Dow Jones Futures: Fed rate hike prospects hit market rally; Elon Musk sells more Tesla shares

Dow Jones futures were little changed in extended trading, along with S&P 500 and Nasdaq futures. The stock market rally reversed to the downside on Wednesday after the Federal Reserve set 5.1% as its new target peak rate and Fed Chief Jerome Powell called for ‘substantially more evidence’ that inflation is under control .




x



But stocks trimmed losses in the whiplash action as investors also mulled other comments from Powell and hope for even slower rate hikes for early 2023. Tesla (TSLA) CEO Elon Musk revealed on Wednesday that he sold more than $3.5 billion worth of TSLA stock this week as the stock tumbled to hit new bear market lows. Apple (AAPL) has fallen below its 50-day moving average.

But solar stocks were strong, with Invesco Solar ETF (TAN) showing a buying opportunity, as Energy in phase (ENPH), SolarEdge technologies (SEDG), Prime Solar (FSLR) and Matrix technologies (ARRY) Everyone stood up.

Fed rate hike, cap rate

The central bank raised the federal funds rate by 50 basis points, to 4.25%-4.5% on Wednesday afternoon, as expected. But policymakers, in the new quarterly projections, now also see a top rate of 5.1%, up from 4.6% at the September Fed meeting. Fed Chief Powell had said in recent weeks that the peak rate was likely headed higher. But 5.1% was above market expectations, especially after Tuesday’s relatively modest inflation report.

Fed Chief Powell Hawkish, Dovish

Powell, speaking shortly after the Fed meeting announcement and projections, said the full effects of this year’s Fed rate hikes had not yet been felt, “but we still have a long way to go.” The Fed chief noted the “welcome easing” of price hikes in the last two CPI reports, but said policymakers needed “substantially more evidence to have confidence that inflation is on a sustained downward path.”

Powell did not rule out a further reduction in rate hikes, to just a quarter of a point in February. But it’s more important where the federal funds rate peaks and how long it stays high, he stressed. Notably, Powell sees no rate cuts in 2023.

But he also said “Our politics is getting into a good place now.”

Markets are pricing in a 74% chance of a quarter-point Fed rate hike, to a range of 4.5%-4.75%, up from 60% on Tuesday. Notably, investors are expecting another quarter-point increase in late March but now see a decent chance of not moving at all.

The Fed continues to see a slowdown in growth in 2023, not a full-blown recession.

Major indices, all modestly higher ahead of the Fed meeting announcement and Powell’s speech, fell during volatile trading. For the second session in a row, the S&P 500 moved above its 200-day moving average but closed below that key level.

Investors should be cautious about adding exposure to the current market, with indices volatile and close to key levels.

Dow Jones Futures today

Dow Jones futures tilted higher in fair value. S&P 500 futures fell and Nasdaq 100 futures fell 0.1%.

Crude oil futures fell 1%.

Chinese retail sales plunged 5.9% in November year-on-year, far worse than expected and worse than October’s 0.5% decline. Industrial production rose by 2.2%, with a much higher-than-expected slowdown in growth compared to 5% in October.

Covid lockdowns in China have taken a toll on the economy. Covid rules have been rapidly easing in recent weeks, but China is now bracing itself for a massive wave of infections.

Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session of the stock market.


Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live


Stock market rebound

The stock market rally surged ahead of the Fed meeting announcement, then reversed lower in volatile action for the remainder of the session.

The Dow Jones Industrial Average fell 0.4% in the stock market on Wednesday. The S&P 500 index lost 0.6%. The Nasdaq composite lost 0.8%. The small-cap Russell 2000 was down 0.7%.

Apple shares fell 1.55% to 143.21, again below its 50-day moving average.

US crude prices rose 2.5% to $77.28 a barrel.

The 10-year Treasury yield finished flat at 3.5%.

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 0.4%, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 0.1%. The iShares Expanded Tech-Software Sector (IGV) ETF lost 0.2%. The VanEck Vector Semiconductor (SMH) ETF tumbled 1.7%.

Reflecting shares in more speculative stories, ARK Innovation ETF (ARKK) was down 1% and ARK Genomics ETF (ARKG) was down 0.7%. Tesla shares are a major holding in Ark Invest ETFs.

