Dow Jones Futures: Market Rallies Strongly As Powell Hints At Slower Fed Rate Hikes, But Watch Out For ‘Day 2’

Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures, with Meta Platforms and Qualcomm reporting earnings.

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The stock market rally had big gains Wednesday after the Federal Reserve hiked rates by 75 basis points for a second straight meeting. Fed chief Jerome Powell signaled that policymakers are looking toward slowing the pace of tightening down the road, even as the economy remains stressed and inflation focused.

The major indexes already were modestly to strongly higher, fueled by positive reactions to earnings from Microsoft (MSFT), Google parent Alphabet (GOOGL) and Enphase Energy (ENPH).

Sen. Joe Manchin, D-W.V., announced a deal with Senate Majority Leader Chuck Schumer late Wednesday on a reconciliation bill with tax, climate and energy provisions. The deal, which could face a number of hurdles, includes a 15% minimum corporate tax rate, drug price controls, ObamaCare subsidy increases and pro-solar and green energy provisions.

Fed Meeting

The Federal Reserve raised rates by 75 basis points on Wednesday afternoon, lifting the rate to a target of 2.25%-2.5%.

The central bank slightly downgraded its view of the economy, noting that “spending and production have softened.” But “job gains have been robust” while “inflation remains elevated.”

Fed chief Powell, speaking after the Fed meeting, stressed that policymakers are “strongly committed to bringing inflation down.” He said the economy is “resilient” with labor markets “extremely tight.”

Powell said it will likely be “appropriate” to slow Fed rate hikes as they become “more restrictive.” He expects Fed rates to be “moderately restrictive” by year-end, which he said would be in the 3%-3.5% range.

After the Fed rate hike and Powell’s comments, the odds of a 50-basis-point move on Sept. 21 rose to 56% from about 50-50 before the Fed announcement. Further out, markets expect modest moves over the year’s final two Fed meetings, to end the year around 3.25%-3.5%.

Key Earnings

Meta Platforms (META) and Qualcomm (QCOM) headlined key earnings, with chip-equipment maker Lam Research (LRCX), ServiceNow (NOW), O’Reilly Auto (ORLY), Ford Motor (F) and Teladoc Health (TDOC) also reporting late Wednesday.

Meta stock retreated solidly after the Facebook parent missed on earnings, reported its first-ever revenue decline and guided low.

Qualcomm stock fell modestly overnight on weak revenue guidance.

LRCX stock fell slightly after better-than-expected quarterly results.

NOW stock tumbled as the business software giant cut subscription revenue guidance after slightly beating Q2 views.

Ford stock popped after easily beating views, with a 423% EPS gain.

ORLY stock fell after earnings fell short and the auto parts retailer guided lower.

TDOC stock plunged after the telemedicine specialist guided to the low end of full-year targets. Teladoc reported a huge Q2 loss due to a big impairment charge, though revenue slightly beat.

Meanwhile, Best Buy (BBY) cut its full-year forecast, citing weaker consumer spending amid high inflation. BBY stock fell modestly.

Early Thursday, Pfizer (PFE) and Merck (MRK) are on tap. Pfizer stock is near a trendline entry. Merck stock has been trading near its 50-day line as it consolidated for the past two months.

Late Thursday, Apple (AAPL) and Amazon.com (AMZN) are on tap. Apple stock is modestly below its 200-day line after running up past its 50-day earlier this month. AMZN stock is also somewhat above its 50-day line.

Dow Jones Futures Today

Dow Jones futures fell 0.1% vs. fair value. S&P 500 futures dipped 0.2%. Nasdaq 100 futures lost 0.4%.

Crude oil prices climbed more than 1%.

At 8:30 a.m. ET, the Commerce Department will release second-quarter GDP. Economists expect a 0.5% annualized gain, following a 1.6% drop in Q1. A back-to-back GDP decline would not officially mark a U.S. recession. National Bureau of Economic Research economists rule on business cycle changes, usually long after the fact.

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 rose Wednesday, led by big-tech earnings, then added to gains on the Fed rate hike decision and Fed chief Powell’s comments.

The Dow Jones Industrial Average rose 1.4% in Wednesday’s stock market trading. The S&P 500 index popped 2.6%. The Nasdaq composite soared 4.1%. The small-cap Russell 2000 gained 2.3%.

U.S. crude oil prices rose 2.4% to $97.26 a barrel. Natural gas futures fell 3.4%.

ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 2.3%, while the Innovator IBD Breakout Opportunities ETF (BOUT) climbed 1.1%. The iShares Expanded Tech-Software Sector ETF (IGV) leapt 4.3%, with Microsoft stock a major component. The VanEck Vectors Semiconductor ETF (SMH) jumped 4.7%, with QCOM stock and Lam Research major components.

SPDR S&P Metals & Mining ETF (XME) gained 3.4% and the Global X U.S. Infrastructure Development ETF (PAVE) advanced 2.1%. U.S. Global Jets ETF (JETS) ascended 3.1%. SPDR S&P Homebuilders ETF (XHB) climbed 2.1%. The Energy Select SPDR ETF (XLE) bounced 2.3% and the Financial Select SPDR ETF (XLF) 1.5%. The Health Care Select Sector SPDR Fund (XLV) edged up 0.6%, with Pfizer and MRK stock major holdings.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) soared 6.7% and ARK Genomics ETF (ARKG) gained 3.9%.

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Meta Earnings

Facebook-parent Meta Platform’s earnings and revenue fell short, with the social media giant also guiding low on Q3 revenue.

Meta stock fell nearly 5 % in overnight action. Shares popped 6.55% to 169.58 on Wednesday, moving on Google earnings and the general market rally. META stock had sold off 13% in the prior three sessions following the weak Snap (SNAP) report and guidance.

Qualcomm Earnings

Qualcomm earnings and revenue slightly beat fiscal Q3 EPS and revenue views, though gross margin was a little light. The wireless chip giant also guided low on Q4 revenue.

QCOM stock sank almost 4% in extended trade. Shares rose 2.3% to 153.42 in Wednesday’s trading, stopping short of the 200-day line.

Market Rally Analysis

The stock market rally enjoyed big gains Wednesday after some noticeable losses over the past few sessions. The Nasdaq and S&P 500 rebounded from near their 50-day lines.

But watch out for a day two reaction. The major indexes also rallied after the prior two Fed meetings, but then sold off the next day.

While investors cheered Powell’s slightly dovish hints on Wednesday, they may focus on why Fed rate hikes may start to slow, namely a weak economy. That makes that Q2 GDP report especially important.

Meanwhile, getting above the last week’s highs will be the next test for the major indexes, followed by the early June peaks.

There still aren’t a lot of stocks to buy. Growth stocks may be poking out of three-day consolidations but often within ugly charts.

It was encouraging to see Microsoft and Google rebounding strongly despite missing earnings views. Tempur-Sealy (TPX) bounced despite weak results and lowered guidance.

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What To Do Now

With the Fed meeting and many big earnings out of the way, some of the hyper-uncertainty facing investors is fading. The market rally weathering this news-packed week, so far, is definitely a positive.

There could still be a “day two” Fed meeting reversal. Also, Apple and many others are still reporting this week, along with GDP data and other key economic reports.

With a limited number of good-looking stocks in position, investors may want to increase exposure via broad-market or sector ETFs.

But if the market continues to improve, buying opportunities will present themselves and new positions will deliver solid gains. So work on your watchlists.

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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