Fed Rate Hike Looms After Market Rally Fizzles; Tesla Stock Hits New Lows As Elon Musk Admits This

Dow Jones futures were slightly higher overnight, along with S&P 500 futures and Nasdaq futures. All eyes are waiting for the announcement of the meeting of the Federal Reserve and Fed chairman Jerome Powell. Indicators of the Fed’s rate hike outlook will be important.




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Stocks closed slightly higher after initially rising on a soft CPI inflation report. Promising moves by leading stocks often decline or reverse.

Tesla ( TSLA ) fell to new bear market lows on Tuesday as sentiment turned decidedly on the EV giant. TSLA stock is traded at a high volume. CEO Elon Musk himself appeared to acknowledge concerns about Tesla’s demand on Wednesday.

Among the Dow Jones megacap stocks, The night ( AAPL ) posted a strong early gain amid reports of a dramatic change to its App Store model. Microsoft (MSFT) closed higher but after hitting major resistance.

Airline companies are difficult to find as a JetBlue The (JBLU) warning added to recent concerns about travel demand heading into 2023. United Airlines ( UAL ), which has flirted with buy points over the past two weeks, fell on Wednesday.

In the meantime, General Electric (GE), Goldman Sachs (GS) and Peabody Energy (BTU) have all found support at key levels and are near possible buy points. Peabody was Tuesday’s IBD Stock Of The Day.

The video included in this article discussed Tuesday’s market action and analyzed Tesla, GE and Peabody Energy stocks.

Fed Rate Hike, Outlook

The Federal Reserve almost certainly will raise rates by 50 basis points at 2 p.m. ET, after four straight Fed rate hikes of 75 basis points. What investors want are signals about the Fed’s rate policy in early 2023.

Following Tuesday’s CPI inflation report, markets are now moving slightly towards a quarterly rate hike on February 1.

November’s consumer price index was weaker than expected, with a 0.1% monthly gain, or 0.2% excluding food and energy. The CPI inflation rate fell to 7.1%, the lowest in a year and decreased from 7.7% in October. The CPI core inflation rate dropped from 6.3% to 6%.

The Fed will also release its quarterly economic forecasts, along with policymakers’ rate hike forecasts. This may provide insight into where the policymaker sees the “terminal” or peak funding rate.

Fed Chairman Jerome Powell will speak at 2:30 pm ET. His comments about inflation and recession risks and the Fed’s highest rates will be critical for stocks and Treasury yields.

Dow Jones Futures Today

Dow Jones futures advanced 0.3% versus fair value. S&P 500 futures were up 0.25% and Nasdaq 100 futures were up 0.25%.

Remember that overnight activity in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular market session.

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Join IBD experts as they analyze active stocks in the market rally on IBD Live


Stock Market Rally

The stock market got off to a strong start on Tuesday, with the major indexes all clearing short-term gains on the CPI inflation report. But the gains were very low.

The Dow Jones Industrial Average rose 0.3 percent in Tuesday’s trading. The S&P 500 index rose 0.7%. The Nasdaq composite rose 1%. The small-cap Russell 2000 advanced 0.3%.

Apple stock rose as high as 149.97 during the day, but was up just 0.7% to 145.47. This just retook the 50-day line. Apple will open its iPhone and iPad devices in several app stores in Europe in order to satisfy European regulators, Bloomberg reported. Apple has turned the App Store into a big money maker over the past few years.

Microsoft stock climbed 1.75 percent to 256.92, above its Dec. 1 high. But the shares were good at 263.92 in the morning. MSFT stock topped out right at the 200-day line, a key resistance area.

The price of American crude oil increased by 3 percent and reached 75.39 dollars.

The 10-year Treasury yield fell 11 basis points to 3.5%, although off the day’s low of 3.43%. The two-year Treasury yield, which is more closely tied to Fed policy, fell 18 basis points to 4.22%.

ETFs

Among the best ETFs, the Innovator IBD 50 ETF ( FFTY ) rose 0.8%, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) climbed 0.9%. The iShares Technology Sector-Expanded Software ETF ( IGV ) rose 1.6%, with MSFT stock a key component. The VanEck Vectors Semiconductor ETF ( SMH ) added 1.7%. In terms of speculative stocks, the ARK Innovation ETF ( ARKK ) was down 0.1% and the ARK Genomics ETF ( ARKG ) was up 1.1%. Tesla Inc. is a major holding in all of Ark Invest’s ETFs, but especially ARKK.

