Dow Jones futures fell sharply Thursday morning, along with S&P 500 futures and Nasdaq futures, as Treasury yields rebounded.
The stock market wobbled Wednesday after the Federal Reserve raised interest rates by the most since 1994, but revved higher as Fed chief Jerome Powell signaled that policymakers might hike rates by a little less at the late July Fed meeting. Treasury yields fell sharply Wednesday after surging to multiyear highs on Tuesday.
Enphase Energy, Harmony Biosciences, AutoNation, Ulta Beauty and Onsemi are five stocks to watch. All are in consolidations, holding above or near their 50-day moving averages, with their relative strength lines at or near highs.
ON stock is on the IBD Leaderboard watchlist. AN stock and Harmony Biosciences are on the IBD 50. AutoNation is Wednesday's IBD Stock Of The Day.
Tesla rebounded solidly Wednesday even as the National Highway Traffic Safety Administration reported the EV giant dominates accidents involving driver-assist systems. Shares fell back early Thursday, even as Tesla hiked vehicle prices.
Dow Jones Futures Today
Dow Jones futures fell 1.4% vs. fair value after being up 1% at one point Wednesday evening. S&P 500 futures tumbled 1.8% and Nasdaq 100 futures skidded 2.1%. All are threatening to wipe out Wednesday's gains at the open and perhaps undercut this week's 52-week lows.
The 10-year Treasury yield rose 6 basis points to 3.45%, reversing from significant losses Wednesday night and near Tuesday's 11-year high of 3.48%. The two-year yield reversed evening losses to jump 5 basis points to 3.33%.
U.S. crude oil prices fell 2%, reversing from modest overnight gains.
Bitcoin traded near $21,000 Thursday morning, off Wednesday night's highs, but after hitting a fresh 18-month low of $20,087.90 earlier this week.
The Bank of England rose rates for a fifth straight meeting early Thursday, with a quarter-point move to 3.02%. The Swiss central bank unexpectedly raised rates by half a point early Thursday.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
Fed Meeting
Policymakers voted to hike rates by 75 basis points for the first time since 1994, at the end of the two-day Fed meeting Wednesday afternoon, to a range of 1.5%-1.75%.
That came after the May consumer price index on June 10 showed inflation unexpectedly rose to a 40-year high of 8.6%.
Fed chief Powell, speaking at a news conference after the policy meeting, said the central bank is raising rates "expeditiously," deciding to "front load" hikes. He said "inflation is much too high," with labor markets very tight.
But Powell said the Fed could raise rates by 50 or 75 basis points at the late July Fed meeting. He also stressed that policy will be "sensitive and flexible." Before those comments, markets had fully priced in 75 basis points at next month's meeting, according to the CME FedWatch tool. Markets still see a 70% chance of a three-quarter point move in late July.
All Fed officials see rates rising to at least 3% by year-end, with a median estimate of 3.4%. They see 3.8% by the end of 2023.
The central bank now sees 5.2% inflation this year, as measured by the personal consumption expenditures price index. That's up from its 4.3% target in March and 2.6% last December.
Policymakers expect their preferred inflation gauge, the core PCE index, easing to a still-high 4.3% gain in the fourth quarter, slowing to 2.7% by the end of 2023.
The Federal Reserve and Fed chief Powell tried to strike a delicate balance Wednesday. On the one hand, they wanted to take a big step vs. inflation and restore lost credibility. On the other hand, Powell and his fellow policymakers don't want to crush the economy. A surprise drop in retail sales was among several weak economic reports on Wednesday.
The central bank won over Wall Street, if only for one afternoon. The major indexes, which fell to mixed after the Fed rate hike and as Powell began speaking, surged to intraday highs as a "flexible" Fed chief left open the possibility of a half-point move. Stocks closed off their best levels but were still solidly or sharply higher.
Treasury yields fell sharply on Powell's 50-or-75 comment, especially the two-year yield.
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Stock Market Wednesday
The stock market wobbled after the rate hike announcement, but rebounded following Powell's comments.
The Dow Jones Industrial Average rose 1% in Wednesday's stock market trading. The S&P 500 index climbed 1.5%. The Nasdaq composite leapt 2.5%. The small-cap Russell 2000 advanced 1.5%.
The 10-year Treasury yield tumbled 9 basis points to 3.39%. The two-year yield, more closely tied to Fed rate moves, skidded 15 basis points to 3.28%.
U.S. crude oil prices fell 3% to $115.31 a barrel. Natural gas prices rose modestly after tumbling 16% on Tuesday.
Among the best ETFs, the Innovator IBD 50 ETF closed unchanged, while the Innovator IBD Breakout Opportunities ETF dipped 0.2%. The iShares Expanded Tech-Software Sector ETF popped 2.65%. The VanEck Vectors Semiconductor ETF advanced 1.8%.
