Dow Jones futures fell slightly overnight, along with S&P 500 and Nasdaq futures. The stock market rallied with more losses, but closed low as investors tried to weigh the impact of a hot inflation report and the Federal Reserve got even more aggressive with the announcement. interest rate increase. Treasury yields have sent a larger recession signal.
JPMorgan Chase (JPM) and Morgan Stanley (TEACHER) reported second-quarter earnings early Thursday, kicking off big bank earnings. Taiwan Semiconductor (TSM) earnings will provide insight into chip manufacturers. JPM, Morgan Stanley and Taiwan Semi stocks are in a long downtrend.
Li Auto (LIFE) rose again on Wednesday, while the giants EV Tesla (TSLA) and BYD (BYDDF) try to find support at key levels. Shockwave Medical (SWAV), AstraZeneca (AZN) and McKesson (MCK) shows constructive action near buy points. Olaplex (OLPX) flashed positive signals after its 2021 IPO sold off for most of the year.
The headline inflation rate CPI jumped to 9.1% in June from 8.6% in May, a 40-year high of 8.8%. Core inflation, which includes food and energy, fell from 6% to 5.9%.
With crude oil and gasoline prices dropping significantly since mid-June, CPI headline inflation could finally cool somewhat in July. But June’s broad-based price increase is an ominous sign for long-term inflation.
Core prices rose 0.7% from May, the third consecutive month of rapid acceleration, on a sequential basis, no around. Service prices excluding energy increased 5.5% from a year earlier.
Fed rate hike outlook
The result is, CME FedWatch Tool There is now a 78% chance the Fed will raise rates by 100 basis points at the end of its July 26-27 meeting, up from 8% on Tuesday. Markets were locked in at 75 basis points ahead of Tuesday’s inflation data.
The CPI inflation report raises the possibility of overall gains, but they are higher for Atlanta Fed President Raphael Bostic. Bostic said on Wednesday that “everything is going”, explicitly asserting that “everything” including a 100 basis point move is possible.
Cleveland Fed President Loretta Mester, on the percentage rate hike, told Bloomberg “We don’t need to make that decision today.” But she stressed that the CPI report is “uniformly bad.”
For September, markets see a 75 basis point increase most likely, up from 50 basis points prior to the CPI inflation report.
All in all, markets appear to be pricing in 175 basis points on rate hikes in the next two meetings versus 125 basis points before the inflation data.
Also worth noting: The Bank of Canada raised interest rates by 100 basis points on Wednesday, more than expected.
Dow Jones Futures Today
Dow Jones futures are down 0.5% from fair value. S&P 500 futures fell 0.7%. Nasdaq 100 futures fell 0.7%.
At 8:30 a.m. ET, the Labor Department will release the June producer price index and weekly jobless claims. Will PPI show a cooling off in wholesale inflation? The unemployment rate will remain low, but will continue to show a trend of gradual labor market easing.
Rally stock market
The stock market rally sold off Wednesday morning on hot inflation reports, recovering back to mixed for much of the afternoon before fading.
The Dow Jones Industrial Average fell 0.7% on Wednesday stock market trading. The S&P 500 index fell 0.45%. The Nasdaq composite fell 0.15%. The small-cap Russell 2000 fell 0.1%.
U.S. crude oil prices rose 0.5% to $96.30 a barrel in a rising and falling session. Gasoline futures are down nearly 1%, with pump prices likely to continue sliding at least in the short term.
The yield on the 10-year Treasury note fell 5 basis points to 2.9% after briefly surging to 3.05% based on CPI data. Meanwhile, two-year yields rose 11 basis points to 3.15%. One-year Treasury yields rose 12 basis points to 3.2%.
The yield curve is currently inverting from 1-year to 10-year tenors, while 2-year to 10-year inversion is the sharpest since 2000. 6-month bill rates (up 18 basis points 2.95%) is now above the 10-year rate.
All of those Treasury actions are signaling increased recession risks.
Among the Best ETFsThe Innovator IBD 50 ETF (FFTY) lost 1 cent to 26.53, while the Creators IBD Breakthrough Opportunity ETF (BOUT) embedded 0.2%. iShares Expanded Technology-Software Sector ETF (IGV) fell 1%, extending the weekly loss to 6.2%. VanEck Vectors Semiconductor ETF (SMH) reached 0.8%.
Reflecting a more speculative narrative on stocks, the ARK Innovation ETF (ARKK) fell 0.7% and the ARK Genomics ETF (ARKG) increased by 1.1%. Tesla stock is one of the largest holdings on Ark Invest ETFs. Cathie Wood’s Ark also owns some BYD stock.
