Dow futures: Why stocks soar as Fed rate hikes big; What are you doing now

Overnight Dow futures rose strongly, along with S&P 500 futures and Nasdaq futures. The stock market fluctuated on Wednesday after the Federal Reserve raised interest rates by the most since 1994, but surged higher as Federal Reserve Chairman Jerome Powell signaled that policymakers might raise rates a little lower at the Fed’s meeting in late July.


Treasury yields fell sharply on Wednesday after rising to multi-year highs on Tuesday.

Energy Enphase (ENPH), Harmony in the biological sciences (HRMY), automation (AN), Ulta Beauty (ULTA) and my sim (ON) Five stocks to watch. All of them are consolidating, holding above or near the 50 day moving averages, with their relative strength lines at or near the highest levels.

Stock is ON in the IBD Leaderboard watchlist. In stock and Harmony Biosciences is available on IBD 50. AutoNation is in stock on Wednesdays from IBD.

Tesla (TSLA) rebounded strongly on Wednesday even as the National Highway Traffic Safety Administration reported that the EV giant was dominating accidents involving driver assistance systems.

Dow jones futures contracts today

Dow futures were up 0.8% against the difference. fair value. S&P 500 futures rose 0.8% and Nasdaq 100 futures rose 1%.

The 10-year Treasury yield fell 6 basis points to 3.33%, extending Wednesday’s losses. The two-year yield slipped 3 basis points to 3.25%.

US crude oil prices rose 1%.

Bitcoin traded above $22,000 on Wednesday evening after hitting an 18-month low of $20,087.90 earlier this week.

Remember that overnight action in Dow Jones futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.

Fed meeting

Policymakers voted to raise interest rates by 75 basis points for the first time since 1994, at the end of the two-day Fed meeting, to the 1.5%-1.75% range.

This came after the May CPI on June 10 showed that inflation unexpectedly rose to a 40-year high of 8.6%.

Fed Chairman Powell, speaking at a press conference after the policy meeting, said the central bank is raising interest rates “urgently”, and decided to increase “front loading.” “Inflation is too high” with tight labor markets, he said.

But Powell said the Fed could raise rates by 50 or 75 basis points at the Fed’s late July meeting. He also stressed that the policy would be “sensitive and flexible.” Prior to those comments, markets priced in full 75 basis points at next month’s meeting, according to the CME FedWatch tool. Markets still see a 70% chance of a three-quarter move in late July.

All Fed officials see interest rates rising to at least 3% by the end of the year, with an average estimate of 3.4%. They see 3.8% by the end of 2023.

The central bank is now seeing inflation at 5.2% this year, according to its personal consumption expenditures price index. That’s higher than its target of 4.3% in March and 2.6% last December.

Policymakers expect their preferred measure of inflation, the core PCE index, to regress to a still-high 4.3% gain in the fourth quarter, and slow to 2.7% by the end of 2023.

The Fed and Fed Chair Powell tried to strike a delicate balance on Wednesday. On the one hand, they wanted to take a big step vs. Inflation and regain lost credibility. On the other hand, Powell and his colleagues do not want policymakers to crush the economy. The sudden drop in retail sales was among the many weak economic reports on Wednesday.

The central bank beat Wall Street, at least one afternoon. Leading indicators, which fell into mixed after the Fed hike and as Powell started talking, jumped to intraday highs as the “flexible” Fed chief left the possibility of a move half a point open. Stocks closed at their best but were still strongly or sharply higher.

Treasury yields fell sharply on Powell’s suspension of 50 or 75, especially the two-year yield.

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stock market Wednesday

The stock market fluctuated after the rate hike announcement, but rebounded after Powell’s comments.

The Dow Jones Industrial Average rose 1% in stock market trading on Wednesday. The S&P 500 rose 1.5%. The Nasdaq Composite Index jumped 2.5%. Small cap Russell 2000 rose 1.5%.

The 10-year Treasury yield fell 9 basis points to 3.39%. The two-year yield, more closely related to Fed rate moves, fell 15 basis points to 3.28%.

US crude oil prices fell 3% to $115.31 a barrel. Natural gas prices rose modestly after dropping 16% on Tuesday.

Among the top ETFs, the Innovator IBD 50 ETF (FFTY) closed flat, while the Innovator IBD Breakout Opportunities ETF (BOUT) was down 0.2%. Shares of iShares Expanded Tech-Software Sector ETF (IGV) rose 2.65%. VanEck Vectors Semiconductor Index (SMH) advanced 1.8%.

