Why stocks rallied on rising rates; Five nearby shopping points

Dow Jones futures rose overnight, as did S&P 500 and Nasdaq futures. The stock market faltered on Wednesday after the Federal Reserve raised interest rates to the highest since 1994, but rose when Fed Chief Jerome Powell signaled that policymakers could raise rates a little less when of the Fed meeting at the end of July.




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Treasury yields fell sharply on Wednesday after hitting multi-year highs on Tuesday.

Enphase Energy (ENPH), Harmony Biosciences (HRMY), AutoNation (A), Ultimate beauty (ULTA) and Onsemi (ON) are five stocks to watch. All are consolidating, holding above or near their 50-day moving averages, with their relative strength lines at or near the highs.

ON stock is on the IBD Leaderboard watchlist. AN stock and Harmony Biosciences are on IBD 50. AutoNation is Wednesday’s IBD stock of the day.

You’re here (TSLA) rebounded strongly on Wednesday even as the National Highway Traffic Safety Administration reported that the electric vehicle giant dominates crashes involving driver assistance systems.

Dow Jones Futures Today

Dow Jones futures were up 0.5% from fair value. S&P 500 futures advanced 0.5% and Nasdaq 100 futures jumped 0.65%. Futures contracts hit highs while bond yields hit lows.

The 10-year Treasury yield fell 2 basis points to 3.37%, extending Wednesday’s losses but far from evening lows. The two-year yield reversed overnight losses to rise 3 basis points to 3.31%.

US crude oil prices rose 1%.

Bitcoin pulled back above $22,000 on Wednesday night after hitting a new 18-month low of $20,087.90 earlier this week.

Remember that overnight action on futures contracts on Dow Jones and elsewhere does not necessarily translate into actual trading in the next regular trading session.

Fed meeting

Policymakers voted a 75 basis point rate hike for the first time since 1994, at the end of the Fed’s two-day meeting, within a range of 1.5% to 1.75%.

This came after the May 10 consumer price index showed inflation unexpectedly rising to a 40-year high of 8.6%.

Fed chief Powell, speaking at a press conference after the policy meeting, said the central bank was raising rates “rapidly”, deciding to “preload” hikes. He said “inflation is way too high”, with very tight labor markets.

But Powell said the Fed could raise rates by 50 or 75 basis points at the Fed’s late-July meeting. He also stressed that the policy will be “sensitive and flexible”. Before those comments, markets had fully priced 75 basis points at next month’s meeting, according to CME tool FedWatch. Markets still see a 70% chance of a three-quarter point move at the end of July.

All Fed officials see rates rising to at least 3% by the end of the year, with a median estimate of 3.4%. They see 3.8% by the end of 2023.

The central bank now forecasts inflation of 5.2% this year, as measured by the personal consumption expenditure price index. That’s up from its target of 4.3% in March and 2.6% last December.

Policymakers expect their favorite inflation gauge, the core PCE index, to slow to a still strong gain of 4.3% in the fourth quarter, slowing to 2.7% by the end of 2023.

The Federal Reserve and Fed Chief Powell tried to strike a delicate balance on Wednesday. On the one hand, they wanted to take a big step against inflation and restore lost credibility. On the other hand, Powell and his fellow policymakers don’t want to crush the economy. A surprise drop in retail sales was among several weak economic reports on Wednesday.

The central bank won Wall Street, at least for an afternoon. The major indexes, which fell to mixed after the Fed’s rate hike and as Powell started talking, hit intraday highs as a ‘flexible’ Fed chief left open the possibility of a move. a half point. Stocks closed their best levels but were still solidly or significantly higher.

Treasury yields fell sharply on Powell’s 50 or 75 commentary, especially the two-year yield.


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Stock market wednesday

The stock market faltered after the rate hike announcement, but rebounded from Powell’s comments.

The Dow Jones Industrial Average rose 1% in trading on Wednesday. The S&P 500 index climbed 1.5%. The Nasdaq composite jumped 2.5%. The small cap Russell 2000 rose 1.5%.

The 10-year Treasury yield fell 9 basis points to 3.39%. The two-year yield, more closely tied to Fed rate moves, slipped 15 basis points to 3.28%.

US crude oil prices fell 3% to $115.31 a barrel. Natural gas prices rose slightly after falling 16% on Tuesday.

Among the top ETFs, the Innovator IBD 50 ETF (FFTY) closed unchanged, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 0.2%. The iShares Expanded Tech-Software Sector ETF (IGV) jumped 2.65%. The VanEck Vectors Semiconductor (SMH) ETF rose 1.8%.

