Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures. The stock market fell sharply lower on Wednesday after the Federal Reserve hiked aggressively once again and signaled a higher spike or “terminal” rate.
This is a stock market correction. Investors should remain cautious, but look out for leading names.
centigrade holdings (CEL), medical shock wave (SWAV), WE HAD (WE HAD), GlobalFoundries (GFS) and phase energy (ENPH) show strong relative strength in a weak market.
CELH and Shockwave Medical shares are on the IBD Leaderboard watchlist. Stocks in Celsius Holdings, Enphase and SWAV are at IBD 50. Stocks in ENPH are at IBD Big Cap 20. Celsius was IBD’s stock of the day on Wednesday, while Shockwave was on Monday.
The video embedded in this article discussed Wednesday’s roller-coaster market action and analyzed stocks in Celsius, ATI and GFS.
Federal Reserve meeting
As expected, the Fed raised its key interest rate by 75 basis points for the third consecutive meeting, raising the target range to 3%-3.25%.
Fed policymakers now see the fed funds rate at 4.4% at the end of 2022, down from 3.4% after the June meeting. That’s what the markets are pricing in: another 75 basis points at the November meeting, followed by 50 basis points in December, for a year-end range of 4.25%-4.5%.
The central bank has also signaled a modest tightening in 2023, forecasting a 4.6% fed funds rate by the end of next year versus a forecast of 3.8% in June. That’s also not out of line with what market watchers were expecting for the terminal fee. Policymakers expect the rate to recede to 3.9% in 2024.
Fed chief Jerome Powell once again emphasized that the central bank will not give up on inflation. He noted that a “soft landing” will be difficult, but he did not say what the odds of a recession are. “At some point,” the Fed will slow its rate hikes, Powell said, but did not say when that might happen. He added that Fed policy will need to remain “tight” for some time.
Fed chief Powell said the labor market remains “out of balance,” though he added that commodity prices appear to have peaked.
Dow Jones Futures Today
Dow Jones futures were lower against fair value. S&P 500 futures fell 0.2%. Nasdaq 100 futures fell 0.3%.
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 wednesday
The stock market rose modestly on the Fed meeting decision, then embarked on a roller coaster ride that ended at session lows.
The Dow Jones Industrial Average fell 1.7% in trading on Wednesday. The S&P 500 index also fell 1.7%. The Nasdaq Composite fell 1.8%. The small-cap Russell 2000 fell 1.5%
US crude prices fell 1.2% to $82.94 a barrel.
The 10-year Treasury yield fell 6 basis points to 3.51% after briefly touching 3.62% following the Fed rate hike. The two-year Treasury yield rose above 4%, closing around 4.04% but far from the highs of the session.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.8%. The iShares Expanded Technology Software Sector ETF (IGV) fell 1.4%. The VanEck Vectors Semiconductor ETF (SMH) lost 0.8%.
SPDR S&P Metals & Mining ETF (XME) fell 2.1%, while US Global Jets ETF (JETS) fell 4% on a bad day for travel plays. SPDR S&P Homebuilders ETF (XHB) lost 1.1%. The Energy Select SPDR ETF (XLE) fell 1.5% and the Financial Select SPDR ETF (XLF) fell 2.1%. The SPDR Fund of the Select Health Care Sector (XLV) decreased by 1.7%.
Mirroring historically more speculative stocks, ARK Innovation ETF (ARKK) lost 2.65% and ARK Genomics ETF (ARKG) lost 2.7%.
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Celsius shares fell 3.9% to 98.23 on Wednesday. Stocks have pulled back to find support at their 10-week moving average after a run of 209% from early May to late August. In a couple more weeks, the CELH share could have a new base, with a purchase point of 118.29. Investors could use 108.47 as an early entry for the energy drink maker.
The line of relative strength of CELH shares is at all-time highs.
shock wave stock
SWAV shares sank 1.85% to 284.69 on Wednesday, reversing lower from 300.96 intraday. Shockwave shares continue to find support around their 21-day line.
ATI shares lost just over 2% to 29.67, trading around its 21-day line after retreating from a seven-year high of 33.31. Shares of the special alloys maker have retreated to the top of a previous base and just above their 10-week line. A 10-week line bounce could provide an early entry, with a proper foundation another week from now.
Although ATI shares have fallen, its RS line is at an all-time high.
Shares of GlobalFoundries fell 0.9% to 56.29. That’s just above its 50-day line and the new 200-day line, while GFS shares are slightly below its 10-week line. The 2021 chip melt IPO has a very deep double bottom base with a handle, offering a buy point of 66.06. At the end of this week, the GFS stock handle will be long enough to be its own base, with the same entry at 66.06.
Enphase shares were down 15 cents at 304.56 and continued to find support at their 21-day moving average. ENPH shares still extend from their 50-day line, but less so. The RS line for Enphase shares has been making new highs for weeks.
Stock Market Analysis
As usual, the stock market wobbled following the Fed’s rate hike decision, new rate projections and Powell’s comments, briefly recovering before closing with heavy losses. Major indices finally had ugly, external bearish reversal sessions.
While markets weren’t surprised on Wednesday, the Fed’s overall tone was probably a bit more dovish than expected. But ultimately, the Fed is aggressively raising rates despite growing recession risks, to put inflation back in its box.
Markets will often get a reaction from the Fed on day two. But even if stocks rally on Thursday, that wouldn’t be significant.
All major indices undercut recent intraday lows on Wednesday and are losing sight of their 50-day moving averages. The June lows are not that far away.
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What to do now
Ultimately, it is not the news but the market’s reaction to the news that matters. And the stock market did not react well to the decision of the Fed meeting on Wednesday.
Could the market get a short-term bounce, or even a decent rally over several weeks? Of course. But investors will want to see a lot more evidence.
Leading stocks like Celsius, Shockwave and Enphase may show buy signals early in a market rally attempt. But investors have to balance the drive to jump into hot stocks quickly with making sure a broad uptrend is under way. If the market heads towards the June lows or beyond, even the relative leaders are likely to crash.
If there is a real stock market rally, there will be plenty of opportunities. The key is to be ready.
Work on those watchlists. Focus on stocks with strong relative strength and those names that hold or recapture key moving averages.
Read The Big Picture every day to stay in sync with market direction and major stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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