Dow Jones Futures: Inflation Report Due After S&P 500 Surges Above 200-Day On Fed Chief Powell

Dow Jones futures tilted higher Thursday morning, along with S&P 500 futures and Nasdaq futures. Salesforce.com headlined earnings overnight but investor focus will be on Thursday’s PCE inflation report after Fed chief Jerome Powell triggered a tech-led stock market rally on Wednesday.

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The pace of rate hikes could start to slow at the December meeting, Fed chief Powell said Wednesday, providing more-explicit support for a smaller increase at the upcoming meeting. But Powell stuck to his view that the fed funds rate will likely reach 5% or more. The current fed funds rate range is 3.75%-4%. Powell also noted that a lot of factors propping up inflation are easing. The Fed chief, who has suggested that a recession may be necessary, said a “soft landing” is still possible.

The Nasdaq led the way, with Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA), Tesla (TSLA) and Google parent Alphabet (GOOGL) all outpacing the composite. Notably, the S&P 500 index shot up to clear the 200-day moving average, a key resistance area.

On Thursday, investors will get the October PCE price index, with the November jobs report due Friday morning.

So while Wednesday’s action was encouraging, investors should await the market reaction to the Fed-critical data.

Key Earnings

Salesforce.com (CRM), Snowflake (SNOW) and Box (BOX) led a number of software earnings reports. Pure Storage (PSTG) and Victoria’s Secret (VSCO) also reported.

CRM stock fell solidly in premarket trade as Salesforce earnings topped but guidance was light. Co-CEO Bret Taylor will step down, leaving Marc Benioff as sole CEO. SNOW stock fell modestly early Thursday after initially diving Wednesday evening on conservative Snowflake revenue guidance. Box stock was little changed as EPS just topped and sales slightly missed.

PSTG stock rose modestly early Thursday after Pure Storage topped Q3 views and raised guidance. Shares fell about 1% Wednesday after plunging intraday on weak results and guidance from NetApp (NTAP). VSCO stock fell modestly before the open as Victoria’s Secret earnings topped but sales fell just short.

Early Thursday, Dollar General (DG) missed on earnings and guided low on Q4 EPS. DG stock tumbled, signaling a move below the 50-day line and perhaps the 200-day.

Chinese EV makers Nio (NIO), Li Auto (LI) and Xpeng (XPEV) reported November sales early Thursday. Nio and Li Auto, with newer models, reported record monthly deliveries. Xpeng deliveries plunged vs. a year earlier, but rose slightly vs. October and with hopes of a big jump in December. All three stocks fell in premarket trade after skyrocketing Wednesday, along with other Chinese names, on Covid reopening hopes.

Inflation Report

The Commerce Department will release the PCE price index, the Fed’s favorite inflation gauge, at 8:30 a.m. ET as part of the income and spending report.

The October PCE price index should show a 0.4% increase vs. September. Year over year, PCE inflation should cool to 6% from September’s 6.2%. Core PCE, which excludes food and energy, is expected to be up 0.3%. The core PCE inflation rate is seen dipping to 5% from September’s 5.1%.

The PCE inflation report, along with the November jobs report Friday, will help shape Fed rate hike expectations. The November consumer price index will be released on Dec. 13, one day before the Fed’s December meeting announcement.

Earlier Wednesday, ADP reported a sharp slowdown in private-sector hiring in November. Also, the JOLTs survey showed job openings fell more than expected in October. Q3 GDP growth was revised up more than expected, along with the report’s inflation gauge.

Dow Jones Futures Today

Dow Jones futures rose less than 0.1% vs. fair value, reversing from slim losses, even with CRM stock a drag on blue chips. S&P 500 futures and Nasdaq 100 futures climbed 0.1%.

The 10-year Treasury yield tumbled 11 basis points to 3.59%.

Gold and silver prices jumped as the dollar fell, threatening to undercut recent lows.

Crude oil futures climbed 1%, with natural gas up 3%.

Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.

