Investors were emboldened after the Federal Reserve reiterated plans for cutting interest rates this year, and drove all three major indexes higher at the close Wednesday. The Nasdaq composite paced a broad market rally, while Tesla led the tech-heavy index's charge on the stock market today.
The major indexes accelerated the rally after the 2 p.m. ET announcement from the Fed, then pared some gains by the close. The Nasdaq jumped as much 2.2% before ending the day with a 1.4% gain. The tech-heavy index, finishing Wednesday's trading at 17,750, remains down 8% for the year, however. That marks a stark contrast with a 43.4% jump in 2023 and 28.6% surge last year.
The S&P 500 moved back toward session highs with a gain of 1.1% to 5,675, not far off its intraday high of 5,715, while the Dow Jones Industrial Average climbed 383 points, good for a 0.9% rise. At least nine of the 30 Dow Jones components gained four points or more, including banks Goldman Sachs and JPMorgan Chase.
The Dow, at 41,964, is only a 35-point gain away from potentially retaking its long-term 200-day moving average.
Only Amgen, Honeywell and Johnson & Johnson fell one point or more within the Dow industrials. Amgen has been constructing a long cup with handle that shows a 335.88 proper buy point. Amgen shows a relatively robust 84 Relative Strength Rating — seventh best within the Dow Jones 30 — and trades just 9% below a 52-week high of 346.85.
Small Caps Join The Party
Small caps joined the party, with the Russell 2000 up 1.6% at the close.
Overall, the action resembled what an investor might look for in a follow-through day. IBD research over decades of stock market bottoms shows that the follow-through is a highly timely signal to begin deploying capital in leading growth stocks. Not every follow through works. But every major uptrend going back to 1900 featured one.
From a 30,000-foot view, breadth in the stock market today seemed healthy. Advancers led decliners by roughly 5-to-2 on both the Nasdaq and New York Stock Exchange. Overall volume was running slightly lower vs. the same time on Tuesday on both the Nasdaq and NYSE.
The yield on the benchmark U.S. 10-year government bond dipped three basis points to 4.25%. The current fed funds rate holds, for now, at 4.25%-4.5%.
3:34 p.m. ET
Fed Pencils In Cuts For 2025
The Federal Reserve concluded its two-day meeting Wednesday and penciled in cuts amounting to a half-percentage point for this year. That's likely to come in two reductions, with many seeing the first coming in June. Policymakers tweaked economic projections and said they anticipated slower growth for the rest of the year.
Fed Chair Jerome Powell reiterated that the economy is healthy and labor markets remain strong. Powell held his usual conference with the media that began around 2:30 p.m. ET. However, a check of the "dot plot" summary of economic projections among 19 Fed officials polled
Preston Caldwell, chief U.S. economist at Morningstar, commented that current interest rates are "still well above the pre-pandemic average federal funds rate of 1.7%," according to an email sent to IBD. "That divergence sets the expectation that the Fed will eventually enact further rate cuts."
Caldwell used the average fed funds rate from 2017 to 2019, just ahead of the Covid-19 virus that shut down the global economy and threatened a severe recession across continents. On Wednesday, the 3-month Treasury bill yield edged lower to 4.33% while the 2-year note fell 5 basis points to 3.99%, according to U.S. Treasury Department data. Exactly five years ago, the 3-month yield was at 2.46% and the 2-year stood at 2.46%. But eight years back in 2017, the rates were around 0.73% and 1.33%, respectively.
Jamie Cox, managing partner for Richmond, Va.-based Harris Financial Group, noted in an email to Investor's Business Daily that the Fed indirectly cut rates Wednesday "by taking action to reduce the pace of runoff of its Treasury holdings."
The U.S. central bank has steadily been selling off U.S. Treasuries and asset-backed agency mortgage debt securities for years to reduce its balance sheet. At the peak, the Fed's holdings stood near $9 trillion. Until Wednesday's decision, the Fed had been rolling over any maturing Treasury bonds that exceeds a cap of $25 billion each month. Beginning in April, that cap will be reduced to $5 billion per month.
2:24 p.m. ET
Stock Market Today: These Industries Pace The Rally
Among the 197 industries followed by Investor's Business Daily, the day's advance was paced by movie makers, cable and satellite telecom firms, discount and variety retail operators, airlines, specialty steel alloy companies and automaker stocks. All these groups rose 2.3% or more on a price-weighted basis.
Illustrating the tech move was the Innovator IBD 50 exchange traded fund, a gauge of high-growth companies across the market-cap spectrum. It advanced 1.2%, building on morning gains, and continued to trade near session highs.
Notice on a daily chart, however, that this ETF remains bearishly below its 50-day and 200-day moving averages. A healthy stock or ETF tends to trade above these critical technical levels, not below them. Put another way, buying select growth stocks now entails more risk than normal in the current stock market.
At 27.81, the IBD 50 ETF lies 19% below its year-to-date high of 34.26.
1:53 p.m. ET
Shopify Jumps In High Volume; Netflix Surges
Meanwhile, Shopify got a boost on news that it's departing the New York Stock Exchange and heading for the Nasdaq. Shopify stock traded in volume running twice its normal levels. It's trying to build a new base after a February breakout past a flat-base 120.72 entry point yielded a bitter harvest.
Another winner Wednesday was Netflix, which moved more than 3% higher as it continues to act better than its fellow megacap siblings on the Nasdaq. The streaming video giant, which boasts a top-notch 99 Composite Rating from Investor's Business Daily, moved 2.2% higher for its third gain in four sessions. Shares are trying to retake their 50-day moving average, and continue to make progress on a new base.
Analysts polled by FactSet see Netflix growing earnings 25% this year to $24.82 a share. In 2019, the Los Gatos, Calif.-based company earned $4.13 a share.
12:42 p.m. ET
Magnificent Seven: Tesla Accelerates But Still Has Miles To Go
Tesla jumped more than 4%. But the megacap growth stock, a solid winner in 2024, remains far from any Investor's Business Daily-style buy point.
Tesla reportedly got a passenger transportation permit from California's Public Utilities Commission, opening the door to begin the beta-testing of its self-driving taxi, dubbed by Chief Executive Elon Musk as the "Cybercab" at an event in Hollywood late last year.
According to IBD Stock Checkup, Tesla holds a weak 46 Composite Rating on a scale of one to 99. Despite a nice gain Wednesday morning, TSLA still languishes 52% below its all-time peak of 488.54. The electric-vehicle and battery-storage titan remains poised for its ninth straight losing week. So far this week, shares have fallen 5.7%.
Wednesday Fed Watch: What The Stock Market Wants To Hear
Meanwhile, Apple — another heavyweight in the Mag 7, Nasdaq and Dow Jones index — also helped the cause. Shares were up more than 1%.
The only Mag 7 player to lose ground was Meta Platforms. The Facebook, Instagram and WhatsApp operator edged lower. Shares are making a vital test of support at the climbing 40-week moving average on the weekly chart. Meta has risen more than sevenfold from its late 2022 low of 88.09.
10:42 a.m. ET
The Latest IBD Podcast: How To Gauge A Stock Market Correction
Stock Market Today: Insurance Stock Leader Hit Hard
On the downside, Progressive dropped hard. Shares gapped lower at the open and fell to a low of 267.39. That is below a recent pivot point in a symmetrical base.
Such action is disappointing, given that the auto and home insurer also wiped away nearly four weeks' worth of gains since the breakout.
Progressive also now sits below its 21-day exponential moving average, breaking expectations.
Bank of America failed to join the rebound. The money center bank was flat. It now trades below its long-term 200-day moving average, and holds a lackluster 69 Relative Strength Rating.
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