Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures, as Treasury yields rose.
The stock market retreated after the Federal Reserve meeting, with the S&P 500 and Nasdaq breaking below critical levels. The Fed stuck with forecasts for one more rate hike this year and indicated that rates would stay higher for longer. However, Fed chief Jerome Powell said the central bank will “proceed carefully.”
Meanwhile, Celsius (CELH), one of the last stalwart leaders, sold off hard Wednesday. ELF Beauty (ELF) fell for a ninth straight session. Investors should be looking to curb exposure and wait for real market strength before making new buys.
Hollywood studios are close to a deal to end the writers strike, CNBC reported Wednesday night. That would be good news for Walt Disney (DIS), Netflix (NFLX), Paramount Global (PARA) and other big media players.
Policymakers left interest rates steady at a 5.25%-5.5% range at the end of the two-day Fed meeting, as expected. The focus was on the Fed rate-hike outlook for the rest of the year and 2024. Twelve FOMC members still expect one more rate hike in 2023, the same as in June, vs. seven who see no change.
Fed chief Powell said policymakers can “proceed carefully,” suggesting no hurry to raise rates again. But he also said one more Fed rate hike wouldn’t be a big deal for the economy.
For 2024, policymakers now expect the fed funds rate to end at 5.1%, vs. the June forecast for 4.6%.
What’s going on? The Fed is feeling more confident in a soft landing, reducing the downside risk of another hike and keeping rates elevated. GDP is seen rising 2.1% in 2023 and 1.5% next year, both up from June estimates of 1% and 1.1%, respectively. Unemployment should end the year at 3.8% and only creep up to 4.1% in 2024, both lower than June projections.
Meanwhile, the Federal Reserve now sees the core PCE inflation rate slowing to 3.7% in 2023, vs. the June forecast for 3.9%. But that’s still above what recent annualized trends suggest. The upshot is that if inflation does undershoot the Fed’s latest projections, policymakers have an easy excuse to not raise rates again.
Markets now see the odds of a Nov. 1 rate at 30%, little changed from 29% before the Fed announcement. The odds of a December Fed rate hike did increase to 46% from about 41%.
Dow Jones Futures Today
Dow Jones futures were 0.2% below fair value. S&P 500 futures fell 0.3% and Nasdaq 100 futures retreated 0.4%.
The 10-year Treasury yield rose several basis points to 4.44%, the highest since late 2007. The two-year yield popped to a 5.19%, another long-term high.
Key Earnings Late
FDX stock rose sharply in extended trade after FedEx topped earnings views and raised the low end of its full-year EPS target, though revenue fell more than expected. FedEx stock edged up 0.2% to 250.52 on Wednesday. Shares are working on a 270.95 flat-base buy point but are below the 50-day line.
KBH stock fell modestly overnight. KB Home earnings and revenue fell less than expected, but average selling prices declined more than the homebuilder had projected. KB Home slipped 0.7% to 48.06 on Wednesday. Shares are near the bottom of a 16%-deep consolidation with a 55.37 buy point, according to MarketSmith.
The stock market retreated following the Fed meeting decision and Powell’s comments, led by the Nasdaq.
The Dow Jones Industrial Average fell 0.2% in Wednesday’s stock market trading. The S&P 500 index slumped 0.9%. The Nasdaq composite retreated 1.5%, its worst loss since Aug. 24
After flirting with doing so on Tuesday, the Nasdaq and S&P 500 closed below the intraday low of their Aug. 29 follow-through day. A close below the FTD low is a highly bearish signal that the market rally will ultimately fail. The Nasdaq is already closer to the Aug. 18 low than the 50-day line.
Market breadth remained weak. The small-cap Russell 2000 hit resistance at the 200-day line, then slumped 0.9%, hitting a three-month low.
The Invesco S&P 500 Equal Weight ETF (RSP) fell 0.5% after rebounding back above the 200-day line before the Fed announcement.
More leaders are crumbling.. CELH stock, which had barely come off highs, tumbled 8.3% Wednesday. ELF stock skidded 6.1%, off for a ninth straight session.
Keep in mind that the stock market often has a day-two reaction to Fed meetings that reverses the initial move.
U.S. crude oil prices fell 1% to $90.28 a barrel.
The 10-year Treasury yield fell two basis points to 4.35%, retreating from Tuesday’s 15-year high. The two-year Treasury yield, more closely tied to the Fed rate outlook, edged up 1 basis point to 5.12%, a fresh 17-year high.
Among growth ETFs, Innovator IBD 50 (FFTY) fell 1.3%. The iShares Expanded Tech-Software Sector ETF (IGV) declined 0.9%. The VanEck Vectors Semiconductor ETF (SMH) gave up 1.6%, with Nvidia stock the No. 1 holding.
The SPDR S&P Metals & Mining ETF (XME) dropped 0.5%, and the Global X U.S. Infrastructure Development ETF (PAVE) slipped 0.6%. U.S. Global Jets (JETS) fell 0.85%. SPDR S&P Homebuilders (XHB) backed off 1.2%. The Energy Select SPDR ETF (XLE) lost 0.9%, and the Health Care Select Sector SPDR Fund (XLV) just edged higher.
Nvidia stock fell 2.9% to 422.39, holding above Monday’s intraday low but hitting the lowest close in over a month. Shares are 7.1% below their 50-day line.
Meta stock reversed lower to close down 1.8% to 299.67. Shares are back below the 50-day line, but could be close to forging a handle on a cup base.
TSLA stock also turned lower, ending off 1.5% to 262.59. The EV giant is close to adding a handle to its cup base.
GOOGL stock fell 3.1% to 133.74, closing below its 21-day line. Shares are back at the top of a shelf on top of a cup-with-handle base.
What To Do Now
The market continues to hit resistance on the upside and break below support. More and more leading stocks are buckling. It’s just not a good environment.
Yes, a number of stocks are close to setting up, or nearly so. But they need a healthy market rally to have a decent chance of success.
For now, investors should have slim-to-modest exposure, perhaps holding on to some longer-held winners. Keep working on watchlists. Look for stocks holding support levels or showing strong relative strength. Those are the names that may lead the next strong advance.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on X/Twitter at @IBD_ECarson for stock market updates and more.
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