Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures. Amazon will cut far more jobs than it previously planned.
Stocks traded up and down Wednesday, amid a Microsoft (MSFT) sell-off, stronger-than-expected economic data and a still-hawkish Federal Reserve, clearly worried about a market rally undermining its inflation fight. The major indexes ultimately closed modestly higher in a largely inside session.
China internet stocks were hot Wednesday, with BABA stock, JD.com (JD) and Pinduoduo (PDD) surging after solid gains Tuesday. Hopes for a peaking China Covid wave are helping, with China EV makers and Macau-focused casinos also rallying. But a positive regulatory move for Alibaba (BABA) affiliate Ant Group gave a special boost to e-commerce and internet names. But JD stock and peers may already be extended.
Neurocrine Biosciences (NBIX), General Electric (GE), Super Micro Computer (SMCI), Rio Tinto (RIO), Starbucks (SBUX), Halozyme Therapeutics (HALO) and Dexcom (DXCM) all are holding up relatively well.
GE stock and SBUX stock arguably were actionable Wednesday, while RIO stock, Neurocrine Bio, Halozyme and Dexcom are trading near key moving averages. But some of these names came off early highs, even closing slightly slower.
But investors should beware “buying the blip,” when stocks and the broader market show strength intraday or a full session. It’s still time to be cautious about any new buys.
The video embedded in this article discussed Wednesday’s market action and analyzed Alibaba, Rio Tinto and SMCI stock.
Dow Jones Futures Today
Dow Jones futures fell 0.3% vs. fair value. S&P 500 futures declined 0.3% and Nasdaq 100 futures retreated 0.4%.
Crude oil futures rose 1%.
Amazon.com will cut more than 18,000 jobs, CEO Andy Jassy said in a memo posted on the company’s blog late Wednesday, confirming a Wall Street Journal report. When the e-commerce and cloud giant announced in November that it was starting layoffs, Amazon (AMZN) expected to cut 10,000 positions. AMZN stock rose nearly 2% in extended trade.
Hong Kong’s Hang Seng rose strongly again Thursday, continuing its best start since 2018 on China reopening optimism.
Fed Minutes, Economic Data
Fed minutes from the December policy meeting, released at 2 p.m. ET on Wednesday, showed that Fed officials continued to see interest rates staying high for “some time.” Not one policymaker foresaw any rate cuts in 2023, despite markets pricing some cuts late in the year.
One reason why policymakers be reinforcing their hawkish stance in Fed minutes and recent speeches is to curb a stock and bond price rally that undermines the inflation fight.
Fed participants, noting that their rate forecasts were higher than market targets, said they feared “an unwarranted easing in financial conditions” could “complicate” the central bank’s efforts. A bond rally that cuts market rates directly undermines Fed efforts with official rates. An S&P 500 rally could fuel more consumer spending.
Policymakers would prefer to use rhetoric to damp down financial markets vs. becoming even-more hawkish with actual policy.
Earlier at10 a.m. ET Wednesday, the Labor Department reported that November job openings dipped to 10.45 million from October’s upwardly revised 10.51. Economists had expected a drop to 10.1 million.
Also at 10 a.m., the ISM manufacturing index dipped 0.7 point to 48.4, falling further below the break-even 50 level. But it slightly topped views of 48.1.
On Friday, investors will get the December jobs report. Fed chief Jerome Powell and fellow policymakers will want to see slower hiring and wage growth.
Stock Market Wednesday
The stock market wavered near the open, rebounded for solid gains, then backed off somewhat in an up-and-down session.
The Dow Jones Industrial Average rose 0.4% in Wednesday’s stock market trading. The S&P 500 index climbed 0.75%, with MSFT among the biggest losers. The Nasdaq composite advanced 0.7%. The small-cap Russell 2000 gained 1.25%
Microsoft stock fell 4.4% as UBS downgraded the Dow Jones titan on Azure cloud-computing and Office software news. Supplier Arista Networks (ANET).
Apple stock rose 1%, well off intraday highs. Tesla bounced 5.1%. Both were inside days after Tuesday’s sell-offs to bear market lows.
U.S. crude oil prices tumbled plunged 5.3% to $72.84 a barrel. Despite China optimism among Chinese internet and casino stocks, the country’s Covid wave is adding to global demand fears for energy and other commodities. Natural gas futures climbed 4.6% but after plunging in recent days and weeks.