The SPDR S&P Metals & Mining ETF (XME) advanced 0.8% and the US Infrastructure Development ETF X Global (PAVE) advanced 0.9%. The US Global Jets ETF (JETS) with UAL and JetBlue stocks both fell 2.85%. The SPDR S&P Homebuilders ETF ( XHB ) gained 1.8%, with many related homebuilders and retailers showing strength. The Energy Select SPDR ETF (XLE) rose 1.9%. The SPDR Financial Select ETF ( XLF ) and the SPDR Health Care Select Sector Fund ( XLV ) both rose 0.3%.


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Stocks To Watch

GE stock fell 0.4 percent to 82.88 after hovering above its 21-day intraday moving average. General Electric made a solid advance from a bottom base on Monday with a buy point of 81.40. On a weekly chart, GE stock found support at its 10-week moving average for the first time since early November. A strong break from these levels, possibly reaching Tuesday’s high of 84.90, would present a buying opportunity.

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GE’s earnings, albeit uneven, have rebounded in 2022, with even stronger growth seen next year.

GS stock recently rounded a key breakout and found support at the 10-week line, falling below the 358.72 buy point. Investment banking is back this week. On a weekly chart, Goldman stock is trading at a 389.68 buy point on a 13-month cash-to-hand basis, according to MarketSmith analysis.

On Tuesday, shares rose 1.5% to 368.89, a fraction of their 21-day moving average, but off an intraday high of 378.56. A move above Tuesday’s high could offer an early entry into GS stock.

Peabody Energy Stock

BTU stock rose 2.2% to 28.47 on Tuesday, breaking above its 50-day and 10-week lines, but hitting resistance at the 21-day line. Peabody Corporation has a buy point of 32.99 based on a consensus that goes back nearly eight months. But BTU stock, much like the general market, has a tendency to make rapid advances followed by gradual pullbacks that break away from previous gains. A move above Tuesday’s intraday high of 29.08 could offer an early entry to both the 50-day and 21-day lines as well as break the bearish trend of the handle.

Stock Tesla

Tesla stock opened higher, but quickly gave back gains and then fell sharply for the second straight session. The stock, which broke through its bear market low on Nov. 21, fell 4.1 percent to 160.95. Volume was the heaviest in a year, with several other high-volume trade withdrawals over the past two weeks.

It is possible that some large investors in TSLA or mutual funds are selling shares as they decline and as the year goes on.

More broadly, Tesla stock has lost nearly half of its value since late September. Sharp sell-offs have been followed by mild and brief declines.

On Tuesday, data showed that Tesla China vehicle registrations were below forecasts last week. This raises concerns about China’s demand and comes amid widespread reports that Tesla will slow production at the Shanghai plant, possibly halting production by the end of the year.

Elon Musk on Tuesday appeared to acknowledge that Tesla’s demand is a problem. “Tesla will be great long-term, but doesn’t control macroeconomic swings,” Musk tweeted.

While the weak global economy is a factor, Tesla also faces growing competition, especially in China.

Meanwhile, Elon Musk’s Twitter influence is weighing on Tesla stock. His attention on Twitter seems to be against EV giant. Meanwhile, Musk’s increasingly partisan trolling tweets have damaged his brand image, especially with Democrats. The worry for TSLA stock investors is that Elon Musk’s negatives will turn off potential buyers of the Tesla EV.

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Market Rally Analysis

Stocks rallied on Tuesday’s revised CPI inflation report, but quickly gave up most of those gains.

All major indexes briefly hit their intraday highs on Dec. 1 before pulling back. The S&P 500 bounced back above its 200-day moving average. The Nasdaq continued to break above its 50-day and 21-day lines.

The Russell 2000 opened above the 200-day, but moved well below that level and ended below its 21-day line.

If the major indexes, especially the S&P 500, are able to retrace their Dec. 1 highs, that would be a great sign, but not necessarily decisive. The current market rally has had a number of big one-day gains, followed by short-term pullbacks that wipe out that action. This made buying on power difficult.

Not surprisingly, many stocks showed big moves at the open on Tuesday, but retreated to small gains or outright losses. Megacaps are neutral at best, like Microsoft stock, laggards like Apple stock or outright losers like Tesla.


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What to do now

Tuesday’s market action shows why investors should not buy right at the open, especially when the major indexes are rising on the news. It also shows why investors need to keep their emotions in check.

If the market rallied on Wednesday’s Fed rate hike and Fed Chairman Powell’s comments, there may be some buying opportunities. But add exposure gradually, using early entries and back-ups for slightly safer entries.

It is risky to increase the exposure unless the market rally turns from breakout activity to a sustained uptrend.

Many stocks from various sectors are established. So you want to get ready, work on your watch lists. Stay focused so that you have clear buy points like stocks.

Read The Big Picture every day to stay in sync with market direction and leading companies and sectors.

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

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