S&P 500 rises above key level on Fed Chief Powell, but inflation and jobs report loom

By | December 1, 2022

Dow Jones futures changed little overnight, along with S&P 500 and Nasdaq futures. Salesforce.com led overnight gains, but investors’ focus will be on Thursday’s PCE inflation report after Fed chief Jerome Powell sparked a tech-led stock market rally on Wednesday. -fair.




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The pace of rate hikes may start to slow by the December meeting, Fed Chief Powell said on Wednesday, providing more explicit support for a smaller hike at the next meeting. But Powell maintained his view that the federal funds rate is likely to reach 5% or higher. The current federal funds rate range is 3.75% to 4%. Powell also noted that many factors supporting inflation are easing. The Fed chief, who has suggested a recession may be necessary, said a “soft landing” was still possible.

Nasdaq led the way, with Litter (AAPL), Microsoft (MSFT), nvidia (NVDA), tesla (TSLA) and parent of Google Alphabet (GOOGL) outperforming compost. Notably, the S&P 500 Index surged to clear the 200-day moving average, a key resistance area.

On Thursday, traders will get the PCE price index for October, with the November jobs report due out on Friday morning.

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

main earnings

salesforce.com (CRM), Snowflake (SNOW) and Cashier (BOX) led a number of software earnings reports. Pure Storage (PSTG) and Victoria’s Secret (VSCO) also reported.

CRM stocks were down solidly in overnight trading, with Salesforce earnings at the top, but guidance was light. Co-CEO Bret Taylor will step down, leaving Marc Benioff as sole CEO. SNOW stock initially fell in prolonged action due to poor revenue guidance from Snowflake, but pared losses considerably. Box stock has changed little as EPS has just topped and sales have been slightly lower.

PSTG shares rose modestly overnight after Pure Storage outperformed third-quarter views and increased guidance. Equities closed down about 1% after plunging intraday on weak earnings and bullish guidance. NetApp (NTAP). VSCO stock fell slightly as Victoria’s Secret earnings rose, but sales were slightly lower.

early thursday, general dollar (DG) and kroger (KR) are on tap. Chinese electric vehicle manufacturers no (NIO), Read Auto (LI) and XpengGenericName (XPEV) report November sales, with those stocks and other Chinese names rising on Wednesday on Covid reopening hopes.

Inflation Report

The Commerce Department will release the PCE price index, the Fed’s favorite inflation gauge, at 8:30 am ET as part of the income and spending report.

The PCE price index for October is expected to increase by 0.4% compared to September. In the annual comparison, PCE inflation should cool down to 6%, compared to 6.2% in September. Core PCE, which excludes food and energy, is expected to rise 0.3%. Core PCE inflation rate is expected to decline to 5% from 5.1% in September.

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 Dec. 13, the day before the Fed’s December meeting is announced.

On the previous Wednesday, ADP reported a sharp slowdown in private sector hiring in November. Additionally, the JOLTs survey showed that job openings fell more than expected in October. Third quarter GDP growth was revised upwards more than expected, along with the report’s inflation gauge.

Dow Jones Futures Today

Dow Jones futures were flat relative to fair value, with CRM shares a drag on blue chips. S&P 500 futures were up 0.1% and Nasdaq 100 futures were up 0.1%.

Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate to actual trading in the next regular stock market session.


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stock market rally

The stock market rally was mixed for much of Wednesday’s session, then took off as Fed Chief Powell’s comments closed at session highs.

The Dow Jones Industrial Average was up 2.2% in stock market trade on Wednesday. The S&P 500 index jumped 3.1%. The Nasdaq composite jumped 4.4%. The small-cap Russell 2000 was up 2.7%.

Apple shares rose 4.9% and Google shares rose 6.1%, both above 50 days. Shares in Microsoft and Nvidia, already above their 50-day lines, jumped 6.2% and 8.2% respectively. Tesla shares soared 7.7%, resuming their 21-day line.

US crude oil prices rose 3% to $80.55 a barrel but fell 6.9% on the month. China Covid reopening hopes also lifted copper futures.

Treasury yields and Fed rate hike probabilities

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

The odds of a 50 basis point rate hike from the Fed are now around 79% versus 66% after Tuesday. Markets still see another half point move as a slight favorite in February, but the odds of a quarter point move are as high as 45%.


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ETFs

Among the top ETFs, the Innovator IBD 50 ETF (FFTY) was up 1.8%, while the Innovator IBD Breakout Opportunities (BOUT) ETF was up 2%. The iShares Expanded Tech-Software Sector ETF (IGV) was up 4.4%, with Microsoft and CRM the top two components. The VanEck Vectors Semiconductor ETF (SMH) jumped 5.7%, with Nvidia stock in the lead.

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

Reflecting stocks from more speculative stories, the ARK Innovation ETF (ARKK) was up 7.7% and the ARK Genomics ETF (ARKG) was up 6.5%. Tesla shares remain a major holding in Ark Invest’s ETFs.


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Market Rally Analysis

The stock market rally made a big move higher on massive volume on Wednesday on comments from Fed Chief Powell.

The S&P 500 Index rebounded from nearly its 21-day line to the 4,000 level and broke above its 200-day line for the first time in seven months.

The Nasdaq composite, the latecomer to the market’s rally, led the way higher on Wednesday. It rebounded from its 21-day cross and the 11,000 level to close at a two-month closing high. Shares in Apple, Microsoft, Google, Nvidia and Tesla all made strong gains on Wednesday, but it’s unclear whether any of them will be leaders in the current uptrend.

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

The forwards defeated the losers with wide gains. Many of the major stocks that were under pressure rose on Wednesday.

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

Remember that the current market rally had several big gains in one day, but then struggled to advance over the next few days or weeks.


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What to do now

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

Investors were likely tempted to increase exposure on Wednesday, and that could work.

But there are still good reasons not to increase exposure. The S&P 500 is above its 200-day line, but not decisively. Doing so would likely mean breaking a long trend line of declining tops on a weekly chart. Staying decisively above this area could be a strong sign that the current uptrend is more than a bear market high.

But that will require a positive reaction to the upcoming PCE inflation data and jobs report.

Investors should work furiously on their watch lists, scouting out promising stocks from various sectors. But definitely stay engaged. The market rally may be at a turning point, but which way will it turn.

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

Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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