Dow Jones futures were little changed Sunday night, along with S&P 500 futures and Nasdaq futures, with the focus on the Federal Reserve meeting.
The stock market has suffered severe losses over the past week due to an unexpectedly hot CPI inflation report as well as some bad earnings reports or warnings. The major indexes fell below their 50-day moving averages and cut some more important levels on Friday. Many leading stocks also struggled.
It’s time for investors to have minimal exposure. Build a watch list with stocks that have relatively strong strength and hold key levels. Tesla (TSLA), Enphase Energy (ENPH), C Holdings (CELH), Wolfspeed (WOLF) and Vertex Pharmaceuticals (VRTX) are all eligible.
Of course, Tesla, Enphase, etc stocks are looking strong right now, but they may not be in the coming days. Many stocks looked strong until last Tuesday. Others look solid until Thursday or Friday.
The Fed’s meeting is on September 20-21. After Tuesday’s consumer price index showed strength everywhere beyond gasoline, markets reinforced expectations for a consecutive interest rate hike. Fed’s third time up 75 basis points. (There is a very small chance of a 100 basis point move.) Investors will focus on what Fed policy suggests for the future.
The Fed’s quarterly projections will signal where policymakers see deposit rates carried forward.
Currently, the market is leaning towards another 75 basis point rate hike in November, followed by another 25 or 50 basis point in December. That would push the granted fund’s target rate to 4%. -4.25% or 4.25% -4.5%, compared to expectations of 3.75% -4% before the CPI report.
Fed Director Jerome Powell will be available for comment after the meeting at 2:30 p.m. ET. Powell made it clear in his August 26 speech at Jackson Hole that the Federal Reserve will not repeat the mistakes of the 1970s by easing policy too quickly.
Dow Jones Futures Today
Dow Jones futures are up 0.1% above fair value. S&P 500 futures lost 0.1% and Nasdaq 100 futures lost 0.3%.
Crude oil prices rose slightly. Natural gas futures prices fell nearly 2%.
China’s Chengdu said its Covid lockdown would end “in an orderly manner”, with public transport and normal work returning on Monday, but with significant restrictions still in place. The southwestern city of more than 21 million people closed on September 1, adding to China’s economic predicament. Chengdu may spur optimism about the Chinese economy, but the “zero-Covid” policy means severe restrictions are a constant threat anywhere in the country.
Stock Market Last week
The stock market has lost ground sharply over the past week, turning tough after a solid rally on Monday.
The Dow Jones Industrial Average fell 4.1% last week stock market trading. The S&P 500 index fell 4.8%. The Nasdaq Composite Index fell 5.5%. The small-cap Russell 2000 was up 4.5%.
The 10-year Treasury note 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%, exactly matching the 11-year high set on June 14.
U.S. crude oil futures fell 1.9% to $85.11 a barrel last week, the third straight weekly decline. Natural gas prices fell 2.7%, but after a week of gains and losses.
Among the Best ETFsThe Innovator IBD 50 ETF (FFTY) slipped 5% last week, while the Innovators IBD Breakthrough Opportunity ETF (BOUT) spent 4.2%. iShares Expanded Software-Technology Sector ETF (IGV) decreased by 8.3%. VanEck Vectors Semiconductor ETF (SMH) spent 6%.
SPDR S&P Metals & Mining ETF (XME) fell 10.3% last week. The United States X Global Infrastructure Development Fund (SAVE) 7.5%. US Global Jets ETF (JETS) slip 5%. SPDR S&P Homebuilders ETF (XHB) decreased by 6.9%. The Energy Select SPDR ETF (XLE) dropped 2.7% and the financial SPDR ETF (XLF) lost 3.9%. SPDR Fund for the Healthcare Sector (XLV) down 2.3%
Enphase stock has rallied 4% over the past week to 318.01, continuing to find support at the rising 21-day line. A 21-day rollback, possibly pausing to catch up to the 50-day line, could offer a safer buying opportunity. Some solar plays are still going strong.
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 of 108.37 could offer an entry positive. In a few weeks, Celsius stock could have a new base of 118.29 buy points.
EV-focused chipmaker Wolfspeed rose 5.25% to 120.21 last week, including Friday’s 2.8% gain. Investors might consider 123.35 as a buy point on WOLF stock from a handle in a longer consolidation.
Vertex stock fell 0.9% last week to 289.42, but gained 0.8% on Friday to push above the 21-day, 50-day, and 10-week lines. A move above the September 12 high of 296.14 would provide an early entry. It is possible that VRTX stock will have a stable base over the next few days, with a buy point of 306.05.
Tesla shares rose 1.2% to 303.35 in the past week, after gaining 10.9% in the previous week. Shares of the EV giant have held support at the 200-day moving average.
The relative strength line for TSLA stock 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.
Traders can use gains above Thursday’s high of 309.12 as a positive entry or short-term high of 314.64. That would still be a long way from the traditional point of purchase.
For all of these stocks, weak market conditions increase the risk of buying.
Stock market analysis
The stock market started the week off strong on Monday, which seems like a long time ago. The major indexes fell to the 50-day moving average on Tuesday. On Friday, the Nasdaq and S&P 500 closed below their September lows and late-July lows, even as they went to their intraday lows.
The major indexes have now retracted more than half of their gains from mid-June to mid-August.
Yes, some of the top stocks held firm, but for every Tesla, Vertex or Celsius, there were some quality names that suffered heavy losses.
Tuesday’s CPI report not only caused severe technical damage to the market but also weakened the broader bullish case. Investors have bet that a tame inflation report will prompt the Fed to start a slow rate hike, at least after September. Those hopes have been pushed back.
This is the second time that markets have been overly optimistic about Fed policy. The summer rally was fueled in no small part by investors expecting the Fed to end up raising rates soon — and then start cutting rates around 2023. Powell’s speech at Jackson Hole ended talk of “the Fed’s pivot” to cutting rates.
It’s possible that the actual Fed meeting on Wednesday won’t be a big mover in the market, given how much investors have adjusted over the past three weeks.
Rates will go high and stay there for a long time. The Fed is willing to let the US fall into a recession to limit inflation.
Aside from falling jobless claims, which only added to the Fed’s concerns, recent economic data has been disappointing. An environment of high inflation, high wages, low growth is a huge challenge for any company.
Harmful FedEx (FDX) earnings and commentary, mixed results from Adobe (ADBE) and warnings from Nucor (NUE) and US Steel (X) reflects that companies face a long period of uneven or weak results. The multinationals and exporters that dominate the S&P 500 may be particularly exposed, given the strong dollar coupled with weakness in Europe and China.
What to do now
The stock market is not in good shape. Poor macroeconomic conditions. Investors must consider that the market could cut to the June lows or swing in the range of weeks or even months until there is real clarity on the eventuality of a rate hike. of the Fed.
Investor exposure should be kept to a minimum. There’s nothing wrong with going 100% cash, especially if recent transactions go against you.
Focus on building your watch list, paying attention to stocks that show resilience. If the market remains weak, some of these names will level off, while others will increase in price. It is important to have an updated list as market conditions improve and you are ready to take advantage.
Read Big picture every day to stay in sync with market trends and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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