The 10-year Treasury yield sank 8 basis points to 3.71%. Bond traders fear that continued strong jobs data will keep the Fed raising rates, driving the U.S. into recession.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) and Innovator IBD Breakout Opportunities ETF (BOUT) advanced 0.5%. The iShares Expanded Tech-Software Sector ETF (IGV) climbed 0.7%, even with Microsoft stock tumbling. The VanEck Vectors Semiconductor ETF (SMH) popped 2.5%.
SPDR S&P Metals & Mining ETF (XME) gained 2.5%. U.S. Global Jets ETF (JETS) ascended 5.2%. SPDR S&P Homebuilders ETF (XHB) rose 2.45%. The Energy Select SPDR ETF (XLE) lost 1 cent. The Health Care Select Sector SPDR Fund (XLV) edged up 0.3%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) jumped 4.3% and ARK Genomics ETF (ARKG) popped 3.8%. Tesla stock remains a major holding across Ark Invest’s ETFs. Cathie Wood’s Ark has been loading up on TSLA again in recent months, including on Tuesday.
China Stocks Rally
Investors are bullish on China as it reopens following years of “zero-Covid.” The resulting massive Covid wave is taking a toll, but there is optimism that infections are peaking in big cities, or soon will.
Meanwhile, Chinese regulators approved letting billionaire Jack Ma’s Ant Group raise $1.5 billion for the financial tech giant’s consumer finance unit. E-commerce giant Alibaba owns 33% of Ant. China’s crackdown vs. tech and internet giants began in late 2020 with a last-minute halt to Ant Group’s planned IPO.
BABA stock surged 13%, rebounding from the 200-day line to the highest since late August. Investors could have used a trendline or short-term high as early entries to Alibaba stock, but it looks extended low.
Alibaba rivals JD.com and PDD stock spiked 15% and 7.7%, respectively, adding to Tuesday’s gains. But both also look out of reach now.
Meanwhile, Macau-centric Las Vegas Sands (LVS) and Wynn Resorts (WYNN) leapt yet again, also looking extended. EV giant BYD (BYDDF) and startup Li Auto (LI) raced higher, extending gains from their 50-day line, but are still some distance from their 200-day averages.
Market Rally Analysis
The market rally attempt had an up-and-down session. The major indexes closed higher, but they once again hit resistance at some key levels.
The Dow Jones rose back above its 50-day and 21-day lines, intraday, closing just below those key levels.
The S&P 500 came up to its 21-day moving average, not too far from its 50-day, but closed below that key level. The Russell 2000 made similar action.
The Nasdaq rose but remains below key moving averages.
The S&P 500, Russell 2000 and Nasdaq all had inside sessions.
Microsoft stock clearly didn’t help, especially with related firms also coming under pressure.
The Invesco S&P 500 Equal Weight ETF (RSP), which doesn’t overweight megacaps such as MSFT stock, UnitedHealth (UNH), Apple and Tesla, showed more underlying strength. RSP jumped 1.6%, moving above its 21-day, 50-day and 200-day lines.
The major indexes still have not staged a follow-through day to confirm the new market rally attempt. Decisively clearing the 21-day and 50-day lines will be a key test for the S&P 500. Friday’s jobs report could be a catalyst for a big market gain or sell-off.
In addition to many tech and growth giants lagging, Dow giant UnitedHealth and other health insurers have come under pressure to start 2023, even group leader Cigna (CI).
What To Do Now
With the major indexes moving higher for a full session, several potential leaders flashed buy signals on Wednesday, including General Electric, Starbucks. Rio Tinto, Halozyme, Dexcom and Neurocrine Biosciences are poised for buy signals, along with many more.
If the market continues to advance, investors buying these stocks will likely come out winners. But risks are high that the major indexes will pull back again, either via a sustained move toward recent lows or with more choppy action.
So investors should be wary of “buying the blip,” seizing on any sign of market strength to ramp up exposure. Too many stocks will reverse lower in days, hours or minutes. It’s still a time to be mostly in cash, if not entirely on the sidelines.
If you feel compelled to buy stocks in the current climate, keep your positions small. Take partial profits quickly, to avoid rapid round trips.
But those set ups, buy signals and breakouts could quickly fizzle if the market falls back again.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
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