Dow Jones futures fell modestly early Thursday, while S&P 500 futures and especially Nasdaq futures rose with Facebook parent Meta platforms (META) rises in its earnings report. That followed a big day for the stock market rally as investors applauded Fed Chief Jerome Powell’s comments.
Apple, Amazon and Google older Alphabet (GOOGL) are available.
Major indices rallied and moved higher on Wednesday after the highly anticipated Fed meeting and especially Fed chief Powell. The Federal Reserve raised interest rates by a quarter of a point and said it still sees “continuous hikes” ahead. Powell supported that, but said it’s a “good thing” and “satisfying” that inflation is coming down, even without weakening labor markets.
The market rally cleared more key levels on Wednesday as a host of stocks broke or flashed other buy signals, including the Chinese search and AI giant Baidu (BIDU), maker of chip gears Lamb research (LRCX), network monitoring software maker Dynatrace (DT), Delta Airlines (DAL) and more.
Meta Platforms revenues were disappointing, but sales, sales guidance, and Facebook users outpaced views. It also announced a $40 billion share buyback. The parent company of Facebook and Instagram lowered its forecast for spending, including capital expenditures. META shares spiked 19% after hours. Shares rose 2.8% to 153.12 during Wednesday’s session, retaking the 200-day line for the first time in more than a year and shrugging off weak revenue expectations snap (SNAP).
Qorvo (QRVO) outperformed fiscal Q3 revenue. But, like many other chip stocks, Qorvo went sharply lower for the current quarter. QRVO shares fell 3% during extended trading. Shares of the 5G and Apple iPhone chipmaker plunged 4.5% to 113.53 on Wednesday.
ELEVEN beauty (ELF) crushed earnings views and comfortably beat sales. Earnings per share doubled and growth accelerated for the third consecutive quarter. Sales rose 49%, accelerating the pace for the fourth quarter in a row. The cosmetics maker also accompanied us upstairs. ELF shares spiked 16% to a record high in overnight action. Shares rose 1.8% on Wednesday to 58.58, just below the Jan. 6 all-time high.
early thursday, Merck (MRK) modestly tops Q4 views, but low on 2023 earnings per share. Eli Lilly (LLY) topped earnings estimates but missed revenue, but led slightly higher on 2023 earnings per share. Bristol Myers Squibb beat (BMY). MRK shares fell sharply. LLY shares fell modestly. BMY rose slightly.
Big pharma, which performed well in the 2022 bear market, has so far lagged behind a growth-led market rally in 2023. Stocks LLY, Merck and Bristol Myers are all below their 50-day moving averages.
Thursday late, Apple (AAPL), Amazon.nl (AMZN) and Google report. They all recover in 2023, but below their 200-day limit. GOOGL shares and Amazon rose more than 4% overnight in sympathy for Meta.
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Dow Jones Futures Today
Dow Jones futures fell 0.4% from fair value, with MRK stocks and Honeywell (HON) acts as drag. S&P 500 futures rose 0.35%. Nasdaq 100 futures were up 1.2%, with META stocks leading the way, along with Google and AMZN stocks. Tesla (TSLA) also helped, as he rose on Blackstone and revealed a large TSLA stake.
Meanwhile, the Bank of England raised interest rates by 50 basis points on Thursday morning. The European Central Bank is expected to do the same before US markets open.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Fed rate hikes ‘ongoing’
As expected, the Fed raised interest rates by a quarter point on Wednesday, pushing the Fed Funds rate to 4.5%-4.75%. That follows a half-point rate hike by the Fed in December and four consecutive 75-bp steps before that.
The Fed’s policy statement continued to say that policymakers expect “continuous increases” in Fed Funds rates, a clear signal that the Fed’s rate hikes are not yet finalized.
Fed Chief Powell’s ‘good thing’
Fed chief Jerome Powell backed that up, saying there’s “more work to be done,” later specifying that “we’re talking about a few more rate hikes.” He added that labor markets remain “extremely tight”.
However, Powell also said the “disinflation process has begun”. He noted that inflation is coming down even without working conditions easing substantially, saying that is a “good thing” and “satisfying”. He also said policymakers “have no incentive, the desire to get too tight”.
That statement seemed to start an afternoon rally.
On Wednesday morning, the Labor Department reported that the number of job openings had risen to 11.01 million, well above the number of views. The January jobs report will be available on Friday. But Powell’s comments suggest that markets need not be as fixated on labor data as before.
