Dow Jones Futures: Market Rally Hits High On Fed Decision, But This Risk Returns

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Dow Jones futures tilted lower late Wednesday, while S&P 500 futures and Nasdaq futures rose slightly. The stock market rally rose to record highs Wednesday after a long-awaited Fed decision to taper bond buys.




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Tesla (TSLA) rallied to a new all-time high in Wednesday’s session. Meanwhile, Apple (AAPL), Google parent Alphabet (GOOGL) and ASML (ASML) are setting up near buy points.

The market rally is looking strong with broad strength. But there are some signs that the Nasdaq, which has rallied for eight straight sessions, is close to being extended.

Key Earnings

Lithium giant Albemarle (ALB), Booking Holdings (BKNG), Roku (ROKU), MGM Resorts (MGM) and Revolve (RVLV) were among the notable earnings reports after the close.

Albemarle earnings beat views, pushing ALB stock higher, further out of buy range. Lithium peer Livent (LTHM) reports Thursday.

Booking.com earnings also topped, signaling a possible BKNG stock breakout. Expedia (EXPE) and Airbnb (ABNB) rose slightly on Booking.com results, nearing buy points ahead of their earnings Thursday.

MGM modestly beat views and said it’s selling the Mirage casino on the Las Vegas Strip. MGM stock is pointing to a new high, clearing another shelf and offering at least an add-on buy opportunity.

Revolve earnings beat but RVLV stock fell modestly after popping to a closing high and the edge of a buy area. Roku stock tumbled as revenue missed and Roku user growth fell short. Guidance also was disappointing.

Meanwhile, Etsy (ETSY), HubSpot (HUBS), Tandem Diabetes (TNDM) and SunPower (SPWR) were also notable losers in addition to Revolve and Roku stock.

TSLA stock and Google are on IBD Leaderboard. GOOGL stock is on SwingTrader. Google and ASML stock are on IBD Long-Term Leaders. Google stock is on the IBD 50.

The video embedded in this article analyzed the market rally reaction to the Fed taper and looked at three stocks: Academy Sports & Outdoors (ASO), Element Solutions (ESI) and Bunge (BG).


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Fed Decision

A long-awaited Fed decision came Wednesday with policymakers agreeing to begin scaling back asset purchases. The actual Fed taper will likely start in mid-November. The $120 billion in monthly purchases — $80 billion in monthly Treasury purchases and $40 billion in government-backed mortgage securities — will drop to zero by mid-2022. The Fed will taper Treasury purchases by $10 billion a month and mortgage securities buys by $5 billion per month.

After the bond taper ends, Fed rate hikes could be on the table.

The Fed meeting statement said the U.S. economy continues to gain strength. Policymakers still see inflation as “transitory,” but hedged a little bit on that front.

After the Fed meeting announcement, Fed chief Jerome Powell said that he expects higher inflation to “persist” well into 2022 but start to cool by Q2 or Q3.

Dow Jones Futures Today

Dow Jones futures edged below fair value. S&P 500 futures tilted higher and Nasdaq 100 futures rose 0.2%.

The 10-year Treasury yield rose 3 basis points to 1.61%. Crude oil futures fell 1% after Wednesday’s sharp drop. Copper futures climbed 1%.

Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.


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Stock Market Rally

The stock market rally was mixed heading into the Fed decision but then picked up steam. All the major indexes hit all-time highs, as well as the Russell 2000.

The Dow Jones Industrial Average rose 0.3% in Wednesday’s stock market trading. The S&P 500 index climbed 0.65%. The Nasdaq composite popped 1%. The small-cap Russell 2000 jumped 1.8%.

The 10-year Treasury yield rose 3 basis points to 1.58%. The two-year yield, more closely tied to Fed policy, climbed 2 basis points to 0.47%

Crude oil futures fell 3.6% to $80.86 a barrel on Wednesday after the U.S. reported a bigger-than-expected rise in crude inventories. An OPEC+ meeting is on Thursday, but OPEC and Russia are expected to stick to a script of gradually unwinding pandemic-era supply cuts.

