Dow Jones futures rose slightly overnight, along with S&P 500 futures and Nasdaq futures. The stock market rally fought back from big morning losses to close mixed on Thursday as two hawkish Fed officials eased rate hike fears somewhat.
Dow Jones component UnitedHealth Group (UNH) reports before Friday’s market open, kicking off quarterly earnings for health insurers and medical services firms broadly. UNH stock reversed higher from the 50-day line Thursday to close up 0.2% to 502.43, not far from a 518.90 buy point.
Banking giants Wells Fargo (WFC) and Citigroup (C) also reported before the open. WFC stock and Citigroup are in long downtrends. Indeed, Citi stock fell to its worst level since late 2020 on Thursday, following weaker-than-expected earnings from JPMorgan Chase (JPM) and Morgan Stanley (MS).
China EV and battery giant BYD (BYDDF) surged on bullish earnings guidance, but is still down sharply for the week following rumors that Warren Buffett’s Berkshire Hathaway may sell some of its big BYD stock stake. China EV startup Li Auto (LI) remains actionable, while Tesla (TSLA) takes between two key moving averages.
Lantheus stock is on IBD Leaderboard. DLTR stock and Li Auto are on SwingTrader. Dollar Tree, Lantheus, BJ’s Wholesale, McKesson, UnitedHealth and LI stock are all on the IBD 50. MCK stock and Dollar Tree also are on the IBD Big Cap 20.
Fed Hawks Show A Little Dove
Fed Board of Governors member Christopher Waller and St. Louis Fed President James Bullard, two of the Fed policymakers most vocal about front-loading rate hikes, lowered expectations Thursday of a 100-basis-point rate hike later this month. The prospect of a full-point rate increase soared Wednesday following the hot June CPI report and Atlanta Fed President Raphael Bostic’s statement that “everything is in play.”
Waller said Thursday that 75 basis points is still his “base case” for a rate hike at the July 26-27 meeting, say “markets may have got a little ahead of itself” on 100 basis points, though he didn’t rule out a “larger” move.
Bullard told Nikkei that he favors a 75-basis-point move, which he said would bring the fed funds rate to a “neutral” level. He said further tightening will be needed, but “we can assess” as the year continues.
Before the open, the producer price index unexpectedly accelerated in June to a scorching 11.3% gain vs. a year earlier. But core inflation slowed more than expected. Notably, core PPI rose 0.4% vs. the previous month, cooling from May’s 0.7% gain. That was in contrast to core CPI, which is showing accelerating month-to-month gains.
Markets are now pricing in a 57% chance that the Fed will raise rates by 75 basis points. On Wednesday, the odds of a full-point hike exploded to 80% from about 8% the day before.
Dow Jones Futures Today
Dow Jones futures climbed 0.3% vs. fair value. S&P 500 futures advanced 0.35%. Nasdaq 100 futures rose 0.5%.
China economic data was mixed overnight. Second-quarter GDP rose 0.4% vs. a year earlier, managing to grow despite Covid lockdowns during Q2 but missing views for 1%. June industrial production grew 3.9% vs. a year before, just below the consensus for 4.1%. Retail sales, though, climbed 3.1%, defying views for flat results.
China eked out GDP growth of 0.4% in the second quarter from a year ago, missing expectations as the economy struggled to shake off the impact of Covid controls.
On Friday morning, investors will get U.S. retail sales and industrial production data for June, along with the Empire manufacturing index for July.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Stock Market Rally
The stock market rally tumbled Thursday morning on fresh inflation fears and weak JPMorgan earnings. Key indexes mostly closed lower, but did finish near their best levels of the day.
The Dow Jones Industrial Average closed down 0.5% in Thursday’s stock market trading. The S&P 500 index dipped 0.3%. The Nasdaq composite eked out a fractional gain. The small-cap Russell 2000 slumped 1%.
U.S. crude oil prices dipped 0.5% to $95.78 a barrel, far off intraday lows, but still the lowest close since April. Gasoline futures fell more than 1%, extending a rapid decline.
The 10-year Treasury yield rose 6 basis points to 2.96%, though closing near session lows. The two-year yield erased big gains to dip 1 basis point to 3.13%. The one-year Treasury yield sank 3 basis points to 3.18%. The yield curve remains inverted from the one-year to the 10-year, but less so.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) climbed 0.45%, while the Innovator IBD Breakout Opportunities ETF (BOUT) sank 0.5%. The iShares Expanded Tech-Software Sector ETF (IGV) sank 0.9%. The VanEck Vectors Semiconductor ETF (SMH) popped 2.1%, with Taiwan Semiconductor (TSM) earnings and guidance lifting the chip sector.