The market expects another quarter point rate hike by the Fed at the end of March, with the probability rising slightly to 86% on Wednesday.
But despite Powell backing a “few more” hikes, investors still lean towards the Fed rate hike in March to be the climax. That would keep the Fed Funds rate range at 4.75%-5%, below the Fed’s forecast of 5%-5.25%.
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Stock market rally Wednesday
The stock market rally had fallen slightly before the Fed news, but picked up when Fed Chief Powell spoke.
The Dow Jones Industrial Average rose slightly during Wednesday’s stock trading, but after falling more than 1% intraday before the Fed’s announcement. The S&P 500 index rose just over 1%. The Nasdaq composite jumped 2%. The small-cap Russell 2000 gained 1.5%.
US crude oil prices fell 3.1% to $76.41 a barrel as domestic crude inventories rose for a sixth straight week. Natural gas prices fell 8%, an epic collapse. Copper futures fell 2.8%, with prices settling ahead of the Fed’s rate hike announcement.
The 10-year Treasury yield fell 13 basis points to 3.4%. Two-year government bond yields, which are more closely related to Fed policy, fell 10 basis points to 4.11%. That is well below the current range of the Fed Funds.
The US dollar fell to its lowest point in eight months.
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) was up 1.5%. The iShares Expanded Tech-Software Sector ETF (IGV) rose 2.85%. The VanEck Vectors Semiconductor ETF (SMH) was up 4.7%. Lam Research and AMAT shares are large SMH holding companies, with QRVO shares also a part.
Reflecting more speculative story stocks, ARK Innovation ETF (ARKK) sprinted 4.4% and ARK Genomics ETF (ARKG) gained 2.4%.
SPDR S&P Metals & Mining ETF (XME) 1.8% and the Global X US Infrastructure Development ETF (PAVE) 1.5%. US Global Jets ETF (JETS) rose 1%, with DAL stocks as the top component. SPDR S&P Homebuilders ETF (XHB) soared 2%. The Energy Select SPDR ETF (XLE) fell 2% and the Financial Select SPDR ETF (XLF) fell flat. The Health Care Select Sector SPDR Fund (XLV) gained 0.5%.
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Analysis of the market rally
The major indices continued to build momentum, with major improvements after Fed Chief Powell began speaking.
The Nasdaq appears to be well above its 200-day moving average and late 2022 highs. The Russell 2000 has clearly exceeded that level.
The S&P 500 also seems to be leaving the 200-day line. The reference index also moved the December highs.
The Dow Jones, now the lagging index, tested its 200-day line before bouncing for a small gain.
Keep in mind that the market often reacts to Fed meetings on the second day.
Meanwhile, the rest of the week remains packed with news. Massive Thursday night earnings are due to Apple, Amazon, Google, Qualcomm (QCOM), Ford engine (F) and more, with the January jobs report on Friday.
The S&P 500’s biggest daily winners and losers over the past few weeks have been dominated by profit movers.
DT stock, OI glass (HI), Stryker (SYK) and Atkore (ATKR) ran out of bases on earnings Wednesday.
But there were a lot of good non-revenue moves on Wednesday, especially after Fed Chief Powell’s statements.
LRCX stock and fellow equipment giant Applied materials (AMAT) broke from lows, while DAL stocks and JB Hunt Transport Services (JBHT) and Performance Food Group (PFGC) has erased traditional buying points. BIDU stock also broke out.
Arista Networks (A NET), Pure storage (PSTG) and Worldwide foundries (GFS) cleared all early registrations on Wednesday. However, Meta Platforms’ reduced capex plans could hit Arista and Pure Storage. ANET shares fell modestly after hours.
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What to do now
The stock market rally continues to climb, with the Nasdaq, Russell 2000 and leading stocks at the forefront. The Fed meeting is out of the way as more clarity emerges about the central bank’s endgame.
There is increasing evidence that the current market rally will be a lasting upward trend.
So investors could have added new positions on Wednesday, taking advantage of a new crop of buying opportunities. It’s still wise to do this gradually, not buying extensively or getting too focused. If this market rally has legs, steadily increasing exposure could quickly get you fully or further invested. If this market rally stumbles, even for a short time, don’t be caught out. With Apple and Google earnings looming and the Nasdaq rising so fast in 2023, a pullback would come as no surprise.
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