Dow Jones futures rose Thursday morning, along with S&P 500 futures and Nasdaq futures. The stock market rally roared back on Wednesday after the Federal Reserve sped up its bond taper and forecast three Fed rate hikes next year.
The Fed rate hike forecast was more hawkish than expected, but the major indexes turned positive, then raced higher as Fed chief Jerome Powell spoke after the policy meeting.
Late Wednesday, homebuilder Lennar (LEN) reported disappointing results. LEN stock fell solidly overnight.
Stocks Flashing Buy Signals
Advanced Micro Devices (AMD) and Nvidia stock rocketed from their 50-day lines Wednesday, soaring 8% and 7.5%, respectively. Google parent Alphabet (GOOGL) reclaimed its 50-day line. Applied Materials (AMAT) rebounded from its 50-day line as it works on a new base. J.B. Hunt Transportation Services (JBHT) is hovering near new highs. Arista Networks (ANET) broke out. Eli Lilly (LLY) soared on strong guidance, breaking out after flashing early entries soon after the open.
AMD stock and Nvidia (NVDA) offered early entries, though the pullbacks were a bit steep. AMAT stock offered a bullish bounce while J.B. Hunt is still close to its 50-day line. Google stock is at least setting up while Arista and LLY stock were actual breakouts.
Tesla (TSLA) rose 1.8% on Wednesday to 975.99, after just undercutting Tuesday’s lows intraday. TSLA stock is still below the 50-day line. But the EV giant looks much better than rivals, including Rivian stock, Lucid (LCID) and especially China startups such as Nio (NIO). Rivian (RIVN) reports earnings for the first time since its IPO on Thursday night.
AMD, Nvidia, Arista, Google and Tesla stock are on IBD Leaderboard. AMD and ANET stock joined SwingTrader. Google stock is on IBD Long-Term Leaders. AMD, Nvidia, Applied Materials and ANET stock are on the IBD 50.
The video embedded in this article covered a big market day and analyzed LLY stock, AMD and Nutrien (NTR).
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Fed Meeting Decision
As expected, the Fed meeting concluded with policymakers agreeing to speed up the bond taper. The Fed will now reduce asset purchases by $30 billion a month vs. the prior $15 billion a month. That puts the central bank on track to stop buying Treasuries and asset securities by mid-March, setting the stage for Fed rate hikes in the spring, rather than after mid-2022.
But the Fed meeting surprise was that a majority of Fed policymakers now expects three Fed rate hikes next year. Investors had bet on two rate hikes, though three increases were seen as a possibility.
Fed chief Jerome Powell said policymakers have started to discuss what to do with the central bank’s $4.5 trillion balance sheet. But he said it’s important to be “careful, methodical” about that. “Markets can be sensitive,” he said.
The faster Fed taper comes after hot inflation reports over the past week, with consumer inflation at a 39-year high of 6.8% and wholesale inflation at a record 9.6%. But November retail sales were much weaker than expected, rising just 0.3% vs. October, the Commerce Department said Wednesday.
Dow Jones Futures Today
Dow Jones futures rose 0.6% vs. fair value. S&P 500 futures advanced 0.6%. Nasdaq 100 futures climbed 0.5%, well off premarket highs.
The Bank of England raised interest rates Thursday morning to 0.25% from 0.1%, to combat soaring inflation. On Wednesday, the Federal Reserve agreed to speed up its bond taper and signaled that it will hike rates three times in 2022.
The 10-year Treasury yield rose 1 basis point to 1.47%, reversing modest overnight losses. Crude oil prices edged higher, paring overnight gains. Copper futures jumped 3%.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally
The stock market rally traded lower ahead of the Fed meeting, but raced higher in the final two hours of Wednesday’s session.
The Dow Jones Industrial Average rose 1.1% in Wednesday’s stock market trading. The S&P 500 index jumped 1.6%, with LLY stock, AMD and Nvidia the three best performers. The Nasdaq composite leapt 2.15%. The small-cap Russell 2000 rebounded 1.65%.
This is an important day to read The Big Picture.
The 10-year Treasury yield rose 2 basis points to 1.46%.
Crude oil prices rose 0.2% to $70.87 a barrel, turning positive following the Fed meeting announcement. Crude futures undercut $70 in the morning but pared losses after U.S. crude inventories fell more than expected in the latest week.
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Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 2.4%, while the Innovator IBD Breakout Opportunities ETF (BOUT) popped 2.5%. The iShares Expanded Tech-Software Sector ETF (IGV) climbed 2.5%. The VanEck Vectors Semiconductor ETF (SMH) leapt 4.1%, with AMD, AMAT and Nvidia stock all key components.
SPDR S&P Metals & Mining ETF (XME) dipped 0.4%, as Nucor (NUE) led a steel meltdown and Global X U.S. Infrastructure Development ETF (PAVE) edged up 0.6%. U.S. Global Jets ETF (JETS) just edged higher, but erased big intraday losses. SPDR S&P Homebuilders ETF (XHB) climbed 1.5%. The Energy Select SPDR ETF (XLE) dipped 0.5% while the Financial Select SPDR ETF (XLF) edged up 0.3%
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) popped 2.15% and ARK Genomics ETF (ARKG) rallied 4.3%. Tesla remains the top holding across ARK Invest’s ETFs.
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Market Rally Analysis
Once again, it’s not the news, it’s the reaction to the news. The Fed was slightly more hawkish than expected, but investors quickly bought up stocks. Why? Maybe investors were preparing for something worse. Maybe many traders are happy to see the Fed take stronger action vs. inflation. But “what” matters a lot more than “why.”
The stock market rally desperately needed a win. The Nasdaq was moving toward its early December lows intraday, while the Russell 2000 actually did hit a low for the month.
Instead, the Nasdaq reclaimed its 50-day line while the S&P 500 neared Friday’s closing high.
AMD, Nvidia, Eli Lilly and ANET stock are all buying opportunities. Google stock and J.B. Hunt are least close to buying opportunities.
Winners beat losers on Wednesday, but that’s just a blip for the advance/decline line in recent weeks. New lows continue to vastly outnumber new highs.
Watch that market breadth. If that continues to lag or worsen, the rally’s new boost of energy won’t last long.
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What To Do Now
The Fed meeting had been a major uncertainty for the stock market. The Fed decision turned out to be a tailwind, at least for one day.
Before the Fed meeting announcement, investors were looking for the exits, if they weren’t there already. But you have to be able to react quickly to changing market conditions, and not get stuck in a bullish or bearish mindset.
As the market gained momentum Wednesday afternoon, investors could have taken some positions in some leading stocks or perhaps a sector or broad ETF.
If the market rally continues to improve and more stocks flash buy signals, investors can keep adding exposure. There’s no need to rush. There are still reasons to be cautious about this market rally. And if this uptrend has staying power, you’ll have plenty of time to make gains.
But you should dust off your watchlists before Thursday’s open.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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