|Source : AI|
On Thursday morning, the prices of Dow Jones futures, S&P 500 futures, and Nasdaq futures went down a bit. This happened because China reduced interest rates in response to disappointing economic data.
On Wednesday, the stock market had some difficulties at first when the Federal Reserve unexpectedly announced plans to increase interest rates. However, it managed to stay steady throughout the day. The indexes ended with mixed results after Jerome Powell, the head of the Federal Reserve, made relatively positive comments.
During the two-day policy meeting that ended on Wednesday, the central bank decided to take a break for now. But they mentioned that two more interest rate hikes from the Federal Reserve are likely to happen. It’s important to know that Jerome Powell emphasized that these plans are not definite and that a rate hike in July is not guaranteed.
Nvidia (NVDA) achieved its highest stock price ever, reaching a market value of over $1 trillion for the first time. On the other hand, Tesla (TSLA) ended its streak of consecutive days with record-breaking stock prices, although with some reluctance.
Lennar (LEN), a company that builds homes, released its earnings report after the market closed.
Several companies that make medical products and systems showed signs of being good investments on Wednesday. This happened after UnitedHealth, a big insurance company in the Dow Jones index, warned that patients are spending more money on medical procedures.
Companies like Shockwave Medical, Dexcom, Edwards Lifesciences, Smith & Nephew, Stryker, Zimmer Biomet Holdings, Boston Scientific, and InMode all showed positive signals for investors on Wednesday morning. However, most of these stocks didn’t maintain their gains and closed lower than their highest points of the day.
The stocks of Tesla and Nvidia are considered strong performers and are included in the IBD Leaderboard. Shockwave Medical stock is part of the IBD 50, which lists promising stocks, and Tesla stock is in the IBD Big Cap 20, which features large-cap stocks.
Dow Jones Futures Show Modest Decline
Today, the Dow Jones futures, which indicate the expected performance of the Dow Jones index, went down by 0.3% compared to their estimated value. Similarly, S&P 500 futures decreased by 0.45%, and Nasdaq 100 futures dropped by 0.7%. The decline in Tesla and Nvidia stocks influenced the S&P 500 and Nasdaq 100 futures.
In the premarket period before the market opens, several chip stocks also saw a decline.
The 10-year Treasury yield, which is the interest rate on government bonds, increased by 2 basis points to reach 3.82%.
The price of crude oil went up by 1%.
However, Bitcoin experienced a significant drop overnight.
During the night, China’s central bank, the People’s Bank of China (PBOC), reduced its main lending rate by 10 basis points to 2.65%. This is the first rate cut in 10 months. Earlier this week, the PBOC also lowered a shorter-term rate by the same amount. This action was taken because China’s economy has been struggling to recover.
Following the rate cut, China reported that retail sales in May increased by 12.7% compared to the same period last year, when many parts of the country were under lockdown. However, this growth rate was lower than expected, which was 13.6%. Additionally, industrial production in China grew by 3.5%, slightly below the forecast of 3.6%. The youth unemployment rate in China reached a new record of 20.8%.
In response to the rate cut, Hong Kong’s Hang Seng index rose by 2.2%, possibly due to expectations of fiscal stimulus.
It’s important to remember that the activity in Dow futures and other markets during the overnight period does not always reflect the actual trading that will occur in the regular stock market session.
Fed Meeting: Monetary Policy Update and Future Outlook
In a meeting on Wednesday, the Federal Reserve policymakers did not make any changes to the fed funds rate, keeping it at 5%-5.25%. Over the past year, the rate had been increased by five percentage points.
However, the newly released projections by Fed policymakers indicate that they expect the fed funds rate to reach 5.6% by the end of the year, suggesting two more rate hikes. Previously, the market anticipated only one more quarter-point increase, possibly in July, and even that was uncertain.
Federal Reserve Chief Jerome Powell adopted a more cautious approach. He emphasized that policymakers have not committed to a rate hike in July and referred to it as a “live meeting.” Powell acknowledged that the job market remains tight but mentioned signs of easing. He also noted that core inflation remains persistent.
Currently, the market predicts a 69% chance of a rate hike on July 26, which is only a slight increase from Tuesday. Investors perceive an 8% chance of two rate hikes by the end of the year.
Lennar Reports Earnings: Insights into Company Performance
Lennar, a homebuilder company, reported earnings that were better than expected, despite a decline. They also provided a positive outlook for home deliveries in the third fiscal quarter and for the full year.
Following the earnings announcement, Lennar’s stock rose by 2% in after-hours trading. During Wednesday’s regular session, the stock fell slightly to 114.75, but it remained near the top of a consolidation phase. This consolidation phase can be seen as a handle to a significant cup-with-handle pattern that dates back to late 2021. Lennar’s stock recently showed strength by making a bullish move from the 50-day moving average with high trading volume.
Lennar will host a conference call on Thursday morning after the market opens to provide further details.
Stock Market Rally Shows Strength and Resilience
The stock market rally had a varied outcome after the Federal Reserve’s decision to pause and the remarks made by Fed chief Powell.
On Wednesday, the Dow Jones Industrial Average experienced a decline of 0.7% during stock market trading, mainly due to the performance of UNH stock. The S&P 500 index managed to secure a slight gain of 0.1%. Meanwhile, the Nasdaq composite showed a rise of 0.4%, driven by the strong performance of Nvidia. However, the small-cap Russell 2000 suffered a decline of 1.2%.
The price of U.S. crude oil dropped by 1.7% to reach $68.27 per barrel.
The 10-year Treasury yield initially rose to 3.85% shortly after the announcement of the Fed meeting but eventually fell by 4 basis points to settle at 3.8%.
