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S&P 500 rises above key levels thanks to Fed Director Powell, but inflation, jobs report still unclear


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




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The pace of rate hikes could start to slow at the December meeting, Fed Chair Powell said on Wednesday, providing clearer support for a smaller hike at the upcoming meeting. But Powell stuck with his point that the federal funds rate will likely reach 5% or more. The current federal funds rate range is 3.75%-4%. Powell also noted that many of the factors driving inflation are easing. The Fed chief, who has suggested a recession may be needed, said a “soft landing” is still possible.

Nasdaq leads with Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA), Tesla (TSLA) and the parent company of Google Alphabet (GOOGLE) all of which go far beyond aggregation. Notably, the S&P 500 index spiked to break above the 200-day moving average, an important resistance area.

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

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

Main income

Salesforce.com (CRM), Snowflakes (SNOW) and Box (BOX) led several software earnings reports. Pure storage (PSTG) and Victoria’s Secret (VSCO) are also reported.

CRM stock plummeted in overnight trading as Top sales force earnings but the guide is light. Co-CEO Bret Taylor will step down, leaving Marc Benioff as sole CEO. SNOW stock initially plunges in prolonged action on weakness Snowflake Revenue Guide, but significantly reduced losses. Box stock dropped as EPS just peaked and EPS missed.

PSTG shares rose modestly overnight Pure Storage ranked first in terms of views in Q3 and advanced tutorials. Shares closed down about 1% after plunging on the day on weak results and guidance from network application (NTAP). VSCO shares fell slightly as Victoria’s Secret earnings came out on top but sales were short-lived.

early Thursday, common dollar (FIRE) and grocery (KR) is being exploited. Chinese electric vehicle manufacturers Nio (NIO), Automobiles (LIFE) and Xpeng (XPEV) reported November sales, with those stocks and other Chinese names surging Wednesday on hopes of a Covid reopening.

Inflation Report

The Commerce Department will release the PCE price index, the Fed’s preferred inflation gauge, at 8:30 a.m. ET as part of its earnings and spending report.

PCE Price Index in October will increase by 0.4% compared to September. Annually, PCE inflation will decrease to 6% from 6.2% in September. Core PCE, excluding food and energy, is expected to increase 0.3%. The core PCE inflation rate is expected to drop to 5% from September’s 5.1%.

The PCE inflation report, along with Friday’s November jobs report, will help shape the Fed’s rate hike expectations. The November consumer price index will be released on December 13, a day before the Fed’s December meeting.

Earlier on Wednesday, ADP reported a sharp drop in private sector hiring in November. Additionally, the JOLTs survey showed job openings fell more than expected in October. Q3 GDP growth was revised up more than expected, along with the report’s inflation gauge.

Dow Jones Futures Today

Dow Jones futures were mostly unchanged from fair value, with CRM stock being a drag on blue chips. S&P 500 futures were up 0.1% and Nasdaq 100 futures were up 0.2%.

Remember that action overnight in future index and other places that don’t necessarily translate into actual transactions the next time stock market meeting.


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Stock market recovers

The stock market rally was mixed for most of Wednesday’s trading session, then ignited by comments from Fed Chair Powell, closing at session highs.

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

Apple stock rose 4.9% and Google stock rose 6.1%, both back above the 50-day moving average. Microsoft and Nvidia shares, already above their 50-day moving averages, rose 6.2% and 8.2%, respectively. Tesla shares jumped 7.7% higher, recapturing the 21-day moving average.

U.S. crude oil prices rose 3% to $80.55 a barrel, but were down 6.9% for the month. China’s hopes of reopening Covid-19 also lift copper futures.

Treasury yields and Fed rate hikes

The yield on the 10-year Treasury note reversed lower, falling 5 basis points to 3.7%. Yields on the two-year Treasury note, more closely aligned with Fed policy, fell to 4.33%, although Powell expects the top fed funds rate to be at least 5%.

The odds of the Fed raising rates by 50 basis points are now around 79% versus 66.3% after Tuesday. The markets still see another half-point move likely in February, but the likelihood of a quarter-point move is up to 40%.


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ETFs

Among the best ETFsIBD 50 Innovator ETF (FFTY) rose 1.8%, while Innovator’s IBD Breakthrough Opportunity ETF (HOURS) increased 2%. iShares Expanded Tech-Soft Sector Sector ETF (IGV) rose 4.4%, with Microsoft and CRM stock both the major components. VanEck Vectors Semiconductor ETF (SMH) spiked 5.7%, with Nvidia stock being the top holding.

SPDR S&P Metals & Mining ETF (XME) rose 3.75% and the Global X US Infrastructure Development ETF (PAY THE ROAD RED) increased by 2.4%. Energy Select SPDR ETF (XLE) rose 0.5% and the Financial Select SPDR ETF (XLF) increased by 1.7%. SPDR Foundation for healthcare sector (XLV) added 2.4%.

Reflecting more speculative stocks, the ARK Innovation ETF (ARKK) spiked 7.7% and the ARK Genomics ETF (ARKG) 6.5%. Tesla stock remains a large holding on Ark Invest ETFs.


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Analysis of market recovery

The stock market rally produced a big upside move on high volume on Wednesday following comments from Fed Chair Powell.

The S&P 500 index recovered from near the 21-day line to above the 4,000 level and crossed above the 200-day line for the first time in 7 months.

The Nasdaq composite, which was slower in the market’s rally, led gains on Wednesday. It regained the 21-day line and the 11,000 level to settle at a two-month high close. Shares of Apple, Microsoft, Google, Nvidia and Tesla surged on Wednesday, but it’s unclear which of them will lead the current uptrend.

The Russell 2000 index, which crossed the 21-day line for the day, recovered to regain its 200-day line. The Dow Jones, the index leading the current market rally, has returned to a fresh seven-month high.

The bulls beat the losers with wide-ranging gains. Many of the top stocks under pressure rallied on Wednesday.

Despite plenty of positive action on Wednesday, the S&P 500 remains below its 200-day moving average. The October PCE inflation report on Thursday and the November jobs report on Friday could either reinforce Wednesday’s uptrend or trigger a bearish bias.

Keep in mind that the market’s current bull run had many big one-day gains, but then struggled to make progress over the next few days or weeks.


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What to do now

The stock market rally had a strong session, with the major indexes and leading stocks both making encouraging moves.

Investors may have wanted to increase their exposure on Wednesday and in doing so could be successful.

But good reasons have yet to increase exposure. The S&P 500 is above its 200-day line, but not quite. Doing so could mean topping a long, descending trend line on the weekly chart. Breaking above this area decisively can be a strong signal that the current uptrend is not a bear market rally.

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

Investors should be actively working on their watchlists, looking at promising stocks from a variety of sectors. But definitely stay involved. The market rally may be at a turning point, but in which direction it will turn.

Read Big picture every day to stay in sync with market trends and top stocks and sectors.

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

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