Dow Jones futures fell slightly early Thursday, along with S&P 500 and Nasdaq futures, Meta Platforms and Qualcomm reporting profits.
The stock market rally recorded big gains on Wednesday after the Federal Reserve raised rates by 75 basis points for a second straight meeting. Fed Chief Jerome Powell signaled that policymakers are considering slowing the pace of tightening, even as the economy remains under stress and focused on inflation.
Major indexes were already marginally to sharply higher, fueled by positive reactions to earnings from Microsoft (MSFT), parent company of Google Alphabet (Google T Enphase Energy (ENPH).
Sen. Joe Manchin, DW.V., announced late Wednesday an agreement with Senate Majority Leader Chuck Schumer on a reconciliation bill with tax, climate and energy provisions. The deal, which could face a number of hurdles, includes a 15% minimum corporate tax rate, drug price controls, ObamaCare grant increases and pro-health provisions. solar and green energy. Solar and fuel cell stocks were among the winners. The legislation would extend tax credits for electric vehicles, which should be good news for You’re here (TSLA), General Motors (GM), although there are various income and vehicle price limits on credits.
The Federal Reserve raised rates by 75 basis points on Wednesday afternoon, taking the rate to a target of 2.25% to 2.5%.
The central bank downgraded its view of the economy slightly, noting that “spending and production have softened.” But “job creations have been robust” while “inflation remains high”.
Fed Chief Powell, speaking after the Fed meeting, stressed that policymakers are “strongly committed to bringing inflation down.” He said the economy was “resilient” with “extremely tight” labor markets.
Powell said it would likely be “appropriate” to slow Fed rate hikes as they become “more restrictive.” He expects Fed rates to be “moderately tight” by the end of the year, which he says will be between 3% and 3.5%.
After the Fed’s rate hike and Powell’s comments, the odds of a 50 basis point move on Sept. 21 rose to 56% from around 50-50 before the Fed’s announcement. Further, markets are expecting modest moves in the last two Fed meetings of the year, to end the year around 3.25%-3.5%.
Metaplatforms (META) and Qualcomm (QCOM) headlining key results, with chip equipment maker Research (LRCX), ServiceNow (NOW), O’Reilly Auto (ORLY), Ford engine (F) and Teladoc Health (TDOC) also reporting late Wednesday.
Meta stock fell solidly after Facebook’s parent company missed earnings, announced its first-ever revenue drop and guided lower.
Qualcomm stock fell slightly early Thursday on weak earnings forecasts.
LRCX stock fell slightly after better than expected quarterly results.
NOW stock fell as the enterprise software giant slashed its subscription revenue forecast after slightly beating second-quarter views.
Ford stock jumped after easily beating views, with a 423% EPS gain.
ORLY shares fell after profits fell and the auto parts retailer fell.
TDOC stock plunged after the telemedicine specialist was guided down from annual targets. Teladoc reported a huge loss in the second quarter due to a large impairment charge, although revenue edged higher.
Meanwhile, best buy (BBY) cut its forecast for the full year, citing weaker consumer spending amid high inflation. BBY stock fell slightly.
Early Thursday, Merck (MRK) and Pfizer (PFE) beat views, with Merck raising its full-year sales target and Pfizer lowering its EPS guidance. Merck stock, up around 1% early Thursday, traded near its 50-day line as it consolidated over the past two months. Pfizer stock, near a trend line, rose slightly.
Late Thursday, Apple (AAPL) and Amazon.co.uk (AMZN) are listening. Apple stock is slightly below its 200-day line after surpassing its 50-day mark earlier this month. AMZN stock is also slightly above its 50-day line.
Spirit Airlines-JetBlue offer
Spirit Airlines (SAVE) has accepted a cover by JetBlue (JBLU) after terminating its merger agreement with Frontier Group (ULCC) last night. It comes after months of debate as JetBlue offered significantly more, but Spirit worried about a higher risk of antitrust rejection.
JetBlue will pay $33.50 per SAVE share in cash as part of the deal, which has an enterprise value of $7.6 billion. SAVE holders will receive $2.50 per share once they approve the merger, plus 10 cents per share, beginning in January, as the deal goes through regulatory review.
SAVE stock rose 4% to 25.26. JBLU stock rose 1%. ULCC shares fell 2%.
