Stock market indexes climbed Wednesday, adding to Tuesday's modest gains after well-received blue chip earnings reports. Dow Jones component Nike and shipping giant FedEx rallied despite mixed metrics, suggesting that oversold market conditions are now in play, just in time for a Santa Claus rally.
The Dow Jones Industrial Average rallied 1.5% into the lunch hour while the S&P 500 added 1.4%. Small caps attracted healthy buying interest, lifting the Russell 2000 nearly 2%. The Nasdaq composite matched blue chip gains, also up 1.4%.
Nasdaq and NYSE volume fell compared with the first half of Tuesday's session as we creep closer to the thinly-traded holiday period.
The 10-year Treasury note yield was nearly flat, at 3.69%. Crude oil rallied more than 2% to a two-week high at $78.10 per barrel. Asian markets were mixed while bulls took control in Europe, lifting many bourses more than 1%.
December consumer confidence surged to 108.2, much higher than analyst estimates, indicating greater optimism about the economic future. The recent drop in inflation may be driving these higher numbers.
On the flip side, November existing home sales failed to meet expectations for 4.2 million sales, reporting just 4.09 million. Sales have now fallen for 10 straight months. Homebuilder exchange-traded funds traded higher despite the news.
In the crypto world, Bitcoin stalled near two-week lows under $17,000 while Coinbase rose a bit from Tuesday's all-time low at 34.35.
The S&P 500 and Nasdaq are trading below their 50-day and 200-day moving averages. Meanwhile, the Dow is holding above those levels but testing them for the first time since early November.
Given persistent weakness, IBD has dropped its market rating to uptrend under pressure. Investors should raise cash at this time and consider keeping exposure below 20% of assets. Also consider moving to the sidelines completely and resetting for the 2023 market.
Stock Market: Micron's Lost Quarter
Micron Technology reports fiscal first-quarter 2023 earnings after the closing bell, with analysts looking for a loss of 2 cents per share on $4.14 billion in revenue. If met, it would mark an ugly turnaround compared with the $2.16 profit in the same quarter last year. MU stock is trading higher by 1.8% at this hour.
The PHLX semiconductor index has been pummeled in 2022. It has lost nearly 35% year to date in reaction to shrinking demand, supply chain disruptions and general avoidance of tech growth stocks. Micron has fared even worse, posting a 45% loss, as the company was additionally battered by a steep decline in memory chip prices.
Sadly, there's little evidence that things will get better in the first quarter of 2023.
On Nov. 29, Micron warned that "pricing has trended well below what we thought it would be when we had our (September) earnings call." MU stock has shed another 10% since that bearish comment and is trading near a two-year low.
Time To Buy Nike?
Nike reported a fiscal 2023 second-quarter profit of 85 cents per share on a 16.7% revenue surge to $13.3 billion, beating top- and bottom-line estimates. It also raised third-quarter revenue guidance. Waning currency and supply headwinds contributed to the upbeat outlook, lifting the sports apparel giant nearly 14% into the noon hour.
Profit margins shrank less than expected but high inventories still weighed on results. The company also warned that inventory markdowns will continue through the current quarter, which stretches to the end of February. Nike now values that supply at $9.3 billion, up 43% year over year.
China revenue fell 3%, much worse than North America's 30% surge, highlighting the lasting impact of zero-Covid policies in China. However, it looks like Nike has finally gotten Asian headwinds under control, after several quarters of political and supply issues. It's also managing the economic downturn well, raising hopes for a long-term bottom and higher prices.
Footwear stocks are traditional safe havens during recessions but Nike has failed to attract defensive buyers in this stock market, at least so far.
But China's emergence from lockdowns should improve local sales and bolster its bottom line. In addition, easing supply chain issues should lower costs because Nike makes 36% of its apparel in Chinese factories.
Analysts are also seeing this light at the end of the tunnel, predicting 28% earnings growth in fiscal 2024, after a 20% contraction in the fiscal year that will end May 31.
MarketSmith metrics are modest across the board, with "C" ratings in many categories. However, group strength is surging in line with the apparel group's safe-haven status, sharply outperforming the S&P 500. That could herald much stronger 2023 performance, especially if Nike continues to rise above its 200-day moving average after climbing above it Monday.
Stock Market Movers And Shakers
Dow Jones component Boeing rallied 4.1% to an eight-month high in Wednesday's stock market after word that Congress' end-of-year funding bill includes a provision to extend the deadline for the 737 MAX safety review.
The Innovator IBD 50 ETF rallied 2.1%, outperforming the major stock market indexes.
FedEx surged 5% after a better-than-feared second-quarter earnings report for fiscal 2023. The shipping giant reported a profit of $3.18 per share, 36 cents higher than analyst estimates.
But revenue missed the mark, falling 2.9% year over year to $22.8 billion. Investors cheered an aggressive cost-cutting initiative that seeks to slash $1 billion in expenses, in addition to $2.7 billion in cuts announced in September. These measures are certain to include layoffs.
IBD 50 component Toro gapped down after a mixed earnings report, but is holding within the buy zone and on top of the 21-day line. TTC stock lost 2.1% in the first half of the trading session.
TTC stock spent six weeks grinding through a narrow range after rallying above the 107.86 buy point of a cup with handle. It could still mount a successful breakout but will have to hold above the 7% sell zone, which starts near 102.
Also in the IBD 50, Box slipped back into the buy zone after a Dec. 12 breakout above a 29.55 buy point of a cup with handle. The pullback may be constructive because it looks like a classic bull flag that should attract strong buying interest. BOX stock gained 1% into midday Wednesday.
Follow Alan Farley on Twitter at @msttrader.
