S&P 500 Surges Above Key Level On Fed Chief Powell, But Inflation, Jobs Report Loom

Dow Jones futures ended lower overnight, along with S&P 500 futures and Nasdaq futures. Salesforce.com posted earnings overnight, but investors will focus on Thursday’s PCE inflation report after Fed chief Jerome Powell launched a tech-based stock market rally on Wednesday.




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Fed chief Powell said Wednesday that the pace of rate hikes could slow at the December meeting, providing more apparent support for a smaller increase at the upcoming meeting. But Powell stuck to his view that the fed funds rate is likely to reach 5% or higher. The current fed funds rate range is 3.75%-4%. Powell also noted that many of the factors fueling inflation are abating. The Fed chief, who has suggested a recession may be necessary, said a “soft landing” is still possible.

Nasdaq led Apple (AAPL), Microsoft (MSFT), NVIDIA (NVDA), Tesla (TSLA) and Google Parent Alphabet (GOOGL) is trailing the overall. Notably, the S&P 500 index shot up to clear the 200-day moving average, a key resistance area.

On Thursday, investors will get the October PCE price index, with the November jobs report coming Friday morning.

So while Wednesday’s action was encouraging, investors should await the market’s reaction to Fed-critical data.

prime income

salesforce.com (CRM), snowflake (snow) and Box (BOX) led several software earnings reports. net storage (pstg) and victoria’s secret (VSCO) also reported.

CRM stock fell solidly in overnight trading as Salesforce topped earnings but lightened guidance. Co-CEO Brett Taylor will step down, leaving Marc Benioff as sole CEO. SNOW stock initially fell in extended action on weak Snowflake revenue guidance, but pared losses significantly. Box stock was little changed as EPS topped and sales were down slightly.

PSTG stock rose modestly overnight after Pure Storage topped Q3 views and raised guidance. Shares were down nearly 1% after falling intraday on weak results and guidance NetApp (NTAP). VSCO stock fell slightly as Victoria’s Secret topped earnings but fell short of sales.

early thursday, dollar general (DG) and Kroger (KR) are on tap. Chinese EV Manufacturers nio (NIO), Lee Auto (li) and xpeng (XPEV) reported November sales, with those shares and other Chinese names rising on Wednesday in hopes of a post-Covid reopening.

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inflation report

The Commerce Department will release the PCE Price Index, the Fed’s preferred inflation gauge, at 8:30 AM ET as part of the Income and Spending report.

The October PCE price index should show a 0.4% increase compared to September. Year-on-year, PCE inflation should decline to 6% from 6.2% in September. Core PCE, which excludes food and energy, is expected to rise by 0.3%. The core PCE inflation rate is seen falling to 5% from September’s 5.1%.

The PCE inflation report, along with Friday’s November jobs report, will help shape Fed rate hike expectations. The November consumer price index will be released on December 13, a day before the Fed’s December meeting announcement.

Earlier on Wednesday, the ADP reported a sharp slowdown in private sector hiring in November. In addition, the JOLTS survey showed that job openings declined more than expected in October. In line with the report’s inflation gauge, third quarter GDP growth was revised higher than expected.

dow jones futures today

Dow Jones futures were a fraction below fair value, with CRM stock a drag on blue chips. S&P 500 futures and Nasdaq 100 futures closed with losses.

The 10-year Treasury yield fell 7 basis points to 3.63%.

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


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stock market rally

The stock market was mixed for most of Wednesday’s session, then closed at a session higher on comments from Fed chief Powell.

The Dow Jones Industrial Average rose 2.2% in Wednesday’s stock market trading. The S&P 500 index jumped 3.1%. The Nasdaq Composite jumped 4.4%. The small-cap Russell 2000 rose 2.7%.

Apple stock climbed 4.9% and Google stock rose 6.1%, both back above their 50-day highs. Microsoft stock and Nvidia, already above their 50-day lines, jumped 6.2% and 8.2%, respectively. Tesla stock climbed 7.7% higher, trailing the 21-day line.

US crude oil prices rose 3% to $80.55 a barrel, but fell 6.9% for the month. Copper futures also gained on hopes of reopening of covid in China.

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Treasury Yield and Fed Rate Hike Odds

The 10-year Treasury yield fell 5 basis points to 3.7%. The two-year Treasury yield, more closely aligned to Fed policy, fell to 4.33%, despite Powell expecting a peak fed funds rate of at least 5%.

The probability of a 50-basis-point Fed rate hike after Tuesday is now around 79% versus 66%. The market still sees another half-point move in February as a slight favorite, but the probability of a quarter-point move is above 45%.


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ETF

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.8%, while the Innovator IBD Breakout Opportunities ETF (BOUT) climbed 2%. The iShares Extended Tech-Software Sector ETF (IGV) rose 4.4%, with Microsoft and CRM stocks both major components. The VanEck Vectors Semiconductor ETF (SMH) jumped 5.7%, with Nvidia stock topping it.

The SPDR S&P Metals & Mining ETF (XME) advanced 3.75% and the Global X US Infrastructure Development ETF (PAVE) advanced 2.4%. The Energy Select SPDR ETF (XLE) rose 0.5% and the Financials Select SPDR ETF (XLF) rose 1.7%. The Health Care Select Sector SPDR Fund (XLV) added 2.4%.

Reflecting more-speculative story stocks, the ARK Innovations ETF (ARKK) rose 7.7% and the ARK Genomics ETF (ARKG) rose 6.5%. Tesla stock remains a major holding in Arc Invest’s ETF.


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Market Rally Analysis

The stock market’s rally on Fed chief Powell’s comments took a huge toll on Wednesday.

The S&P 500 index jumped from near its 21-day line to the 4,000 level and moved above its 200-day line for the first time in seven months.

The Nasdaq Composite, a laggard in the market’s rally, led the way on Wednesday to the upside. It retested its 21-day line and the 11,000 level, a two-month closing high. Apple stock, Microsoft, Google, Nvidia and Tesla all had strong gains on Wednesday, but it’s unclear if any of them will be leading the current uptrend.

The Russell 2000, which had lowered its 21-day line intraday, rebounded to retake its 200-day. The Dow Jones, which has led the current market rally, is back at a new seven-month high.

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Advancers outnumbered losers with broad-based gains. Many major stocks under pressure gained momentum on Wednesday.

While there was plenty of positive action on Wednesday, the S&P 500 remained well below its 200-day moving average. The October PCE inflation report on Thursday and the November jobs report on Friday could consolidate Wednesday’s bullish uptrend or trigger a bearish return.

Keep in mind that in the current rally of the market there have been many big gains in one day, but then struggled to make further gains in the next few days or weeks.


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What should we do now

The stock market rally had a strong session, with major indices and major stocks taking encouraging moves.

Investors were likely to increase exposure on Wednesday, and doing so may work.

But good reasons have yet to be made for not increasing the risk. The S&P 500 is above its 200-day line, but not conclusively so. To do so would mean topping a long, declining-top trendline on the weekly chart. A decisive move above this area could be a strong signal that the current bullish trend is over with the bear rally.

But this would require a positive response to the upcoming PCE inflation data and jobs report.

Investors should work furiously on their watchlists considering the promising stocks from various sectors. But definitely be engaged. The market rally may be at a turning point, but which way will it turn?

Read The Big Picture every day to keep up with market direction and the leading stocks and sectors.

Please follow Ed Carson on Twitter @IBD_ECarson For stock market updates and much more.

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