Dow Jones Futures Today
Dow Jones futures fell 0.2% from fair value. S&P 500 futures fell 0.3%. Nasdaq 100 futures lost 0.7%.
Crude oil prices climbed more than 2%. Copper futures rose more than 1%.
The 10-year Treasury yield rose 4 basis points to 2.77%.
At 8:30 a.m. ET, the Commerce Department will release second-quarter GDP. Economists expect an annualized gain of 0.5%, after falling 1.6% in the first quarter. A consecutive decline in GDP would not officially mark a recession in the United States. Economists at the National Bureau of Economic Research pronounce on changes in the business cycle, usually long after the fact.
Remember that overnight action on futures contracts on Dow and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join the experts at IBD as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
The stock market rally rose on Wednesday, led by big tech earnings, then added to gains on the Fed’s rate hike decision and comments from Fed Chief Powell.
The Dow Jones Industrial Average rose 1.4% in trading on Wednesday. The S&P 500 index jumped 2.6%. The Nasdaq composite climbed 4.1%. The small cap Russell 2000 gained 2.3%.
U.S. crude oil prices rose 2.4% to $97.26 a barrel. Natural gas futures fell 3.4%.
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) gained 2.3%, while the Innovator IBD Breakout Opportunities ETF (BOUT) climbed 1.1%. The iShares Expanded Tech-Software Sector ETF (IGV) jumped 4.3%, with Microsoft stock as the major component. ETF VanEck Vectors Semiconductor (SMH) jumped 4.7%, along with QCOM shares and major components from Lam Research.
The SPDR S&P Metals & Mining ETF (XME) gained 3.4% and the Global X US Infrastructure Development ETF (PAVE) gained 2.1%. The US Global Jets ETF (JETS) climbed 3.1%. The SPDR S&P Homebuilders ETF (XHB) climbed 2.1%. The Energy Select SPDR ETF (XLE) rebounded 2.3% and the Financial Select SPDR ETF (XLF) 1.5%. The SPDR healthcare sector fund (XLV) edged up 0.6%, with top stocks Pfizer and MRK.
Reflecting more speculative stocks, ARK Innovation ETF (ARKK) climbed 6.7% and ARK Genomics ETF (ARKG) gained 3.9%.
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Earnings and revenue from Meta Platform, Facebook’s parent company, fell short, with the social media giant also guiding low third-quarter revenue.
Meta stock fell 4.5% in overnight action. Shares jumped 6.55% to 169.58 on Wednesday, moving on Google’s earnings and the general market rally. META stock had sold 13% in the previous three sessions following weakness Instantaneous (SNAP) report and advice.
Qualcomm’s earnings and revenue slightly topped fiscal Q3 EPS and revenue views, although gross margin was a little light. The wireless chip giant also guided fourth-quarter revenue, warning of weak smartphone sales.
QCOM stock fell nearly 4% in premarket trading. Shares rose 2.3% to 153.42 on Wednesday, stopping short of the 200-day line.
Market rally analysis
The stock market rally saw big gains on Wednesday after some notable losses in recent sessions. The Nasdaq and S&P 500 rallied near their 50-day lines.
But watch out for the second-day reaction. Major indexes also rallied after the previous two Fed meetings, but then sold off the next day.
While investors cheered Powell’s mildly dovish hints on Wednesday, they may be focusing on why the Fed’s rate hikes may start to slow, namely a weak economy. That makes this second quarter GDP report especially important.
Meanwhile, breaking past last week’s highs will be the next test for the major indices, followed by early June’s highs.
There are not many shares to buy yet. Growth stocks can break out of three-day consolidations, but often in ugly charts.
It was encouraging to see Microsoft and Google rebound strongly despite missing revenue views. Tempur Sealy (TPX) rebounded despite weak earnings and lowered forecasts.
Time the Market with IBD’s ETF Market Strategy
What to do now
With the Fed meeting and plenty of big earnings, some of the hyper-uncertainty facing investors is fading. The market rally that has weathered this news-rich week so far is definitely a bright spot.
There could still be a reversal of the “second day” Fed meeting. Additionally, Apple and many others are still releasing this week, along with GDP data and other key economic reports.
With a limited number of attractive stocks in position, investors may wish to increase their exposure via broad market or sector ETFs.
But if the market continues to improve, buying opportunities will arise and new positions will generate solid gains. So work on your watchlists.
Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.
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