The SPDR S&P Metals & Mining ETF (XME) climbed 2.1% and the Global X US Infrastructure Development ETF (PAVE) rose 0.8%. The US Global Jets ETF (JETS) climbed 1.55%. The SPDR S&P Homebuilders ETF (XHB) edged up 0.3%. The SPDR Energy Select ETF (XLE) fell 2.2% and the SPDR Financial Select ETF (XLF) gained 1.1%. The SPDR healthcare sector fund (XLV) rose 1%.

Reflecting more speculative stocks, ARK Innovation ETF (ARKK) jumped 6.6% and ARK Genomics ETF (ARKG) 5.2%. Tesla stock remains one of Ark Invest’s top ETF stocks.


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Stocks to Watch

ENPH stock jumped 5% to 188.48 on Wednesday, rebounding from its 50- and 200-day lines. The solar inverter maker emerged from a double bottom within a broader consolidation on June 2. Enphase shares rose for a few days before falling back. Entry 193 is no longer valid. ENPH stock formed a handle, with a buy point of 217.33, just above the June 8 intraday high.

HRMY stock edged up 0.3% to 44.61, moving away from its 50-day line but trimming intraday gains. Harmony Biosciences has a cup base with a 54.10 entry. But it needs one more day to form a handle, lowering the buy point to 47.21.

AutoNation stock reversed lower on Wednesday, falling 1.45% to 113.40 to close just below its 50- and 200-day lines. AN stock is in a long consolidation with a buy point of 133.58. But investors could use the resistance just above 126 as an early entry. Last Friday, the used car dealership giant hit 126.14 during the day, nearly hitting an early May high of 126.39, before reversing lower.

Ulta Beauty stock rose 3.3% to 405.61, regaining the 50-day line after finding support at the 200-day line earlier this week. ULTA stock flirted with a buy point of 426.93 cup with handle last week before falling back. A new handle entry of 429.58 is in play now.

Onsemi stock climbed 2.45% on Wednesday to 58.04, recovering from its 50- and 200-day lines. From late May to early June, ON stocks broke from the 50-day/200-day lines at 67.19 on June 8, moving towards a consolidation buy point of 71.25. But the chipmaker fell back. This created a somewhat messy handle with an entry of 67.29. The entry also coincides with a trendline of falling highs.

Tesla Stock

Tesla stock rebounded 5.5% to 699 on Wednesday, still below its 21-day line. Shares hit an 11-month low of 620.57 on May 24.

On Wednesday, the National Highway Traffic Safety Administration reported crashes involving driver assistance systems. Tesla vehicles using Autopilot were involved in 273 crashes from July 20, 2021 to May 21, 2022, out of a total of 392. One of the main reasons is that there are so many Tesla electric vehicles on the road that use the autopilot.

Tesla has long claimed that Autopilot improves safety, but does not use apples-to-apples comparisons in terms of road type, weather conditions, etc. NHTSA recently expanded its Autopilot probe, while also investigating “phantom braking” in Tesla vehicles.

Separately, CEO Elon Musk tweeted on Wednesday that he was leaning to support Florida GOP Governor Ron DeSantis for president in 2024.

On Thursday, Musk will hold a town hall with Twitter (TWTR), speaking to staff for the first time since striking a $44 billion, $54.20 per share deal for the social site in late April. Musk, who waived his due diligence rights, has since complained about fake accounts on Twitter. Musk may want to walk away from the deal or drop the price significantly.

Twitter stock climbed 2.1% to 37.99 on Wednesday.


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Market analysis

The stock market closed higher on Wednesday after the Fed’s rate hike and Powell’s comments.

A stock market rally attempt is underway. Wednesday marked the second day of the Nasdaq’s attempted rally after tech-heavy indices edged higher on Tuesday. But the attempt to rally is not a green light.

After fierce losses over the past few days, the major indices are well below their 10-day moving averages, not to mention more substantial resistance.

Still, investors should soon look for a follow-up day to confirm the new uptrend. However, confirmed market rallies don’t always work, as 2022 has shown.


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What to do now

Wednesday’s action was positive, but a decent day isn’t that significant, especially in a bear market.

If there is a trailing day, investors could tiptoe into the market, slowly adding exposure if conditions start to improve.

In the meantime, stay alert and prepare. Build these watchlists of possible leaders.

Enphase, Onsemi and other stocks to watch struggled in absolute terms, despite their strong relative strength. There is no guarantee that these names will hold up relatively well, or that they will lead into the next real uptrend.

Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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