The Dow Jones Industrial Average booked small losses in the first half of Thursday's session after two Fed governors warned that current data does not justify pausing rate hikes. Semiconductors and FAANG stocks led a powerful Big Tech rally. Walmart eased retail-sector anxiety with a strong quarter. Recent reports of debt-ceiling optimism may prove to be wildly inaccurate.
Voting FOMC member Lori Logan poured cold water on rate pause hopes, talking up a June rate hike. Gov. Philip Jefferson followed up less than an hour later, warning that inflation "is still too high."
CME FedWatch odds for a June hike surged from 28% earlier to 45% on the news. It stood at just 11% a week ago.
The S&P Regional Bank ETF traded flat into midday after a strong premarket rally. PacWest rebounded nearly 9% in busy trading.
Semiconductors And FAANG Lead Big Tech Upside
Netflix rocketed more than 9% higher after announcing the ad-supported tier had reached 5 million global monthly active users. The stock broke out of a cup-with-handle base in heavy volume. It is just above buy range from its 349.90 buy point.
Also part of the fabulous FAANG five, Apple, Amazon.com and Alphabet all gained more than 1%. Meta Platforms was the bearish outlier, up just 0.2% at this hour.
The PHLX semiconductor sector index rose 2.8% in the first half of the session, with every chip stock on the IBD 50 list roaring through buy points.
Blue chip Broadcom traded in the buy zone, up 2.3%. AVGO stock rallied within four points of 2021's all-time high at 677.76.
Rambus rallied more than 9% after Jefferies upgraded the chip stock to buy from hold. The firm also raised the price target to 65.
Axcelis Technologies is extended above the buy zone of a 136.48 consolidation base buy point. ACLS rallied 5.2%.
In the software sector, Synopsys broke out of a flat base in heavy volume. The chip design software company beat estimates for its April-ended quarter and raised its full fiscal year outlook. Shares are in a buy zone from the 392.89 buy point, which goes up to 412.53.
Progressives Want Biden To Ditch Debt-Ceiling Talks
Stock market indexes took a break from debt-ceiling fears this week after both sides pointed to constructive talks. But a huge divide remains and all the happy talk in the world can't hide deep divisions that could lead to a crisis as we near month's end.
According to Jake Sherman at well-regarded political daily Punchbowl News, the House and Senate's progressive wings could revolt against a debt-ceiling agreement that includes concessions to Republicans, and demand the President invoke the 14th Amendment.
"There's a growing sense within the Senate Democratic Caucus that Biden may have made a serious mistake by entering into direct negotiations with McCarthy. And based on our conversations with them, many Senate Democrats seem in denial that they would, in this scenario, have to swallow a deal that has been tilted toward House Republicans — all to avoid a default."
Sherman also noted that Senators Bernie Sanders and Elizabeth Warren could lead a revolt against any agreement. As Warren warned in a statement to Punchbowl, "we have to find a way to save our economy and our good name around the world. Plan A is for the Republicans to raise the debt limit in a clean bill. Plan B is, move to the 14th Amendment."
However, invoking the 14th Amendment would likely trigger a stock market sell-off because many constitutional scholars believe it would be overturned by the Supreme Court. And the further delay may also push the U.S. past debt default dates.
Dow Jones By The Numbers
The Dow Jones Industrial Average traded lower by 0.2% in the first half while the S&P 500 added 0.4%. The Russell 2000 small-cap index rallied just 0.3% as it tested Wednesday's advance above the 50-day moving average.
Big Tech showed superior performance once again, lifting the Nasdaq 100 1.3%. The Nasdaq composite gained 1.1% as buyers chose to ignore hawkish Fedspeak.
Growth stocks outperformed, with semiconductors lifting the Innovator IBD 50 ETF 1.4%.
NYSE and Nasdaq volume rose mildly above Wednesday's first-half levels. European and Asian markets traded generally higher.
The 10-year Treasury yield surged to a two-month high, mounting April resistance above 3.60%. Bitcoin remained stuck in a trading range of $27,000 to $30,000.
Weekly unemployment claims fell to 242,000, below 259,000 consensus. Continuing claims declined to 1.799 million. The four-week moving average of continuing claims fell by 15,000, to 1.812 million. Taken together, these metrics signal continued tightness in the labor market, despite multiple rate hikes.
April existing home sales of 4.28 million missed estimates of 4.30 million. March was revised downward, to 4.43 million from 4.44 million. April new home sales will be released Tuesday morning.
Dow Jones Market Movers
Dow Jones component Walmart beat April-ended quarter top- and bottom-line estimates, posting a profit of $1.47 per share on a 7.6% rise in revenue to $152.3 billion. The retail giant lowered Q2 EPS guidance but raised its fiscal year outlook above analysts' consensus. WMT stock pared gains to 0.4%.
Also in Dow Jones, Cisco Systems fell just 0.1% after beating fiscal Q3 earnings and sales projections. The networking giant earned $1 per share on healthy 13.5% year-over-year revenue growth to $14.57 billion. However, some shareholders hit the exits when the company warned about "elongated sales cycles" and a 23% total product order decline.
Alibaba sold off 3.8% after beating fiscal Q4 profit estimates and reporting in-line revenue. BABA stock mounted the 21- and 200-day lines Wednesday and fell below those levels in early trading.
BTIG Research upgraded IBD 50 component Dynatrace to buy from neutral, with a 57 price target.
Analyst Gray Powell noted that "DT cleared all buy-side targets in the print. Growth appears to be stabilizing despite macro headwinds and ongoing customer cloud optimization initiatives."
DT stock traded 4.1% higher on the news and mounted the 48.10 buy point of a three-month cup base. JPMorgan, Wells Fargo and other firms raised their price targets on Dynatrace.
Deere wraps up a busy earnings week on Friday morning.
The once-sleepy farm equipment giant has transformed into a tech play as it is develops a fleet of autonomous farming and harvesting vehicles. DE stock has been pulling back since posting an all-time high above 400 in November. 2023 earnings are expected to grow a healthy 31%. DE stock traded 0.2% higher.
Follow Alan Farley on Twitter at @msttrader.
