October's sales were likely exports to Europe and elsewhere. China EV and battery giant BYD sold a record 217,816 vehicles last month, including fully electric autos (BEVs) and plug-in hybrids, up 169% vs. a year earlier. That includes a 9,529 vehicles exported as BYD begins a massive international expansion.
LNG stock is on IBD Leaderboard, while ALB stock, Sarepta Therapeutics and CF Industries are on the Leaderboard watchlist. CF and SRPT stock are on the IBD 50.
Fed Pivot To Slower Rate Hikes
As expected, the Federal Reserve raised interest rates by 75 basis points for a fourth straight meeting, to a range of 3.75%-4%.
The Fed hinted at a slower pace for rate hikes citing the lagged impact of "cumulative" tightening this year.
"In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments," according to the Fed's post-meeting statement.
Powell Sees Higher Peak Rate
Fed chief Jerome Powell, speaking shortly after the Fed meeting announcement, agreed that policymakers could slow rate hikes as soon as December. He said the "speed" of rate hikes is less important now than where rates end up.
But Powell suggested that the fed funds rate could end up higher than the Fed's September projection of 4.6%. That suggests a fed funds rate of 4.75%-5%.
Markets now slightly favor yet another 75-basis-point hike in December, after just favoring a half-point move on Tuesday. That would push the fed funds rate to 4.5%-4.75%. Odds currently favor at least 25 basis points at the February meeting, to 4.75%-5%.
Friday's jobs report will be important for setting rate hike expectations. The November jobs report, as well as two CPI reports, also will arrive before the next rate hike decision on Dec. 14.
Dow Jones Futures Today
Dow Jones futures fell 0.5% vs. fair value. S&P 500 futures sank 0.8% and Nasdaq 100 futures lost 1%.
The Bank of England raised rates by 75 basis points to 3%, as expected, before Thursday's U.S. market open.
The 10-year Treasury yield soared 13 basis points to 4.19%. That suggests yields will break of a multi-day range and move toward 14-year highs set late last month. The dollar was rising after a strong upside reversal Wednesday.
Crude oil futures fell 1%. Copper futures retreated 2%.
Hong Kong's Hang Seng index fell 3.1%.
A top China health official said the country's "no-Covid" policy will continue, following unconfirmed social media chatter that sent Chinese stocks rallying Tuesday-Wednesday.
The private-sector Caixin services purchasing managers index for China fell 0.9 point in October to 48.4, falling further below the break-even 50 level. Other China manufacturing and services reports also pointed to contraction last month.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
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Stock Market Rally
The stock market rally initially rallied on Fed rate hike and dovish policy statement, then fell sharply as Powell signal a higher end point for the fed funds rate.
The Dow Jones Industrial Average fell 1.55% in Wednesday's stock market trading. The S&P 500 index tumbled 2.5%. The Nasdaq composite sold 0ff 3.4%. The small-cap Russell 2000 skidded 3.3%.
The 10-year Treasury yield rose 1 basis point to 4.06%, rebounding from an intraday low of 3.98% soon after the Fed meeting. The U.S. dollar also bounced higher.
U.S. crude oil prices climbed 1.8% to $90 a barrel. Natural gas futures spiked 9.7%, continuing this week's trend of huge daily moves.
ETFs
Among the best ETFs, the Innovator IBD 50 ETF retreated 2.1%, while the Innovator IBD Breakout Opportunities ETF gave up 2%. The iShares Expanded Tech-Software Sector ETF tumbled 4.6%. The VanEck Vectors Semiconductor ETF skidded 2.9%, with QCOM stock a notable SMH holding.
SPDR S&P Metals & Mining ETF plunged 6.1% and the Global X U.S. Infrastructure Development ETF 3.1%. U.S. Global Jets ETF descended 2.9%. SPDR S&P Homebuilders ETF sank 3.8%. The Energy Select SPDR ETF fell 2.4% and the Financial Select SPDR ETF lost 1.3%. The Health Care Select Sector SPDR Fund declined 1.7%.
Reflecting more-speculative story stocks, ARK Innovation ETF slumped 4.9% and ARK Genomics ETF declined 3.4%.
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Earnings
Albemarle earnings reported surging earnings, easily beating, but the lithium giant's booming revenue fell short.
ALB stock fell 5% in overnight trade. Shares retreated 4.5% to 266.52 on Wednesday, back below the 50-day line. Albemarle stock sank in part after Livent sales missed views late Tuesday. ALB stock has a 308.34 buy point, according to MarketSmith analysis. But a move above Thursday's high of 287.88 might offer an early entry.
