Dow Jones futures: Inflation report, Fed big tests for market rally
Dow Jones futures will open Sunday evening, along with S&P 500 futures and Nasdaq futures, with attention turning directly to the CPI inflation report and the Federal Reserve.
The stock market rally petered out last week, with the major indexes continuing their trend of jumping to new highs, but then petering out. It’s a challenging environment to buy stocks.
Investors will get a snapshot or two of big economic news next week. On Tuesday, the Labor Department will release its November CPI inflation report. The Federal Reserve will raise interest rates again on Wednesday afternoon, with Fed chief Jerome Powell signaling further tightening in early 2023.
This could be the catalyst for big market gains or losses, or volatile sideways action could continue. Investors should probably wait for the inflation report and news from the Fed before adding exposure.
Breakout failures, or setbacks, are widespread, with DXCM shares falling back on Friday after briefly clearing a buy point on Thursday following the FDA approval.
But here are five stocks to watch: Dow Jones giants Caterpillar (CAT) and Goldman Sachs (GS), Sanmina (ALONE), McKesson (MCK) and Free market (MELLY). To be clear, none of these actions are actionable, with MELI’s actions in particular needing work.
Microsoft (MSFT) does relatively well for megacaps, with An apple (AAPL) below its 50-day line and Tesla (TSLA) trying to avoid making new lows in the bear market. But MSFT shares remain well below their 200-day line and haven’t made much progress over the past month.
The video embedded in the article takes an in-depth look and analyzes the market action Dexcom (DXCM), shares of MercadoLibre and CAT.
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CPI inflation and Fed meeting
Early Tuesday, the Labor Department will release the consumer price index for November. Headline and core CPI inflation rates should cool over the next few months, if only because comparisons are becoming more difficult. But service prices are stubbornly high.
The Federal Reserve wants to see more substantial declines in services inflation as well as wage gains before it stops raising rates. At 2:00 PM ET, the Federal Reserve is expected to raise interest rates by 50 basis points, to 4.25%-4.5%, ending a streak of four 75 basis point hikes. Investors will be looking for some clues about the February meeting and how high the funds rate could ultimately go. Markets are currently pricing in another half-point rate hike from the Fed in February, though there’s a decent chance of a quarter-point move.
Comments from Fed chief Powell at 2:30 PM ET, along with the CPI inflation report, could set the tone for Fed policy in 2023.
Powell and several policymakers have signaled that a recession may be needed to bring inflation under control.
Dow Jones futures today
Dow Jones futures open at 6 PM ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
Remember this night action in Dow futures and elsewhere does not necessarily become an actual trade in the next regular Stock Exchange session.
Join IBD’s experts as they analyze active stocks on IBD Live’s stock market rally
Stock market rallies
The stock market rally has seen significant pullbacks for key indices over the past week.
The Dow Jones Industrial Average sank 2.8% last week Exchange Trading. The S&P 500 lost 3.4%. The Nasdaq Composite fell 4%. The small-cap Russell 2000 fell 5.1%.
The 10-year Treasury yield rose 6 basis points to 3.57%, recovering from 3.4% midweek.
U.S. crude futures fell 11 percent to $71.02 a barrel last week, and gasoline futures fell 9.8 percent. Both hit 2022 lows. Natural gas prices fell 0.6%.
Among key growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) fell 4.6%, with Microsoft shares the main holding. VanEck Vectors Semiconductor ETF (SMH) declined by 1.7%.
Reflecting the more speculative stocks of history, the ARK Innovation ETF (ARKK) tumbled 9.2% last week, and the ARK Genomics ETF (ARKG) 8.1%. TSLA stock is a huge holding in Ark Invest’s ETF.
SPDR S&P Metals & Mining ETF (XME) gave up 6.4% last week. Global X US Infrastructure Development ETF (PAVING) fell by 2.85%. US Global Jets ETF (STREAMS) fell by 3.3%. SPDR S&P Homebuilders ETF (XHB) fell by 2%. Energy Select SPDR ETF (XLE) plunged 8.45%, decisively breaking its 50-day line. The Financial Select SPDR ETF (45) declined by 3.9%. Select Healthcare Sector SPDR Fund (XLV) fell 1.3% after climbing in eight of the previous nine weeks.
