Stock indexes were back on the plus side at Wednesday's close after the minutes of the most recent Federal Reserve meeting pointed to a September interest rate cut. Target was among the day's winners while e-commerce giant JD.com plunged on the stock market today as Walmart unwound its investment in the China-based company.
Small-cap and midcap stocks led the market. The Russell 2000 accelerated gains after the Fed minutes and closed 1.2% higher.
The Nasdaq composite rallied 0.8% at the morning high and marked an intraday high of 17,963, up more than 19% since Jan. 1. While the tech-heavy index added gains after the Fed minutes, it pared gains to 0.6% at the close. The Nasdaq 100 matched the composite's lagging advance vs. small caps.
The S&P 500 followed the stock market's bullish tide, but its gain shrank to around 0.4%. The Dow Jones Industrial Average remained a laggard and was up slightly more than 0.1%. At one point, the Dow industrials rallied to 40,974.
All three indexes were down Tuesday following long winning streaks — five days for the Dow and eight sessions for the S&P 500 and Nasdaq.
Stock Market Outlook For The Next 6 Months
Stocks And Long-Term Bonds Rally
Meanwhile, investors bought more long-term U.S. government debt. The yield on the 10-year Treasury note fell 4 basis points to 3.77%. That's well below last year's October peak of 4.99%.
The drop in interest rates, along with a well-received quarterly report from Toll Brothers, also boosted the construction sector in the stock market today.
Toll, a leader in the luxury new home market, jumped 5.6% to 141.03, one of its strongest sessions all year long. Volume bulged triple its average over the past 50 sessions to 4.15 million shares. That signaled strong buying by mutual funds, hedge funds, large investment advisory firms and the like.
On Leaderboard, related stocks and ETFs also rallied on the Toll earnings report.
The SPDR S&P Homebuilders ETF gained 2.9% to 114.79. A half-size position in Leaderboard, XHB remains in the 5% buy zone after retaking a 110.09 proper buy point in a four-month double bottom.
Toll Brothers' Re-Breakout
Toll reported a 3% dip in adjusted earnings for the July-ended quarter to $3.60 a share on a 1% bump up in sales to $2.73 billion. The revenue figure beat FactSet's consensus forecast by $20 million. The Fort Washington, Pa., firm said it was "optimistic that demand will remain solid through the end of fiscal 2024 (ending in October) and into 2025."
For the fiscal year ending in October, Toll raised its deliveries forecast to 10,650-10,750 units, up from 10,400-10,800. It also boosted the FY 2024 earnings estimate to $14.50-$14.75 per share vs. $14.
The stock also hopped back above a prior buy point of 135.37, found by taking the left-side high of a nine-week base. Back on July 18, Toll shares rallied past this pivot point, then proceeded to gain 8.4% to a high of 146.75. Yet amid a broad stock market pullback, Toll forfeited all of that gain and more. By early August, it dropped to as low as 123.01, down 9.1% below the 135.37 buy point and triggering the golden rule of investing.
The key to long-term profits in the stock market today? Follow the golden rule; keep losses in every investment small.
2:50 p.m. ET
Stock Market Today: How The Fed Factored In
Investors didn't quite pour back into stocks upon the release of minutes from the Fed's July meeting on interest rate policy. The minutes showed that a majority of participants in the meeting thought an interest-rate cut was appropriate. But investors also did not sell with force, either.
Indeed, the stock market is holding on to a bullish stance. Yet fund managers appear to be waiting for any clues to how much interest rates could get trimmed by the U.S. central bank. Fed chief Jerome Powell is set to give a brief statement at 10 a.m. ET on Friday, a half hour into the stock market's regular session.
According to the minutes from the Fed meeting, "several participants remarked that reducing policy restraint too soon or too much could risk a resurgence in aggregate demand and a reversal of the progress on inflation." This suggested that the first cut in the fed funds rate would be small.
CME FedWatch, a survey of bond traders, currently shows a 64% probability that the Fed will trim the fed funds rate by a quarter point at its upcoming Sept. 18 meeting to a target range of 5%-5.25%. That's down from 71% on Tuesday.