In the realm of growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) rose by 0.6%. The VanEck Vectors Semiconductor ETF (SMH) saw a significant increase of 1.5%. The top holding of SMH, NVDA stock, experienced a strong rally of 4.8% on Wednesday, but had a slight decline in early trading on Thursday.
However, among more speculative story stocks, the ARK Innovation ETF (ARKK) dropped by 2%, and the ARK Genomics ETF (ARKG) retreated by 0.6%. Tesla stock, which is the leading holding across Ark Invest’s ETFs, fell by 0.7% on Wednesday, following a remarkable 41% surge in a 13-day winning streak. On Monday, TSLA stock experienced a 3% decline.
Other ETFs showed mixed results, with the SPDR S&P Metals & Mining ETF (XME) declining by 1%, and the Global X U.S. Infrastructure Development ETF (PAVE) giving up 0.6%. The U.S. Global Jets ETF (JETS) experienced a gain of 0.7%, while the SPDR S&P Homebuilders ETF (XHB) decreased by 1.1%. The Energy Select SPDR ETF (XLE) also had a decline of 1%.
In the health sector, the Health Care Select Sector SPDR Fund (XLV) lost 1%. UNH stock is the primary holding in XLV, but the ETF also includes Dexcom, Boston Scientific, Edwards Lifesciences, Zimmer Biomet, and Stryker.
The Financial Select SPDR ETF (XLF) dipped by 0.4%, and the SPDR S&P Regional Banking ETF (KRE) suffered a significant decline of 2.9%.
Stocks to Buy Now
On Wednesday morning, SWAV stock experienced a significant surge, reaching a high of 315.95. This surpassed the cup-with-handle buy point of 308.09. However, Shockwave Medical later retraced and closed with a modest gain of 1.1% at 295.05. It’s important to note that this closing price remained below the crucial 300 level, which signifies an early entry point.
Meanwhile, DXCM stock saw a slight uptick of 0.9% to 127.06, reclaiming its position above a flat-base buy point of 126.44. Dexcom is currently attempting to break out decisively, which has been a challenge for the stock since November.
EW stock made a significant jump of 3.6% to 90.53, surpassing a short consolidation period with heavy trading volume. Despite the increase, Edwards Lifesciences stock is still not far from its 50-day line. Investors can consider the buy point at the May 15 high of 89.72.
SNN stock experienced a gap above the 50-day line with strong volume, surging 5.55% to 31.57. This provided an early entry opportunity as part of a flat base formation. Smith & Nephew stock is approaching a trendline that could present another early entry point. The official buy point is at 33.19.
SYK stock had a substantial 4.2% jump to 293.57 in heavy trading, breaking a downtrend and surpassing the 50-day line. This offered an early entry point, although the shares closed near the lows of the session. Stryker stock has an official buy point at 306.56 from a flat base, forming part of a base-on-base pattern.
ZBH stock experienced a notable increase of 3.8% to 142.01 after bouncing near the 50-day line. Zimmer Biomet cleared most of the trading range in a consolidation of 16% depth and is currently within range of the 50-day line. However, it still has some distance to reach the official buy point of 149.25. ZBH stock closed below the session highs.
BSX stock rose by 4.2% to 53.31, moving above the 50-day line. This is the first test of the 50-day/10-week line since the breakout in late March. Boston Scientific stock is currently consolidating in a short period.
INMD stock climbed 1.7% to 36.42 after recently surpassing a trendline on Tuesday. However, the shares declined from the intraday highs. InMode stock is approaching a short-term high of 38.38, an area where it has encountered resistance multiple times in 2023. According to MarketSmith analysis, the official buy point is 41.84 from a four-month base.
Analyzing the Market Rally
Despite concerns about potential interest rate increases, the stock market showed remarkable strength on Wednesday.
Both the S&P 500 and Nasdaq composite initially dipped but managed to end the day with slight gains, thanks to comments from Federal Reserve Chairman Jerome Powell.
However, it might be a good idea for the Nasdaq to take a breather or experience a slight decline. Currently, it is trading 9.2% above its 50-day moving average and above the upper limit of a regression line. The Nasdaq 100 is even further ahead, sitting 10.6% above this important level.
The Dow Jones index experienced a retreat primarily due to the performance of UNH stock, but it managed to bounce back from lows just above its 10-day moving average.
The overall market breadth was not as strong as before, with small-cap stocks showing significant declines and mid-cap stocks experiencing modest retreats. However, the Invesco S&P 500 Equal Weight ETF only had a slight dip of 0.2%. The First Trust Nasdaq 100 Equal Weighted Index ETF saw a modest increase of nearly 0.2%, although it lagged behind the 0.7% advance of the Nasdaq 100.
The number of new highs still exceeded new lows by a considerable margin.
It’s important to remember that reactions to Fed meetings can sometimes change dramatically on the second day, deviating from the initial market response.
Decisions to Make: Navigating the Current Situation
Investors had the chance to consider buying certain medical product stocks that showed positive signals on Wednesday, although it’s possible that those purchases ended up with modest losses by the end of the day.
Apart from that, there weren’t many attractive buying opportunities. Some popular stocks like Nvidia and Tesla have already risen significantly, while others have quickly climbed towards potential buy points from their recent lows.
Given that the Nasdaq index is due for a break or decline, investors might want to be cautious when adding more investments, particularly in the technology sector. It could be a good idea to take some profits on stocks that have already experienced substantial gains.
However, it’s important to acknowledge the strength of this market rally. It’s displaying real power, with a wide range of stocks performing well and leading the way. So while some caution in the short term is advisable, overall, the market is sending strong signals of optimism.
When a market pullback occurs, it could present an opportunity to enter or increase positions in successful stocks. Therefore, it’s recommended to stay actively involved and aware of potential opportunities.