SPDR S&P Metals & Mining ETF (XME) increased 2.2% while the US Fund for Global Infrastructure Development X (SAVE) back 0.5%. US Global Jets ETF (JETS) fell to 0.8%. SPDR S&P Homebuilders ETF (XHB) increased by 0.2%. SPDR Select Energy ETF (XLE) fell 0.2% and the financial SPDR ETF (XLF) lost 0.5%. SPDR Fund for the Healthcare Sector (XLV) fell 1%, with MCK shares in the ETF.
Li Auto Stock
Li Auto stock rose 2.8% to 38.03, recovering from just above the 21-day moving average, indicating a positive entry. After more than doubling from early May to late June, LI stock has been consolidating. Ideally, the Chinese hybrid SUV maker would establish a new facility, so that the 50-day gap closes the gap. Investors can view the current action as a countermeasure towards the late 2020 consolidation.
Meanwhile, Tesla shares reversed higher, rising 1.7% to 711.12. TSLA stock regains its 21-day moving average. The stocks fell near their 50-day threshold. Tesla stock recovered to that key level on Friday, but fell below it again on Monday.
TSLA stock fell 1% late Wednesday. Tesla’s AI chief Andrej Karpathy tweeted that he was leaving the EV giant. Karpathy has been on a month-long sabbatical, sparking speculation that he is on his way out.
BYD stock rose 0.9% to 34.80 on Wednesday, finding support at its 200-day line. Shares of the Chinese electronics and battery giant fell 11% Tuesday on rumors that Warren Buffett’s Berkshire Hathaway (BRKB) may be selling some or all of its large shares of BYD. Investors will want some clarity on that. But BYD stock needs to create a new base.
Stocks near the buy point
Shockwave Medical shares rose 0.4% to 195.93 after falling to 186 on the day. SWAV stock could be in the works starting July 8, but it will take a few more days for that to take shape. That also coincides with a downward sloping trendline entry, from the November 2021 and April to July 8 peaks. relative strength linethe blue line in the charts provided, has hit record highs even as SWAV stock remains at all-time highs.
AstraZeneca stock fell 0.6% to 66.30, but rebounded after an intraday test of the 21-day moving average. AZN stock is hitting a buy point of 67.50 words double bottom sole. The British drug giant has crossed that target three times in recent weeks, but has never closed in a buy range.
MCK stock fell 0.7% to 325.18, gaining the day after another 50-day test. McKesson stock has 340.04 buy from flat basebut investors could use 335.67, just above Monday’s high, as a slightly premature entry.
Olaplex rose 6.6% to 15.31, rebounding back on the 21-day and 50-day lines. Volume is much lower than average for OLPX stock, but has been better over the past few days. The stock is reaching a buy level of 17.47 from the bottom. Olaplex stock closed Wednesday just above a short steep downtrend line in that base. Coupled with being close to the 50-day limit, that could provide a positive entry.
The maker of premium hair care products went public with 21 shares in September 2021, hitting a record 30.41 just before the end of the year. But that OLPX breakout quickly fizzled out, with the stock falling to 11.73 on May 10. Earnings growth and estimates remain strong, with OLPX stock’s price-earnings ratio sky-high. threshold once reduced to 32.
Market aggregation analysis
The stock market rally was held relatively well on Wednesday due to hot inflation, the Fed’s “everything” and strong recession signals.
The major indexes have bounced off their morning lows. Techs leads, presumably due to lower 10-year Treasury yields. However, long-term yields are falling on expectations that a Fed rate hike will tip the economy into a recession. That’s not great news.
The major indexes are still below their 21-day lines. The 10-week line remains a major hurdle, with the Nasdaq reversing lower from that level this week.
Markets, like the economy, are changing. The major indexes could head back to the lows or recover to test or even cross the 10-week line once again. They can also move sideways in a changing pattern for a long time. That would allow markets to better understand the economy and the Fed’s rate hikes, while more ground could take shape. But in the short term, stocks can be very volatile, attracting investors in and out.
The healthcare sector remains the clear leader, with a wide range of stocks and industry groups showing positive action.
What to do now
The market recovery is still going around but under a lot of pressure. There’s been no real direction for the past few weeks, while the long-term trend remains negative.
Earnings season is about to ramp up, setting off a new wave of uncertainty and volatility in the coming weeks.
This is not a good time to increase exposure. Some stocks, mainly drugs, are showing positive action, but even they can have some big daily swings. So consider making at least partial profits quickly. Don’t buy expansions and don’t get too invested in a particular area or topic.
Get involved and prepare. Keep working with those watchlists, looking for stocks that are setting up and showing relative strength.
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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