Dow Jones futures increased early Thursday, together with S&P 500 futures and Nasdaq futures, following a market decline on Wednesday as the Federal Reserve head Jerome Powell indicated that a Fed rate cut in March was improbable.
The stock market rally commenced on Wednesday, with technology stocks notably lower after the earnings of Microsoft (MSFT), Google parent Alphabet (GOOGL), and Advanced Micro Devices (AMD). However, the losses broadened after Fed Chief Powell’s comments.
While the major indexes still look strong, investors should exercise caution when making new purchases in the very short term and give thought to taking some profits.
Earnings
Qualcomm (QCOM), Nextracker (NXT), former NXT parent Flex (FLEX), and Align Technology (ALGN) reported their earnings on Wednesday night. QCOM stock slightly dropped in premarket trading following strong earnings and in-line guidance. Nextracker stock soared, implying a buying opportunity. ALGN stock surged above its 200-day line. FLEX stock rose modestly.
Royal Caribbean (RCL) missed Q4 revenue views before the open but beat EPS targets and provided higher guidance on Q1 and 2024 earnings. Shares rose moderately early Thursday. RCL stock is building an emerging base and is finding key support.
Amazon.com (AMZN), Apple (AAPL), and Meta Platforms (META) are set to report on Thursday night. All three Magnificent Seven stocks experienced modest declines on Wednesday.
Meta is on IBD Leaderboard. MSFT stock is on IBD Long-Term Leaders. Meta stock, Google, Microsoft, and Novo Nordisk are all on the IBD 50. Google stock is on the IBD Big Cap 20.
Dow Jones Futures Today
Dow Jones futures increased by 0.1% above fair value. S&P 500 futures rose by 0.4%, and Nasdaq 100 futures climbed by 0.55%.
The 10-year Treasury yield marginally decreased to 3.93%.
Crude oil futures slightly advanced as OPEC+ indicated it would maintain stock with current production plans.
Remember that overnight activity in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Fed Chief Powell Dismisses March Rate Cut
As anticipated, the Federal Reserve took no action at its two-day meeting and officially shifted monetary policy away from a tightening bias. However, policymakers indicated that they are not ready to cut rates yet.
“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” said the Fed statement.
Fed Chief Powell was straightforward, stating, “I don’t think it’s likely” that policymakers will feel confident enough by the March meeting, despite “six months” of good inflation figures. He indicated that the current policy is restrictive and believes it will make sense to ease at some point this year.
The Fed meeting announcement and Powell’s comments followed a few weeks of Fed and European Central Bank officials pushing back at the consensus for quick, deep rates in 2024.
The odds of a Fed rate cut in March fell to 36% on Wednesday evening, down from 40.4% on Tuesday. Markets had seen a 60% chance of a March cut shortly before the Fed announcement and Powell’s comments, due to weak economic data.
There’s a 95% chance of a cut by May 1.
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Stock Market Rally
The stock market rally extended its losses after the Fed announcement and particularly after Powell’s comments, closing near session lows.
The Dow Jones Industrial Average dropped by 0.8% in Wednesday’s stock market trading, retracting from a fresh all-time high intraday. The S&P 500 index slumped by 1.6%. The Nasdaq composite tumbled by 2.2%, just below its 21-day moving average.
Microsoft fell by 2.7% on Wednesday despite strong earnings and guidance. Google stock plunged by 7.5% amid weak ad revenue growth. AMD stock declined by 2.5%, but it rebounded significantly from its lows despite in-line earnings and a weak revenue forecast. The reports from the three AI-infused tech giants took a toll on other tech stocks.
Meta stock sank by 2.5%, and Amazon shed 2.4%. AAPL stock slipped by 2%, experiencing its sixth straight loss.
Elsewhere, the losses were moderate until Powell dismissed a March rate cut.
The Russell 2000 fell by 2.45%, undercutting the 21-day line and nearing the 50-day. Regional banks were a significant drag on the small-cap index.
The Invesco S&P 500 Equal Weight ETF (RSP), which was close to breaking even for much of the session, sank by 1.3%. RSP closed just above the 21-day. The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) retreated by 1.4%, less than the Nasdaq 100’s 1.9% slide.
A week earlier, the Nasdaq was getting extended from its 50-day line. However, on Wednesday, it was just 2.6% above that key level.
Remember that markets often have a Day Two reaction to Fed meetings that reverses course. Also, Friday’s jobs report will put Fed Chief Powell’s comments in fresh context.
The 10-year Treasury yield slid by 9 basis points to 3.965%, closing below 4% for the first time since Jan. 12.
Before the open, a weaker-than-expected ADP employment report and Employment Cost Index brought yields down a few basis points. Treasury yields hit 3.94% intraday as New York Community Bancorp (NYCB) plummeted on a surprise Q4 loss due to a spike in loan-loss provisions as it faces stricter capital requirement.
U.S. crude oil prices fell by 2.5% to $75.85 a barrel.
ETFs
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) slumped by 2.2%, with MSFT stock being a key holding. The VanEck Vectors Semiconductor ETF (SMH) dropped by 1.4%. QCOM stock is an SMH holding, along with AMD.
Reflecting stocks with more speculative stories, the ARK Innovation ETF (ARKK) skidded 3.1% lower, and ARK Genomics (ARKG) lost 3.3%.
The SPDR S&P Metals & Mining ETF (XME) fell by 1.6%, and U.S. Global Jets (JETS) descended by 0.8%. The SPDR S&P Homebuilders ETF (XHB) and the Energy Select SPDR ETF (XLE) each stepped down by 1.9%. The Health Care Select Sector SPDR Fund (XLV) edged down by 0.1%.
The Industrial Select Sector SPDR Fund (XLI) gave up 1.2%.
The Financial Select SPDR ETF (XLF) fell by 1.1%. The SPDR S&P Regional Banking ETF (KRE) tumbled by 5.85%, first as NYCB stock crashed and then adding to losses on Fed Chief Powell.
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What To Do Now
The stock market rally retreated on Fed Chief Powell’s remarks, but the major indexes haven’t shown significant damage, at least so far. However, stocks that displayed buy signals on Monday might now be in trouble.
Earnings will remain intense Thursday, with the jobs report looming Friday. These could provide catalysts for a market bounce or heavier selling.
Investors should likely wait until the dust settles on Friday morning before considering new buys. They may want to exit recent entries and consider taking at least partial profits in various stocks, especially those with earnings due.
That being said, the current action could generate new setups in the coming days and weeks, so keep working on your watchlists. But also have your exit plans ready. Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Threads at @edcarson1971 and X/Twitter at @IBD_ECarson for stock market updates and more.
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