Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures. The stock market fell sharply on Wednesday after the US Federal Reserve aggressively hiked again and signaled a higher peak or “tail” interest rate.
This is a stock market correction. Investors should remain cautious but keep an eye out for leading names.
Celsius Holdings (CELH), shock wave medicine (SWAV), ATI (ATI), GlobalFoundries (GFS) and Enphase Energy (ENPH) all show strong relative strength in a weak market.
CELH stock and Shockwave Medical are on the IBD Leaderboard watch list. Celsius Holdings, Enphase and SWAV stocks are on the IBD 50. ENPH stocks are on the IBD Big Cap 20. Celsius was Wednesday’s IBD stock while Shockwave was Monday’s.
The video embedded in this article discussed Wednesday’s roller coaster movement, analyzing shares in Celsius, ATI and GFS.
As expected, the Fed raised interest rates by 75 basis points for a third straight meeting, raising the target range to between 3% and 3.25%.
Fed policymakers now see the fed funds rate at 4.4% by the end of 2022, up from 3.4% after the June meeting. That’s what markets are pricing in: another 75 basis points at the November meeting, followed by 50 basis points in December, for a year-end range of 4.25% to 4.5%.
The central bank also signaled some tightening in 2023, forecasting a 4.6% interest rate by the end of next year versus a 3.8% forecast in June. This does not contradict what market observers expected for the final rate. Policymakers expect the rate to drop to 3.9% in 2024.
Fed Chair Jerome Powell reiterated that the Fed will not let up in the face of inflation. He noted that a “soft landing” will be difficult, but declined to comment on the likelihood of a recession. “Eventually” the Fed will slow the pace of rate hikes, Powell said, but didn’t specify when that might happen. He added that Fed policy would have to remain “restrictive” for some time.
Fed Chair Powell said the labor market remained “out of whack” although he added that commodity prices look like they have peaked.
Dow Jones futures today
Dow Jones futures fell 0.1% from fair value. S&P 500 futures were down 0.2%. Nasdaq 100 futures were down 0.4%.
Keep in mind that overnight action in Dow futures and elsewhere doesn’t necessarily translate to actual trading in the next regular trading session.
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Stock market Wednesday
The stock market modestly got into the Fed meeting decision and then took a rollercoaster ride that ended at session lows.
The Dow Jones Industrial Average fell 1.7% in trading on Wednesday. The S&P 500 index was also down 1.7%. The Nasdaq Composite fell 1.8%. Small-cap Russell 2000 fell 1.5%
US crude prices fell 1.2% to $82.94 a barrel.
The 10-year Treasury yield fell 6 basis points to 3.51% after briefly hitting 3.62% following the Fed’s rate hike. The two-year Treasury yield surged above 4% to close at about 4.04%, but well below daily highs.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.8%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 1.4%. The VanEck Vectors Semiconductor ETF (SMH) lost 0.8%.
The SPDR S&P Metals & Mining ETF (XME) is down 2.1%, while the US Global Jets ETF (JETS) is down 4% on a bad day for travel games. The SPDR S&P Homebuilders ETF (XHB) lost 1.1%. The Energy Select SPDR ETF (XLE) is down 1.5% and the Financial Select SPDR ETF (XLF) is down 2.1%. The Health Care Select Sector SPDR Fund (XLV) fell 1.7%.
Reflecting more speculative story stocks, ARK Innovation ETF (ARKK) lost 2.65% and ARK Genomics ETF (ARKG) 2.7%.
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Celsius shares fell 3.9% to 98.23 on Wednesday. Stocks have pulled back to find support at their 10-week moving average after climbing 209% from early May to late August. In a few weeks, CELH stock could have a new base with a buy point of 118.29. Investors could use 108.47 as an early entry for the energy drink maker.
The line of relative strength for CELH stock is right at record highs.
SWAV shares were down 1.85% on Wednesday at 284.69, reversing down from 300.96 on the day. Shockwave stock continues to find support around its 21-day moving average.
ATI’s stock slipped a little over 2% to 29.67, trading around its 21-day moving average after falling from a seven-year high of 33.31. Shares of the specialty alloys maker have pulled back to the top of a previous base and just above its 10-week moving average. A 10-week line bounce could provide an early entry, with a reasonable base in another week.
While ATI stock has retreated, its RS line is at highs.
GlobalFoundries shares fell 0.9% to 56.29. That’s just above the 50-day and brand new 200-day moving average, while GFS stock is slightly below the 10-week moving average. The 2021 Chip Foundry IPO has a very deep double bottom base with a handle and offers a buy point of 66.06. At the end of this week, the GFS stock handle will be long enough to be a basis of its own with the same entry of 66.06.
Enphase stock fell slightly 15 cents to 304.56 and continued to find support at its 21-day moving average. ENPH stock is still extending from its 50-day moving average, but it is slowing down. Enphase stock’s RS line has been making new highs for weeks.
Stock market analysis
As usual, following the Fed’s rate hike decision, new rate forecasts and Powell’s comments, the stock market rallied, briefly staging a strong recovery before finally ending with heavy losses. The major indices ended up having ugly, outside moves down.
While markets were not blind on Wednesday, the Fed’s overall tone was likely a little more hawkish than expected. But ultimately, despite mounting recession risks, the Federal Reserve is aggressively raising rates to rein in inflation.
Markets often have a second day Fed reaction. But even if shares did recover on Thursday, that wouldn’t be meaningful.
The major indices all undercut recent lows on Wednesday for intraday trading, losing track of their 50-day moving averages. The June lows are not far away.
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At the end of the day, it’s not the news that counts, it’s the market’s reaction to the news. And the stock market didn’t react well to the decision at Wednesday’s Fed meeting.
Could the market get a short-term rebound or even a decent multi-week rally? Secure. But investors will want to see a lot more evidence.
Leading stocks like Celsius, Shockwave, and Enphase could send early buy signals as the market attempts to rally. But investors need to balance the urge to get into hot stocks quickly against ensuring a broad uptrend is underway. If the market moves towards or above the June lows, even relative leaders are likely to collapse.
If there is a real stock market rally, there are many opportunities. The key is to be ready.
Work on those watch lists. Focus on stocks with strong relative strength and stocks that are holding or recapturing key moving averages.
Read The Big Picture every day to keep up to date with 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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