SPDR S&P Metals & Mining ETF (XME) slumped nearly 3% and the Global X U.S. Infrastructure Development ETF (PAVE) fell 0.6%. U.S. Global Jets ETF (JETS) descended 0.7%. SPDR S&P Homebuilders ETF (XHB) retreated 1.1%. The Energy Select SPDR ETF (XLE) and the Financial Select SPDR ETF (XLF) both lost 1.9%. The Health Care Select Sector SPDR Fund (XLV) edged down 0.3%. UNH stock is a major XLV component.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) fell 2.1% and ARK Genomics ETF (ARKG) 1.8%. Tesla stock remains a top holding of Ark Invest’s ETFs. Cathie Wood’s Ark also owns some BYD stock.
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Stocks Near Buy Points
Dollar Tree stock rose 1.7% to 168.76. That pushed DLTR stock back above a 166.45 cup-with-handle buy point. Shares of the dollar store giant are 7.8% above their 50-day line. The relative strength line, the blue line in the charts provided, has been hitting new highs for weeks, according to MarketSmith analysis.
BJ’s stock rose 2.95% to 70.16, just below a 71.10 double-bottom buy point. Shares crossed a downward-sloping trendline, offering an early entry. Volume was rather light while BJ’s stock is 14% above the 50-day line, which should give investors pause. Ideally, the membership warehouse chain would consolidate around current levels, perhaps forging a handle. The RS line for BJ’s stock is hitting new highs.
LNTH stock gained 0.7% to 67.91, rebounding once again from its 50-day line. While it didn’t clear Friday’s intraday high of 69.08, Lantheus stock is actionable. LNTH stock should have a proper base after this week with a 73.88 buy point.
McKesson stock had a poor start Thursday, falling below the 50-day line to 315.78 intraday. But shares rebounded to close up 0.4% to 362.55. MCK stock has a 340.04 flat-base buy point, but investors could use 335.47, just above Monday’s intraday high, as an early entry.
BYD Stock Spikes
The EV giant said Thursday it expects first-half net profit up 139%-207% vs. a year earlier in local currency terms, 2.8 billion-3.6 billion yuan ($533 million). Excluding non-recurring gains and losses, profit should skyrocket 578%-795%.
BYD stock jumped 8.4% to 37.71, rebounding back above the 50-day line after finding support at the 200-day on Wednesday. But shares are still down sharply for the week. BYD stock plunged 11.3% on Tuesday on rumors that Buffett might be moving to sell some or all of his stake in the EV maker. That rumor remains unconfirmed. But BYD stock needs to set up again, forging a new base next to the deep consolidation from November to June.
Smaller rival Li Auto edged up 0.4% to 38.18. LI stock is still actionable after bouncing Wednesday from its 21-day line. Li Auto stock is working on a new consolidation after more than doubling from early May to late June.
Tesla stock rose 0.5% to 714.94. Shares are just above their 21-day line and below their falling 50-day line. TSLA stock is just over the 10-week line once again. Tesla earnings for the second quarter are due July 20.
Tesla Vs. BYD: Which EV Giant Is The Better Buy?
Market Rally Analysis
For a second straight session, the major indexes fell sharply in the morning but soon rebounded, with the Nasdaq turning positive in the afternoon. On Thursday, the Nasdaq managed to scratch out a tiny gain, while the S&P 500, Dow Jones and Russell 2000 all fell for a fifth straight session.
All the key indexes are down sharply for the week, which started with the Nasdaq hitting resistance once again at its 10-week moving average. The indexes are all below their 21-day moving averages.
After trending lower for several sessions, perhaps the “uptrend under pressure” is due for a bounce. But it doesn’t have to happen anytime soon, and perhaps Thursday’s rally off lows was the “bounce.”
Arguably the major indexes are rangebound, with the early or late June highs marking the top and the mid-June lows marking a bottom. There’s plenty of volatility within this range.
As earnings season heats up, adding to a whirlwind of inflation-recession-Fed uncertainty, volatility for the market rally and individual stocks seems highly likely to continue.
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What To Do Now
Medical stocks such as UnitedHealth and McKesson that weren’t looking good in the morning did bounce back, but investors can’t count on intraday rallies to salvage the day.
The market is searching for direction on a short-term basis within a long, painful downtrend. It’s just not a good environment for having much exposure. Be quick to take some profits to lock in gains in such a choppy market.
Build up your watchlists and pay attention to key earnings in the coming days and weeks.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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