The SPDR S&P Metals & Mining (XME) ETF was down 0.9%. SPDR S&P Homebuilders ETF (XHB) fell 0.5%. The Energy Select SPDR ETF (XLE) is down 0.6% and the Financial Select SPDR ETF (XLF) is down 1.25%. The Health Care Select Sector SPDR Fund (XLV) rose 0.2%.

Solar actions

The Invesco Solar ETF was up 1.8% to 82.61 on Wednesday. The TAN ETF has a buy point of 84.28 cup-with-handle, but investors could have entered early from the 21-day moving average.

Right now solar stocks are generally moving higher together, so the TAN is a good way to play upside for the sector with less individual equity risk.

Enphase Energy shares, First Solar and SEDG are the three main components, accounting for nearly one-third of TAN’s weight.

ENPH stock is now slightly extended from its cup-with-a-handle buy point, according to analysis by MarketSmith. SEDG stock is also extended from its handle entry. FSLR stock is bouncing off its 10-week line, providing a new buying opportunity.

Array Technologies is also a TAN component. ARRY shares jumped 8.3% to 23.55, just below a 23.60 cup-with-a-handle buy point. But the shares are 12.7% above the 21-day line and 26% above the 50-day line, making it riskier to buy ARRY stock, especially in the current market.


Tesla vs. BYD: Which electric vehicle giant is the best buy?


Tesla shares

TSLA stock fell 2.6% to 156.80 on Wednesday. Shares are now down 12.4% for the week, continuing to set two-year lows. Tesla shares peaked at 414.46 in November 2021.

On Wednesday, Elon Musk revealed that he sold nearly 22 million Tesla shares for more than $3.5 billion in the three days ending December 14th. Musk has sold more than $39 billion worth of Tesla stock since the stock peaked in November 2021.

Trading volume has been especially heavy this week, with Tuesday trading the highest in 13 months.

Goldman Sachs cut its TSLA stock price target on Wednesday and lowered Tesla’s fourth-quarter delivery forecast. Morgan Stanley sees Tesla stock as the best pick for 2023, but has warned that “the brakes are squealing on demand for electric vehicles” in general.

If you covered the ticker TSLA and just looked at the graph, you would get ahead.


Five top Chinese stocks to watch now


Analysis of market rallies

The last couple of days are a great example that it’s not the news, it’s the market’s reaction to the news.

A cooler-than-expected CPI inflation report sent shares flying at the open on Tuesday, but they quickly trimmed gains.

The central raised more-than-expected its forecast for the Fed’s peak rates Wednesday afternoon. Fed Chief Powell made clear that inflation needs to fall much more, although he also gave more dovish signals. The major indices sold off hard, but then cut losses sharply, turning positive briefly before fading again.

The S&P 500, above its 200-day line for the second consecutive session, failed to close above that key level, this time reversing lower. But it found support at the 21-day line, which is closing the gap to the 200-day line.

The Dow Jones and Nasdaq have also successfully tested their 21-day lines. The Russell 2000, which has become a lagging index, has fallen towards its 50-day line.

Despite the disappointment from Tuesday’s opening highs, the major indices are all up around 1.6% for the week, while the Russell 2000 is up 1%.

The stock market often has a second day reaction to Fed meetings, especially with so much flow.


Time The Market with IBD’s ETF Market Strategy


what to do now

The stock market rally provides no reason to increase exposure. Previously, the indices would have had at least one strong session to attract investors, then cut them with steady losses in subsequent sessions.

But right now the major indexes cannot hold a gain.

If you’re buying hard, there’s a good chance you’re buying right in at a short-term high. If you’re buying on weakness, you could be jumping on a sinking ship.

Better to wait for the major indices to show signs of a sustained market rally. This would result in the S&P 500 breaching the 200-day line and thus breaching the December 1st highs for all major indices. Even in this positive scenario, investors should add exposure carefully.

Read The Big Picture daily to stay abreast of market direction and major stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

YOU MAY ALSO LIKE:

Because this IBD tool makes it easy to find the best stocks

Want to make quick profits and avoid big losses? Try SwingTrader

The best growth stocks to buy and watch

IBD Digital – Unlock IBD’s premium stock listings, tools and analysis today

Leave a Reply

Your email address will not be published. Required fields are marked *