Updated 1:52 p.m. ET
A Huge Jobs Numbers Revision
Also, the stock market today did not really respond to news from the U.S. Bureau of Labor Statistics on a preliminary report that the total number of jobs created from April 2023 to March 2023 was revised lower by 818,000. Some had estimated a sharper cut of more than 1 million jobs that actually weren't initiated.
"It also helps explain the recent spate of strong earnings reports from U.S. retailers, particularly from well-known discounters, including Walmart, TJX and Target, indicating that consumers have become increasingly careful and discerning (while) seeking out value in their purchases," Quincy Krosby, chief global strategist at LPL Financial, wrote in an email sent to IBD.
Still, the Dow looks much more bullish, chartwise, then it did in early August. Prior to Tuesday, it mounted a five-day rally, rising 3.9% over that time frame. Within the 30-stock blue chip gauge, at least four companies weighed on the action Wednesday, falling one point or more. They included American Express, down more than 3%.
AmEx, Walmart Remain Dow Leaders
AmEx on July 16 rallied past a flat base that showed a 244.41 entry. The financial services giant, holding a stout 91 Relative Strength Rating, dipped just below the buy zone Wednesday.
Walmart, another Dow Jones stock, has also taken a leadership role within both the stock market and among the retail sector.
Shares, up 0.4% and on track for a sixth-straight gain, are now extended beyond the buy zone after they rallied sharply off the 10-week moving average near 69 last week. The boost off the 10-week line offered a secondary entry point; in general, do not buy more than 5% above the 10-week moving average when the rally resumes.
Earlier, Walmart broke out of a shallow base at 60.78 following a good response to fiscal Q1 results on May 16. The stock has since rallied as much as 23%.
Updated 11:48 a.m. ET
Stock Market Today: Target Hits A Bulls-Eye
Target surged nearly 14% with an opening gap up. Clearly, a daily chart and a weekly chart both show Target smashed a long-term downtrend line near 149-150.
The retailing giant reported only a mild 2.7% rise in fiscal second-quarter sales to $25.5 billion. But that beat the consensus of analysts polled by FactSet of $25.2 billion. Further, adjusted earnings leapt 42% to $2.57 a share, well above the $2.18 consensus view. Gross margin improved 190 basis points vs. a year earlier to 28.9%.
"We made a commitment to get back to growth, and our team delivered," Target Chief Executive Brian Cornell said on a call with reporters, according to Barron's.
Target stock is now building the right side of a long base. So, it's not a buy for most investors. But for aggressive traders, Target rushed past near-term resistance near 156.74. So a position could be opened between 156.74 and 164.58, or up to 5% from that early entry.
Retailers Thrive On Target Earnings
Meanwhile, Target's strong investor response in the stock market today boosted its peers.
Costco Wholesale, highlighted in IBD Live earlier this morning, rose 1%. The wholesale club innovator is creeping closer to an 896.67 buy point in a nearly six-month cup pattern. Costco reports earnings on Sept. 26. The megacap retailer has a market value of $392 billion, one of the top 12 within the Nasdaq.
Ross Stores, which reports quarterly results on Thursday, gapped up at the open and surpassed a narrow flat base displaying a 153.06 entry. Volume is running more than triple normal levels so far.
On the downside, JD.com slumped more than 5% in massive turnover. Shares dived back below the key 50-day moving average, yet technically are still in valid base-building phase. A 26 Relative Strength Rating is very weak. In general, focus on quality growth stocks that hold at least an 80 RS Rating or higher.
JD.com's top line rose just 1% to $40.1 billion in the second quarter, but the company grew earnings 73% to $1.29 a share.
Beyond The Stock Market Today
The yield on the key U.S. Treasury 10-year bond held near 3.8%. Yet that's down from last week's high of 3.95% seen on Aug. 15.
A rally in government bonds can boost the stock market today as well. Why? The cost of money goes down, making it easier for corporations to buy back stock and investors to deploy more capital into stocks.
Crude oil futures on the New York Mercantile Exchange rebounded nearly 0.6% near 73.60 a barrel. Oil had fallen hard over the prior three sessions.
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