Dow Jones futures were little changed in extended trade, along with S&P 500 futures and Nasdaq futures. The stock market’s rally eased on Wednesday after the Federal Reserve penciled in a new target top rate of 5.1% and Fed Chairman Jerome Powell called for “substantial additional evidence” that inflation is coming under control.
But stocks pared losses in a whipsaw move as investors believed other Powell comments and an even lower rate hike starting in 2023. Tesla (D.S.L.A) CEO Elon Musk revealed late Wednesday that he sold $3.5 billion worth of TSLA stock this week as the stock hit new bear-market lows. Apple (APL) fell below its 50-day moving average.
But solar stocks held strong with the Invesco Solar ETF (TAN) a buying opportunity flashes Enphase energy (ENPH), Solar Edge Technologies (SEDG), First Solar (FSLR) and Array technologies (ARRY) all rose.
Central bank rate hike, peak rate
The central bank raised the fed funds rate by 50 basis points, as expected, to 4.25%-4.5% on Wednesday afternoon. But policymakers, in new quarterly forecasts, are now See a peak rate of 5.1%, was 4.6% at the September Fed meeting. Federal Reserve Chairman Powell has said in recent weeks that the peak rate could be higher. But the 5.1% was above market expectations, especially after Tuesday’s relatively tame inflation report.
Fed chief Powell Hawkish, dovish
Speaking shortly after the Fed meeting announcement and projections, Powell said the full effects of the central bank’s rate hikes this year have yet to be felt, “but we have more to do.” The central bank governor noted the “welcome reduction” in price gains in the past two CPI reports, but said policymakers “need substantial additional evidence.” One should be confident that inflation is on a steady downward path.”
Powell has not ruled out a further step down in rate hikes, to just a quarter point in February. But he stressed that where the Fed funds rate peaks and how long it stays high is more important. Notably, Powell does not see any rate cuts in 2023.
But he added, “Our policy is now coming to a good place.”
Markets are pricing in a 74% chance of a quarter-point Fed rate hike in the 4.5%-4.75% range, up from 60% on Tuesday. Notably, investors expect another quarter-point hike at the end of March, but now see a good opportunity to take no action.
The Fed continues to see a growth slowdown in 2023, not a real recession.
All major indexes edged lower in volatile trade, advancing modestly on the Fed meeting announcement and Powell’s speech. For the second straight session, the S&P 500 index moved above its 200-day moving average but closed below that key level.
Investors should be cautious about adding exposure to the current market, as indices are volatile and close to key levels.
Dow Jones Futures Today
Dow Jones futures flat vs. fair value. S&P 500 futures were lower and Nasdaq 100 futures were down 0.1%.
Chinese retail sales fell 5.9% in November while industrial production rose 2.2%, a much slower growth than forecast from October’s 5%.
China’s covid lockdown took a heavy toll on the economy. Covid rules have been loosening rapidly in the past few weeks, but now China is preparing for a large-scale outbreak.
Stock market rally
The stock market rallied heading into the announcement of the Fed meeting, then experienced a lower pullback in volatile activity for the remainder of the session.
The Dow Jones industrial average fell 0.4% on Wednesday Stock market trading. The S&P 500 index gave up 0.6%. The Nasdaq composite lost 0.8%. The small-cap Russell 2000 lost 0.7%.
Apple stock fell 1.55% to 143.21, below its 50-day moving average.
US crude oil prices rose 2.5% to $77.28 a barrel.
The 10-year Treasury yield closed at 3.5%.
in the middle Best ETFsInnovator IBD 50 ETF (FFTY) fell 0.4%, while the Innovator IBD Breakout Opportunities ETF (Botdecreased by 0.1%. iShares Expanded Technology-Software Sector ETF (IGV0.2% lost. VanEck Vectors Semiconductor ETF (SMHfell 1.7%.
SPDR S&P Metals & Mining ETF (XMEretreated 0.9%. SPDR S&P Homebuilders ETF (XHBfell 0.5%. Energy Select SPDR ETF (XLEretreated 0.6% and the Financial Select SPDR ETF (45) 1.25% Health Care Select Sector SPDR Fund (XLVUp 0.2%.
The Invesco Solar ETF rose 1.8% to 82.61 on Wednesday. TAN ETF has 84.28 Handle with cup A buy point, but investors may have taken an initial entry from the 21-day moving average.
Solar stocks are generally moving higher together right now, so TAN is a great way to play the sector upside with minimal individual stock risk.
Enphase Energy, First Solar and SETG stocks are the three largest components, accounting for nearly a third of TAN’s weight.
ENPH stock is now slightly extended from its own cup-with-handle buy point MarketSmith analysis. SEDG stock has extended its handle since its entry. FSLR stock has broken above its 10-week line, offering a fresh buying opportunity.
Array Technologies is a TAN component. ARRY shares rose 8.3% to 23.55, just below the 23.60 cup-with-handle. Point to buy. But shares are 12.7% above the 21-day line and 26% above the 50-day, making buying ARRY stock risky, especially in the current market.
TSLA shares fell 2.6% to 156.80 on Wednesday. Shares are now down 12.4% on the week, hitting a two-year low. Tesla stock rose to 414.46 in November 2021.
Late Wednesday, Elon Musk disclosed that he sold nearly 22 million Tesla shares for $3.5 billion in the three days ending Dec. 14. Over the past year, Musk has sold TSLA shares in several blocks. Trading volume is particularly high this week, with Tuesday’s trading being the highest in 13 months.
On Wednesday, Goldman Sachs cut its TSLA stock price target and cut its Tesla supply forecast for Q4. Morgan Stanley sees Tesla stock as top pick for 2023, but warns “The brakes are screeching on EV demand” overall.
If you close the TSLA ticker and look at the chart, you will go up.
Market rally analysis
The past couple of days are a prime example of how it’s not the news, it’s the market’s reaction to the news.
On Tuesday, a cooler-than-expected CPI inflation report sent stocks flying at the open, but they quickly pared gains.
On Wednesday afternoon, the Fed raised its top Fed rate by more than expected. Fed Chair Powell made it clear that inflation needs to come down a lot more, though he gave more bleak signals. Major indices sold off sharply but then pared losses, briefly turning positive before fading again.
The S&P 500 index failed to close above that key level for the second straight session above its 200-day line, this time turning lower. But it found support at the 21-day line, which is closing the 200-day gap.
The Dow Jones and Nasdaq also successfully tested their 21-day ranges. The Russell 2000, which has become a lagging index, retreated towards its 50-day line.
Despite the disappointment from Tuesday’s opening high, all major indexes rose 1.6% for the week, with the Russell 2000 up 1%.
The stock market often has a second-day reaction to Fed meetings, especially when there is a high level of flux.
What to do now
A stock market rally gives no reason to add exposure. Earlier, indices would have at least one strong session to attract investors and then cut them with consistent losses over the next several sessions.
But now the major indices cannot hold a gain.
If you buy with strength, there’s a good chance you’ll buy at the right time. If you’re buying into weakness, you may have jumped ship.
It is better to wait until the major indices show signs of a sustained market rally. That could see the S&P 500 break above its 200-day mark, and then all major indexes to peak on Dec. 1. Even with that positive scenario, investors should carefully add exposure.
According to Big picture Each day should be in sync with the direction of the market and the leading stocks and sectors.
Follow Ed Carson on Twitter @IBD_ECarson For stock market updates and more.
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