Dow Jones futures changed little overnight, along with S&P 500 futures and Nasdaq futures. The stock rally rose slightly in an up-and-down session on Wednesday, as the aggressive Fed minutes held few surprises. Treasury yields bounced back and still flashed a recession warning. The price of crude oil fell again, but came from lows.
Microsoft stock and Google parent Alphabet †GOOGL) have regained their 50-day moving averages. Amazon.com †AMZN) and Apple †AAPL) moved above their 10-week lines. Microsoft †MSFT) and Google stocks are IBD Long-Term Leaders†
GME stock split
After Wednesday’s close, original meme stock GameStop †GME) announced plans for a 4-for-1 stock split. GME stock rose 9% overnight after closing 2.4% to 117.30.
Stock splits are in favor again. Amazon shares split 20-for-1 in early June. Google stock will be split 10-to-1 on July 15, while Tesla has proposed a 3-to-1 split. But those tech titans have or had high stock prices, making it difficult to trade AMZN stock options, for example. That’s not the case with GME stocks.
Dow Jones Futures Today
Dow Jones futures had changed little relative to fair value. S&P 500 futures were up 0.1% and Nasdaq 100 futures were higher.
At 8:15 a.m. ET, ADP will release its June estimate for hiring in the private sector. At 8:30 a.m. ET, the Labor Department will release its weekly report on jobless claims. Those come before the Friday June jobs report.
Fed Minutes, Economic Data
The Fed’s minutes from its June 14-15 policy meeting showed that policymakers said “restrictive policies” were needed and may need to become “more restrictive” over fears that inflation could become “anchored”.
Policymakers viewed an increase of 50 or 75 basis points at the end of July as likely, according to the minutes of the Fed meeting. But Fed chief Jerome Powell said so after the meeting.
More broadly, the Fed minutes offered no real surprises and underlined the major shift in economic conditions over the past three weeks.
The Fed minutes mentioned “inflation” 90 times, but not once “recession”. Since the Fed meeting in mid-June, fears of a recession have increased, while commodity prices have fallen sharply.
The Fed’s minutes slightly bolstered market expectations for a 75 basis point rate hike later this month, up 50 basis points in September. December still marks the likely end of Fed rate hikes.
Earlier Wednesday, the Labor Department’s JOLTS survey showed that the number of job openings fell to 11.254 million in May, compared with the upwardly revised 11.68 million in April. That was slightly higher than expected, but the biggest month-on-month decline since August 2020.
The June ISM non-manufacturing index plunged to a two-year low, but topped expectations and continued to point to solid growth. The jobs sub-index fell from 50.2 to 47.4, below the break-even 50 level.
stock market rally
The stock rally moved between small gains or losses during most of Wednesday’s trading. Major indices gained momentum after the release of the Fed meeting minutes at 2pm ET, but then balanced the advance in the closing minutes.
The Dow Jones Industrial Average rose 0.2% on Wednesday stock market† The S&P 500 index climbed 0.4%. The Nasdaq composite rose 0.35%. The small-cap Russell 2000 fell 0.8%.
Shares of Microsoft and Google rose just over 1% to break above their 50-day moving average. Amazon shares were up 0.7%, reaching the 50-day line and above the 10-week line. Apple stock lagged the 50-day mark, but Wednesday’s 1% gain pushed the iPhone giant above its 10-week line.
The price of crude oil in the US fell 1% to $98.53 a barrel, well from morning lows but after plunged 8.2% on Tuesday. Gasoline futures, which hit $4 a gallon a few weeks ago, fell 4% to $3.20. Prices at the pump have been falling for the past three weeks and will fall significantly in the coming weeks.
The 10-year Treasury yield rose 10 basis points to 2.9% after dropping 30 basis points in the previous three sessions. Two-year government bond yields rose 15 basis points to 2.97%. The Treasury yield curve is now slightly more inverted, reflecting mounting recession risks.
Below the best ETFsthe Innovator IBD 50 ETF (FFTY) was flat, while the Innovator IBD Breakout Opportunities ETF (BOLT) won 1%. The iShares Expanded Tech Software Sector ETF (IGV) rose 0.1%, with MSFT shares leading the way. The VanEck Vectors Semiconductor ETF (SMH) increased by 0.7%.
SPDR S&P Metals & Mining ETF (XME) fell 0.7% and the Global X US Infrastructure Development ETF (PAVE) tapped 0.1% higher. US Global Jets ETF (JETS) fell 1.5%. SPDR S&P Homebuilders ETF (XHB) lost 0.6%. The Energy Select SPDR ETF (XLE) gave up 1.7% and the Financial Select SPDR ETF (XLF) immersed 0.25%. The Health Care Select Sector SPDR Fund (XLV) climbed 0.7%.
Due to more speculative story stocks, ARK Innovation ETF (ARKK) fell 2.25% and ARK Genomics ETF (ARKG) fell 0.2% after both rose above their 50-day lines on Tuesday. Tesla stocks are a major holding in Ark Invest’s ETFs. Cathie Wood’s Ark Invest also owns some BYD stock.
China EV Shares in Buying Zones
BYD shares rose 1.1% to 40.55, after briefly testing the 39.81 buy point of a deep cup-with-handle base for a fifth straight intraday session. On Sunday, BYD reported June sales of 134,036 EVs and plug-in hybrids, up 224% from a year earlier. In the second quarter, BYD sales surpassed Tesla deliveries by more than 100,000 vehicles. Tesla continues to lead the way in all-electric “BEV” sales, although that gap has narrowed significantly in the past year.
Shares of Li Auto fell by 3.5% to 38.60. Intraday, shares fell to 37.10 but closed above the 37.55 buy point from a long, deep base. LI stocks are still 39% above the 50-day line. Ideally, the hybrid SUV maker would have a short base here so that Li Auto shares can process its massive gains from early May to late June. Li Auto will begin delivery of its second premium SUV, the L9, at the end of August.
Tesla shares fell 0.6% to 695.20 on Wednesday, just below the 21-day line.
Market Rally Analysis
The stock market rally contributed to Tuesday’s recovery from intraday lows, but major indices still seemed to be looking for direction.
The Nasdaq composite moved above the 21-day moving average on Wednesday, but the S&P 500 and Dow Jones encountered resistance near that short-term average. All three major indices are now back above their June 24 lows follow-up days† The fall in FTDs last week pushed the market rally into “under pressure” where it remains.
Late June and the 50-day line loom above the 21-day lines, with early June peaks above it.
Good news about inflation and Fed rate hikes, including falling commodity prices and easing job markets, are bad news for a potential recession. Markets therefore do not know how to deal with economic data.
It is possible that the market will move sideways for some time. That would allow for many bases to be built and for clarity on the economy and Fed policy. But even if that happens, there could be head fakes and shakeouts for individual stocks and the overall market along the way.
What to do now
The stock market rally is under pressure, with major indices still facing many key resistance levels. While a number of medical specialists and a handful of other stocks are doing well, even they can be prone to notable shakeouts.
So if you’re going to take positions, make them small and look for early signups. Consider taking at least partial profits quickly to lock in some profit. Do not hesitate to limit losses.
Read The big picture every day to stay in sync with market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock updates and more.
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