Top ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) dipped 0.4%, while the Innovator IBD Breakout Opportunities ETF (BOUT) climbed 0.6%. The iShares Expanded Tech-Software Sector ETF (IGV) retreated 0.25%. The VanEck Vectors Semiconductor ETF (SMH) gained 1%. ASML stock is a notable SMH holding.

SPDR S&P Metals & Mining ETF (XME) rallied 2.1% and Global X U.S. Infrastructure Development ETF (PAVE) was flat. U.S. Global Jets ETF (JETS) ascended 2.5%. SPDR S&P Homebuilders ETF (XHB) climbed 0.7%. The Energy Select SPDR ETF (XLE) dipped 0.8% and the Financial Select SPDR ETF (XLF) edged up 0.4%.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) gained 1.3% and ARK Genomics ETF (ARKG) 1.9%. Tesla stock remains the No. 1 holding across ARK Invest’s ETFs. TSLA stock jumped 3.6% to 1,213.86 on Wednesday, hitting yet another all-time high.


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Apple Stock

Apple stock climbed 1% to 151.49 on Wednesday, working on a handle in its cup base. The AAPL stock buy point is 157.36, according to MarketSmith analysis. But it could be 153.27 after Thursday. Apple stock fell on Oct. 29 after a sales miss due to supply-chain woes, but rebounded from its 50-day line and closed at session highs.

Still, the relative strength line has trended lower in recent weeks, even as Apple stock has moved up the right side of the base somewhat. The RS line, the blue line in the charts provided, tracks a stock’s performance vs. the S&P 500. And Apple’s RS line peaked in early September 2020.

Google Stock

Google parent Alphabet’s stock advanced 0.8% to 2,931.96 on Thursday, back in buy range and continuing to consolidate since popping 5% on Oct. 27 following earnings. GOOGL stock cleared some early entries that day and briefly topped the official 2,925.17 flat-base buy point. Shares have hovered right around the buy point over the last several sessions.

Investors could treat GOOGL stock as actionable here or use the Oct. 27 intraday high of 2,973 as an alternate entry.

The RS line for Google stock is just below record highs following a long uptrend.

ASML Stock

ASML stock climbed 2.2% to 830.02, rising modestly from its 50-day line. Investors could treat that as an early entry. The cup-base buy point is 896.03.

Market Rally Analysis

Fed chief Powell and fellow policymakers had telegraphed the bond taper decision for months, going to great lengths to prepare Wall Street. On that front at least, mission accomplished! The stock market rally took in stride the Fed decision to scale back bond buys, gaining momentum as the day wore on. The Nasdaq composite, S&P 500 and Dow Jones moved to all-time high levels.

The Russell 2000 powered to a new high. That’s a positive sign for market breadth.

Growth stocks, especially software, were mixed, but chips were strong.

Retail stocks boomed, perhaps on growing signs that supply-chain woes and labor shortages might be easing, ever so slightly. Financials did well. Energy stocks held up reasonably well given the sharp drop in oil prices.

But is the stock market rally due for a pause? The Nasdaq has rallied for eight straight sessions and 14 of the last 16. It’s now 5.3% above the 50-day moving average. The Nasdaq 100, as measured by the QQQ ETF, is 5.5% above that key level. A lot of that has to do with megacaps Tesla stock and Microsoft (MSFT).

Those are not quite at the 6% levels that would signal that the Nasdaq or big-cap Nasdaq 100 are getting extended. Also, the Nasdaq could easily move further above 6% — 7% seems to be more dicey — and stay elevated for a considerable time.

Still, the odds of a pullback are rising, with the risk that any such pullback could be higher.


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What To Do Now

The stock market rally is looking strong and healthy, with the biggest risk that it’s doing too well. Investors may want to consider taking some partial profits in some winners, especially if they’re getting significantly extended from short-term averages.

Investors also may want to add some retail stocks to their portfolio, with that sector showing broad strength recently.

But be careful not to add to much exposure with the market rally looking a little stretched.

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

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

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