The SPDR S&P Metals & Mining ETF (XME) is up 2.1% while the US ETF Global X Infrastructure Development (PAVE) is up 0.8%. The US Global Jets ETF (JETS) rose 1.55%. The SPDR S&P Homebuilders ETF (XHB) is up 0.3%. The Energy Select SPDR ETF (XLE) is down 2.2%, and the Financial Select SPDR ETF (XLF) is up 1.1%. The SPDR Healthcare Sector Choice Fund (XLV) is up 1%.

Reflecting more speculative story stocks, the ARK Innovation ETF (ARKK) jumped 6.6% and the ARK Genomics ETF (ARKG) jumped 5.2%. Tesla stock continues to lead across ETFs on Ark Invest.

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stock to watch

ENPH stock jumped 5% to 188.48 on Wednesday, rebounding from its 50-day and 200-day lines. The manufacturer of solar inverters broke out from a double bottom base in greater consolidation on June 2. Enphase stock rose for a few days before falling back. Entries 193 are no longer valid. ENPH stock formed a handle, with a buy point at 217.33, just above the intraday high on June 8.

HRMY stock rose 0.3% to 44.61, moving away from the 50-day line but trimming intraday gains. Harmony Biosciences has a coaster with a port of 54.10. But it needs an extra day to form a handle, bringing the buy point down to 47.21.

AutoNation stock reversed lower on Wednesday, dropping 1.45% to 113.40 to close below the 50-day and 200-day lines. AN stock is in a state of long consolidation at 133.58 buying points. But investors can use resistance just above 126 as an early entry. Last Friday, the giant used car trader hit 126.14 on the day, nearly getting close to an early May high of 126.39, before reversing lower.

Ulta Beauty stock rose 3.3% to 405.61, reclaiming the 50-day line after finding support at the 200-day line earlier this week. ULTA stock traded a 426.93 cup buy point with a handle last week before falling again. New handle entry 429.58 is now running.

Onsemi stock rose 2.45% Wednesday to 58.04, up from the 50-day and 200-day lines. In late May to early June, ON stock rose from the 50-day/200-day lines to 67.19 on June 8, moving towards the 71.25 consolidation buy point. But the chipmaker backed down. This resulted in a somewhat chaotic handle formation with entry 67.29. The entry also coincides with a downtrend line.

Tesla Stock

Tesla stock rebounded 5.5% to 699 on Wednesday, still below the 21-day streak. Shares hit an 11-month low of 620.57 on May 24.

On Wednesday, the National Highway Traffic Safety Administration reported accidents involving driver assistance systems. Tesla vehicles using autopilot were involved in 273 accidents from July 20, 2021 to May 21, 2022 out of a total of 392 accidents. The main reason is that there are so many Tesla EVs on the road with autopilot.

Tesla has always claimed that autopilot improves safety, but it doesn’t use apples-to-apples comparisons in terms of road type, weather conditions, and more. NHTSA recently expanded its autopilot probe, while also investigating “phantom braking” in Tesla cars.

Separately, CEO Elon Musk tweeted on Wednesday that he is leaning toward supporting the Florida governor. Ron DeSantis for president in 2024.

On Thursday, Musk will hold a town hall with Twitter (TWTR), addressing employees for the first time since reaching a $44 billion, $54.20-a-share deal for the social site in late April. Since then, Musk, who has waved the due diligence rights, has complained about fake accounts on Twitter. Musk may want to exit the deal or lower the price significantly.

Twitter’s stock rose 2.1 percent to 37.99 on Wednesday.

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market analysis

The stock market closed higher on Wednesday after the Fed rate hike and Powell’s comments.

The stock market rally is now underway. Wednesday marked the second day of the Nasdaq’s attempt to rally after technology heavy indices rose on Tuesday. But trying to rally is not a green light.

After heavy losses in recent days, the major indicators are well below the 10-day moving averages, not to mention the more fundamental resistance.

However, investors should soon look for a follow-up day to confirm the new bullish trend. However, confirmed market rallies don’t always work out, as 2022 has shown.

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What are you doing now

Wednesday’s movement was positive, but one decent day was not meaningful, especially in a bear market.

If there’s a follow-up day, investors can tip their toes into the market, slowly adding exposure if conditions start to improve.

In the meantime, stay alert and be prepared. Build these watch lists of potential leaders.

Enphase, Onsemi, and other stocks to watch have all struggled, despite their strong relative strength. There is no guarantee that these names will hold up relatively well, or that they will lead in the next real bullish trend.

Read the big picture every day to stay in sync with market trend, stocks and leading sectors.

Please follow Ed Carson on Twitter at Tweet embed For stock market updates and more.

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