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Apple shares have fallen 3.8% in the past week, falling below that key level on Tuesday and hitting resistance there on Friday. The bad news for iPhone production may be in the price, and AAPL stock is recovering.
Shares of fellow Dow tech titan Microsoft also sank 3.8%, but held support at the 21-day line, just above the just-rising 50-day. But it is well below the 200-day line. Shares of MSFT were essentially unchanged from a month ago, as were the S&P 500 and Nasdaq.
Tesla shares have tumbled 8.1% in the past week, even with Friday’s 3.2% gain. TSLA shares bounce off recent bear market lows. Tesla announced new incentives for China this past week with widespread media reports that the Shanghai plant will significantly reduce production over the next few weeks, even halting Model Y production.
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Stocks to watch
Caterpillar shares fell 3.7% to 227.29 last week, breaking a 21-day line. The setback can be a constructive shake-up. The CAT warehouse has a point of purchase at 238 or 239.95 from a long cup base. In another week, heavy equipment giant Dow may have flat base with this purchase point of 239.95. A slightly longer break would allow the rapidly rising 50-day line to close the gap with CAT shares.
Goldman shares fell 5.6% in the past week to 359.14, paring a breakout from cup base with a 358.72 buy point before rising slightly above it. A solid bounce from here could suggest a new entry, especially if the 50-day or 10-week line catches up. On a weekly chart, GS shares are 13 months old cup base with handlewith a 389.68 buy point, acc MarketSmith analysis. The last week has now created more depth on this handle, which may also turn into a flat base in a week.
Sanmina shares fell 7.3% to 62.48 this past week. SANM shares have consolidated tightly in the profit-taking zone after a breakout in October from the base of the cup. Shares may begin a pullback towards the 50-day/10-week line, offering a buying opportunity, although the weekly decline was sharp. SANM stocks are also running on a possible flat base.
Shares of McKesson fell 4% to 371.37 last week, falling just below the 50-day and 10-week lines on Friday. MCK shares are working on another consolidation after the sharp sell-off on November 10-11 that hit many defensive medical stocks. A move above the December 2 high of 389.45 could suggest an early entry, still near the moving averages.
MELI shares sank 5.1% to 896.48, their fourth straight weekly decline. The Latin American e-commerce and payments giant has 1,095.44 buy points, with an entry into the trend line around 1,025. An aggressive entry could be a decisive takeover of MELI stock’s moving averages, with a December 2 high of 957 as this trigger. Although MercadoLibre shares are lower, the weekly losses come on lower volume with some relatively strong positive closes.
Market Rally Analysis
A week ago, the stock market rally hit new highs, with the S&P 500 breaking above its 200-day line for the first time in months. But as investors reassessed the jobs report and Fed chief Powell’s comments, major indexes retreated.
The S&P 500 fell below its 200-day line, while the Nasdaq tested its 50-day. Both reached resistance at the 21-day line at the end of the week. The Russell 2000 fell below its 200-day and 21-day lines, and went all the way to its 50-day, just below its 10-week line.
The rally-leading Dow holds support around its 21-day.
The S&P 500 is broadly where it has been since Nov. 10, when October’s modest CPI inflation report boosted stocks. The Nasdaq and Russell 2000 returned to early November levels, but also to late October highs.
If you were to create a scenario to entice investors to be bullish repeatedly, this current uptrend could be the blueprint: A market rally of several big one-day gains, followed by pullbacks over several sessions.
This is still a confirmed market rally. However, further losses, such as the Nasdaq or especially the S&P 500 clearly breaking their 50-day lines, would be worrisome.
Tuesday’s November CPI inflation report and Wednesday’s Fed meeting announcement and Powell’s comments could provide the catalyst for a sustained market rally or a decisive selloff. But they could also spur another big market rally that looks decisive, only to be followed by another pullback.
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What should we do now
Investors should be careful to add exposure while the CPI inflation report and the Fed meeting are in the rearview mirror. Even if markets jump on the back of the inflation data and comments from Fed chief Powell, investors should be selective about new purchases in case the major indexes simply move lower over the next few sessions.
At some point, there will be a sustained, steady market rally. When that happens, buying opportunities will be plentiful.
So get your holiday shopping list ready at the exchange. A large number of stocks from various sectors are creating or close to it.
Read it The big picture every day to stay in sync with market direction and leading stocks and sectors.
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