CF earnings and revenue missed. The fertilizer giant announced a $3 billion buyback, but CF stock fell 7% early Thursday. Shares of the fertilizer giant fell 4.3% on Wednesday to 103.17, undercutting the 50-day line. CF stock is in a base with a 119.70 buy point.
Fortinet earnings topped views and the cybersecurity firm guided slightly higher for Q4. But Q3 billings were in line while billings guidance was light. FTNT stock dived 15% in premarket action, signaling a test of bear market lows. Shares already tumbled 5.65% to 53.23 on Wednesday, after once again hitting resistance at the 200-day line on Tuesday.
Sarepta reported a wider-than-expected loss while sales also missed. SRPT stock fell 3.5% overnight. Shares edged down 0.6% to 113.42 on Wednesday, holding above its 50-day. Sarepta stock has a 120.33 flat-base buy point.
Qualcomm earnings were in line while revenue just missed fiscal Q4 views. But the wireless chip giant guided sharply lower for the current Q1, seeing more handset weakness. QCOM stock tumbled 8% in extended trade. Shares fell 4.1% on Wednesday to 112.50. Qualcomm stock is off October's bear-market lows but below a sliding 50-day line.
Elf earnings easily beat views while sales also topped. ELF stock jumped 11% after hours, back near record highs. Shares of the affordable cosmetics maker lost 4.7% on Wednesday to 41.66.
WWE earnings missed slightly while revenue topped. WWE said it's ended a probe into alleged misconduct by founder and ex-CEO Vince McMahon. Shares were not active overnight. WWE stock fell 1.5% to 77.54 on Wednesday, still in range of a 75.33 buy point from a shallow cup base.
Robinhood reported a smaller-than-expected loss while revenue just fell short. The trading app positive adjusted EBITDA in Q3 and lowered its guidance for full-year operating costs. HOOD stock jumped overnight, but gains largely faded Thursday morning. Shares sank 4.4% on Wednesday to 11.40, falling back below a 11.73 buy point from a bottoming base.
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Market Rally Analysis
The stock market rally had a whipsaw Wednesday. After rallying to session highs on the dovish Fed meeting policy statement, stocks plunged to session lows on Powell's more-hawkish comments.
Investors have been betting on a Fed pivot to smaller rate hikes, but implicitly expected a quick transition from slower rate hikes to an outright pause. Fed chief Powell signaled that the latter is far off.
Arguably, Powell and his Fed colleagues accomplished three goals: 1. Signal a slower pace of rate hikes. 2. Still look tough on inflation. 3. Don't trigger a big market rally, which could undermine their inflation fight.
The Nasdaq composite, which had been hitting resistance near its 50-day line, plunged below its 21-day line. Notably, the Nasdaq closed below the low of its Oct. 21 follow-through day. That is a bearish sign.
The other key indexes did not undercut their FTD lows, but still suffered damage.
The S&P 500 dived below its 50-day line and closed below its 21-day line. The Dow Jones sank below its 200-day line. The small-cap Russell 2000, which had been moving close to its 200-day, plunged almost to its 50-day.
For now, the stock market rally has taken a hit. The Nasdaq, which had lagged on the way up, looks the weakest. Megacap techs and cloud software names are struggling mightily. On the other end, the Dow Jones arguably was due for a pullback.
What matters now is how the major indexes and leading stocks respond.
It's possible that the whipsaw market action continues Thursday. Stocks and Treasury yields frequently have big second-day reactions to Fed meetings, often reversing course from the initial move.
Then on Friday, the jobs report looms large.
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What To Do Now
There was a reason to be cautious heading into the Fed meeting, and that turned out to be warranted. Investors may have warranted to sell some stock, either to reduce overall exposure or simply to take profits or cut losses in individual names.
Even aside from Fed rate hike plans and the upcoming jobs report, it's the middle of earnings season. Several stocks that were in or near buy areas sold off on earnings Wednesday, including Devon Energy, Livent, ATI and Paycom Software.
Investors may want review their holdings to see if any other positions should be cut, due to technical action, looming earnings or overall portfolio management.
The stock market could remain volatile through Friday's jobs report.
But this is still a confirmed market rally. Many stocks are still close to buy areas despite Wednesday's losses. So have your watchlists ready and stay engaged.
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