Dow Jones futures open Sunday night, along with S&P 500 and Nasdaq futures, with the Federal Reserve meeting in focus.
The stock market suffered damaging losses over the past week on a surprisingly hot CPI inflation report as well as dire earnings reports or warnings. Major indices traded below their 50-day moving averages and undervalued other key levels on Friday. Many leading stocks also struggled.
This is the time for investors to have minimal exposure, at most. Build watchlists with stocks that have strong relative strength and hold key levels. You’re here (TSLA), Enphase Energy (ENPH), Celsius Fund (CELH), Wolfspeed (WOLF) and Vertex Pharmaceuticals (VRTX) are all eligible.
Of course, Tesla stocks, Enphase, etc. seem sturdy now, but they might not be in the next few days. Many stocks looked solid until last Tuesday. Others looked solid through Thursday or Friday.
WOLF stock is on the IBD Leaderboard watchlist. Tesla, Enphase and CELH stocks are on the IBD 50. ENPH and Vertex stocks are on the IBD Big Cap 20.
The Fed meeting will take place on September 20-21. In the wake of Tuesday’s consumer price index, which showed strength everywhere outside of gasoline, markets bolstered expectations of a third consecutive Fed rate hike of 75 basis points. base. (There’s a slim chance of a monster 100 basis point move.) Investors will focus on what Fed policy suggests going forward.
The Fed’s quarterly projections will indicate where policymakers see the fed funds rate further.
Right now, the market is tilting towards another 75 basis point rate hike in November, followed by 25 or 50 basis points in December. That would push the target federal funds rate to 4%-4.25% or 4.25%-4.5%, versus expectations of 3.75%-4% ahead of the CPI report.
Fed Chief Jerome Powell will comment after the meeting at 2:30 p.m. ET. Powell made it clear in his Aug. 26 speech in Jackson Hole that the Federal Reserve would not repeat its mistakes of the 1970s by easing policy too quickly.
Dow Jones Futures Today
Dow Jones futures open Sunday at 6 p.m. ET, along with S&P 500 and Nasdaq 100 futures.
Remember that overnight action on futures contracts on Dow Jones and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join the experts at IBD as they analyze actionable stocks in the stock market rally on IBD Live
Stock market last week
The stock market has suffered steep losses over the past week, reversing hard after strong gains on Monday.
The Dow Jones Industrial Average fell 4.1% in stock trading last week. The S&P 500 index fell 4.8%. The Nasdaq composite fell 5.5%. Small cap Russell 2000 fell 4.5%.
The 10-year Treasury yield rose 13 basis points to 3.45%, the seventh consecutive weekly gain. At one point on Friday, the 10-year yield hit 3.483%, matching exactly the 11-year high set on June 14.
U.S. crude oil futures fell 1.9% to $85.11 a barrel last week, a third straight weekly decline. Natural gas prices fell 2.7%, but after a crazy week of gains and losses.
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) slipped 5% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 4.2%. The iShares Expanded Tech-Software Sector ETF (IGV) plunged 8.3%. ETF VanEck Vectors Semiconductor (SMH) fell 6%.
The SPDR S&P Metals & Mining ETF (XME) plunged 10.3% last week. The Global X US Infrastructure Development ETF (PAVE) 7.5%. The US Global Jets ETF (JETS) slipped 5%. The SPDR S&P Homebuilders ETF (XHB) fell 6.9%. ETF Energy Select SPDR (XLE) lost 2.7% and ETF Financial Select SPDR (XLF) lost 3.9%. SPDR healthcare sector fund (XLV) fell 2.3%
Reflecting more speculative stocks, ARK Innovation ETF (ARKK) fell 4.5% last week and ARK Genomics ETF (ARKG) 5.3%. Tesla stock is a major holding in Ark Invest’s ETFs.
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Enphase stock rose 4% last week to hit 318.01, continuing to find support on a 21-day rising line. A 21-day pullback, perhaps interrupting the 50-day line’s catch-up, could provide a safer buying opportunity. A number of solar games still look solid.
CELH stock fell 4.9% to 100.70 last week, but found support at the 10-week moving average. A move above Thursday’s high at 108.37 could offer an aggressive entry. In a few weeks, Celsius stock could have a new base with a buy point of 118.29.
Electric vehicle-focused chipmaker Wolfspeed rebounded 5.25% to 120.21 last week, including Friday’s 2.8% gain. Investors could treat 123.35 as a buy point for WOLF shares from a handful in a longer consolidation.
Vertex stock fell 0.9% last week to 289.42, but rose 0.8% on Friday to break above the 21-day, 50-day and 10-week lines. A move above the September 12 high at 296.14 would offer early entry. It is possible that VRTX stock will have a flat bottom in a few days, with a buy point of 306.05.
Tesla stock rose 1.2% to 303.35 last week, after climbing 10.9% the previous week. Shares of the electric vehicle giant held support at the 200-day moving average.
The relative strength of TSLA stocks has improved significantly. over the past two weeks, hitting a five-month high. The RS line, the blue line in the chart provided, tracks a stock’s performance against the S&P 500 Index.
Investors could use a move above Thursday’s high of 309.12 as an aggressive entry, or the short-term high of 314.64. That would still be a far cry from a traditional point of purchase.
For all of these stocks, weak market conditions increase the risks of any buy now.
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Stock market analysis
The stock market started last week with a strong gain on Monday, which now seems like a long way off. Major indexes dipped in their 50-day moving averages on Tuesday. On Friday, the Nasdaq and S&P 500 closed below their September and late-July lows, even as they hit intraday lows.
The major indexes have now retraced more than half of their gains from mid-June to mid-August.
Yes, some top stocks held up, but for every Tesla, Vertex, or Celsius, several quality names suffered damaging losses.
Tuesday’s CPI report not only did serious technical damage to the market, it undermined the broader bullish case. Investors had been betting that a subdued inflation report would prompt the Fed to start easing rate hikes, at least after September. Those hopes were dashed.
This is the second time that the markets have been too bullish on Fed policy. The summer rally was spurred in large part by investors expecting the Fed to end rate hikes soon — then start tapering sometime in 2023. Powell’s speech in Jackson Hole ended talk of a “Fed pivot” to cut rates.
Wednesday’s Fed meeting may not be a big market mover, given the degree of investor adjustment over the past three weeks.
The rates will skyrocket and stay there for an extended period of time. The Fed is ready to push the United States into recession in order to squeeze inflation.
Aside from the drop in jobless claims, which only heightened Fed concerns, recent economic data has been disappointing. A high inflation, high wage and low growth environment is a huge challenge for any business.
The disastrous fedex (FDX) results and comments, mixed results from Adobe (ADBE) and the warnings of Nucor (NUDE) and American steel (X) indicates that companies are facing a long period of uneven or weak results. Multinationals and exporters that dominate the S&P 500 could be particularly exposed, given the strength of the dollar and the weakness of Europe and China.
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What to do now
The stock market is not looking good. Macroeconomic conditions are poor. Investors should consider that the market could undercut the June lows or stay in a range for weeks, if not months, until there is real clarity on the end game for the rate hikes. Fed.
Investor exposure should be minimal. There’s nothing wrong with being 100% cash, especially if recent trades have worked against you.
Focus on building your watchlists, paying attention to stocks that show resilience. If the market remains weak, some of these names will falter, while others will surge. The key is to have an updated list when market conditions improve and you’re ready to take advantage.
Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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