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Stock Market Rally

The stock market rally was mixed for much of Wednesday’s session, then took off on Fed chief Powell’s comments, closing at session highs.

The Dow Jones Industrial Average popped 2.2% in Wednesday’s stock market trading. The S&P 500 index leapt 3.1%. The Nasdaq composite jumped 4.4%. The small-cap Russell 2000 rose 2.7%.

Apple stock climbed 4.9% and Google stock gained 6.1%, both back above their 50-day. Microsoft stock and Nvidia, already above their 50-day lines, leapt 6.2% and 8.2%, respectively. Tesla stock raced 7.7% higher, retaking its 21-day line.

U.S. crude oil prices popped 3% to $80.55 a barrel, but fell 6.9% for the month. China Covid reopening hopes also lifted copper futures.

Treasury Yields And Fed Rate Hike Odds

The 10-year Treasury yield reversed lower, falling 5 basis points to 3.7%. The two-year Treasury yield, more closely tied to Fed policy, sank to 4.33%, despite Powell expecting a peak fed funds rate of at least 5%.

The odds of a 50-basis-point Fed rate hike are now around 79% vs. 66% after Tuesday. Markets still see another half-point move as a slight favorite in February, but the odds of a quarter-point move have topped 45%.

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ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.8%, while the Innovator IBD Breakout Opportunities ETF (BOUT) climbed 2%. The iShares Expanded Tech-Software Sector ETF (IGV) popped 4.4%, with Microsoft and CRM stock both major components. The VanEck Vectors Semiconductor ETF (SMH) leapt 5.7%, with Nvidia stock a top holding.

SPDR S&P Metals & Mining ETF (XME) advanced 3.75% and the Global X U.S. Infrastructure Development ETF (PAVE) rose 2.4%. The Energy Select SPDR ETF (XLE) edged up 0.5% and the Financial Select SPDR ETF (XLF) rose 1.7%. The Health Care Select Sector SPDR Fund (XLV) added 2.4%.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) soared 7.7% and ARK Genomics ETF (ARKG) 6.5%. Tesla stock remains a major holding across Ark Invest’s ETFs.

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Market Rally Analysis

The stock market rally made a big, bullish move in heavy volume Wednesday on Fed chief Powell’s comments.

The S&P 500 index rebounded from near its 21-day line to top the 4,000 level and move above its 200-day line for the first time in seven months.

The Nasdaq composite, the laggard in the market rally, led the upside Wednesday. It reclaimed its 21-day line and the 11,000 level to settle at a two-month closing high. Apple stock, Microsoft, Google, Nvidia and Tesla had strong gains Wednesday, but it’s not clear that any of them will be leaders in the current uptrend.

The Russell 2000, which had undercut its 21-day line intraday, rebounded to retake its 200-day. The Dow Jones, which has led the current market rally, is back to a fresh seven-month high.

Advancers trounced losers with broad-based gains. Many leading stocks that had come under pressure shored up on Wednesday.

While there was a lot of positive action Wednesday, the S&P 500 remains below its 200-day moving average. The October PCE inflation report on Thursday and the November jobs report on Friday could reinforce Wednesday’s bullish bounce or trigger a bearish retreat.

Keep in mind that the current market rally has had numerous big one-day gains, but then has struggled to make headway over the next few days or weeks.

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What To Do Now

The stock market rally had a strong session, with the major indexes and leading stocks making encouraging moves.

Investors likely were tempted to increase exposure on Wednesday, and doing so may work out.

But good reasons remain not to increase exposure quite yet. The S&P 500 is above its 200-day line, but not decisively so. Doing so would likely mean topping a long, declining-tops trendline on a weekly chart. Getting decisively above this area could be a strong signal the current uptrend is more than a bear market rally.

But that will require a positive reaction to the upcoming PCE inflation data and jobs report.

Investors should be working furiously on their watchlists, looking at promising stocks from a variety of sectors. But definitely stay engaged. The market rally could be at a turning point, but which way will it turn.

Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.

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

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