SPDR S&P Metals & Mining ETF climbed 2.1% and the Global X U.S. Infrastructure Development ETF rose 0.8%. U.S. Global Jets ETF ascended 1.55%. SPDR S&P Homebuilders ETF edged up 0.3%. The Energy Select SPDR ETF sank 2.2% and the Financial Select SPDR ETF gained 1.1%. The Health Care Select Sector SPDR Fund moved 1% higher.
Reflecting more-speculative story stocks, ARK Innovation ETF leapt 6.6% and ARK Genomics ETF 5.2%. Tesla stock remains a top holding across Ark Invest's ETFs.
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Stocks To Watch
ENPH stock jumped 5% to 188.48 on Wednesday, rebounding from its 50-day and 200-day lines. The maker of solar power inverters broke out of a double-bottom base within a larger consolidation on June 2. Enphase stock ran up for a few days before falling back. The 193 entry is no longer valid. ENPH stock has formed a handle, with a buy point of 217.33, just above the June 8 intraday high.
HRMY stock edged up 0.3% to 44.61, moving off its 50-day line but paring intraday gains. Harmony Biosciences has a cup base with a 54.10 entry. But it needs one more day to form a handle, lowering the buy point to 47.21.
AutoNation stock reversed lower Wednesday, falling 1.45% to 113.40 to close just below its 50-day and 200-day lines. AN stock is in a long consolidation with a 133.58 buy point. But investors could use resistance just above 126 as an early entry. Last Friday, the used-car dealer giant hit 126.14 intraday, nearly hitting the early May high of 126.39, before reversing lower.
Ulta Beauty stock rose 3.3% to 405.61, regaining the 50-day line after finding support at the 200-day line earlier this week. ULTA stock flirted with a 426.93 cup-with-handle buy point last week before tumbling back down. A new handle entry of 429.58 is in play now.
Onsemi stock climbed 2.45% on Wednesday to 58.04, rallying from its 50-day and 200-day lines. In late May to early June, ON stock rallied from the 50-day/200-day lines to 67.19 on June 8, moving toward a 71.25 consolidation buy point. But the chipmaker fell back down. That has created a somewhat messy handle with a 67.29 entry. The entry also coincides with a declining-tops trendline.
Tesla Stock
Tesla stock bounced 5.5% to 699 on Wednesday, still below its 21-day line. Shares hit an 11-month low of 620.57 on May 24.
TSLA fell nearly 4% Thursday morning as futures tumbled.
On Wednesday, the National Highway Traffic Safety Administration reported accidents involving driver-assist systems. Tesla vehicles using Autopilot were involved in 273 crashes from July 20, 2021, to May 21, 2022, out of 392 total. A main reason is that there are so many Tesla EVs on the road using Autopilot.
Tesla has long claimed that Autopilot improves safety, but does not 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 vehicles.
Early Thursday, Tesla raised the U.S. prices of most of its vehicles, though the base price of a Model 3 remains $46,990. High material costs and limited overall supply have allowed Tesla, and other automakers, to raise vehicle prices sharply over the past year.
Also Thursday, CEO Elon Musk will hold a town hall with Twitter employees, addressing staff for the first time since reaching a $44 billion, $54.20-a-share deal for the social site in late April. Musk, who waved due diligence rights, has since complained about fake accounts on Twitter. Musk may want to get out of the deal, or substantially lower the price. But he's expected to reaffirm his desire to buy Twitter, according to The Wall Street Journal.
Twitter stock climbed 2.1% to 37.99 on Wednesday. Shares rose 2% early Thursday.
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Market Analysis
The stock market closed higher Wednesday after the Fed rate hike and Powell's comments.
A stock market rally attempt is now underway. Wednesday marked day two of the Nasdaq's rally attempt after the tech-heavy indexes edged higher on Tuesday. But the rally attempt is not a green light.
After fierce losses in recent days, the major indexes are far below their 10-day moving averages, let alone more substantive resistance.
Dow futures suggest a negative day two reaction to the Fed meeting. The rally attempt could quickly fizzle out.
Investors should soon be looking for a follow-through day to confirm the new uptrend. Confirmed market rallies don't always work, however, as 2022 has shown.
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What To Do Now
Wednesday action was positive, but one decent day isn't that meaningful, especially in a bear market.
If there's a follow-through day, investors could tiptoe into the market, slowly adding exposure if conditions start to improve.
In the meantime, stay alert and be prepared. Build up those watchlists of possible leaders.
Enphase, Onsemi and the other stocks to watch have struggled on an absolute basis, despite their strong relative strength. There's no guarantee that these names will hold up relatively well, or that they will lead in the next true uptrend.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
