Futures: Stocks sell off as Fed sees new 'terminal' rate

Futures: Stocks sell off as Fed sees new ‘terminal’ rate

Dow Jones futures fell overnight, along with S&P 500 and Nasdaq futures. The stock market fell sharply on Wednesday after the Federal Reserve aggressively rose again and signaled a higher peak, or “terminal” rate.




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This is a stock market correction. Investors should remain cautious, but on the lookout for big names.

Celsius Fund (CELH), medical shock wave (SWAV), WE HAVE HAD (WE HAVE HAD), GlobalFoundries (GFS) and Enphase Energy (ENPH) all show strong relative strength in a weak market.

CELH and Shockwave Medical stocks are on the IBD Ratings Watch List. Celsius Holdings, Enphase and SWAV stocks are on the IBD 50. ENPH stock is on the 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 Celsius, ATI and GFS stocks.

Fed meeting

As expected, the Fed raised its key rate by 75 basis points for a third consecutive meeting, bringing the target range to 3%-3.25%.

Fed policymakers now see the federal funds rate at 4.4% at the end of 2022, down from 3.4% after the June meeting. This is what the markets are anticipating: another 75 basis points at the November meeting, followed by 50 basis points in December, for a year-end range of 4.25% to 4.5%.

The central bank also signaled modest tightening in 2023, forecasting a federal funds rate of 4.6% at the end of next year versus a forecast of 3.8% in June. Nor is it at odds with what market watchers predicted for the terminal rate. Policymakers expect the rate to decline to 3.9% in 2024.

Fed chief Jerome Powell again stressed that the central bank would not ease inflation. He noted that a “soft landing” would be difficult, but did not say what the chances of a recession were. “At some point,” the Fed will slow the pace of rate hikes, Powell said, but did not indicate when that might happen. He added that Fed policy will have to remain “restrictive” for some time.

Fed chief Powell said the labor market continued to be “unbalanced”, although he added that commodity prices appeared to have peaked.

Dow Jones Futures Today

Dow Jones futures fell 0.5% from fair value. S&P 500 futures fell 0.8%. Nasdaq 100 futures were down 1%.

The 10-year Treasury yield rose 5 basis points to 3.56%.

Remember that overnight action on futures contracts on Dow and elsewhere does not necessarily translate into actual trading in the next regular trading session.


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Stock market wednesday

The stock market edged higher in the Fed meeting decision, then went on a rollercoaster ride that ended at a session low.

The Dow Jones Industrial Average fell 1.7% in Wednesday’s stock trading. The S&P 500 index also fell 1.7%. The Nasdaq composite fell 1.8%. The small-cap Russell 2000 fell 1.5%

U.S. crude oil prices fell 1.2% to $82.94 a barrel.

The 10-year Treasury yield fell 6 basis points to 3.51% after briefly hitting 3.62% following the Fed’s rate hike. The two-year Treasury yield rose above 4%, closing around 4.04% but well off session highs.

AND F

Among the top ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.8%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 1.4%. ETF VanEck Vectors Semiconductor (SMH) lost 0.8%.

The SPDR S&P Metals & Mining (XME) ETF fell 2.1% while the US Global Jets (JETS) ETF fell 4% on a bad day for travel gaming. The SPDR S&P Homebuilders ETF (XHB) lost 1.1%. The ETF Energy Select SPDR (XLE) was down 1.5% and the ETF Financial Select SPDR (XLF) was down 2.1%. The SPDR healthcare sector fund (XLV) fell 1.7%.

Reflecting more speculative stocks, ARK Innovation ETF (ARKK) lost 2.65% and ARK Genomics ETF (ARKG) 2.7%.


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CELH Stock

Celsius stock fell 3.9% to 98.23 on Wednesday. Shares retreated to find support at its 10-week moving average after a 209% run from early May to late August. In a few weeks, CELH stock could have a new base, with a buy point of 118.29. Investors could use 108.47 as an early entry for the energy drink maker.

The relative strength line for CELH stocks is just at record lows.

Shockwave Stock

SWAV stock fell 1.85% to 284.69 on Wednesday, reversing lower from 300.96 intraday. Shockwave stock continues to find support around its 21-day line.

ATI Stock

ATI stock fell just over 2% to 29.67, trading around its 21-day line after falling from a seven-year high at 33.31. Shares of the special alloy maker fell to the top of an earlier base and just above its 10-week line. A 10-week line bounce could provide an early entry, with a suitable base within a week.

While ATI’s stock has fallen, its RS range is at an all-time high.

SFP-share

GlobalFoundries stock fell 0.9% to 56.29. This is just above its 50-day line and brand new 200-day line, while GFS stock is slightly below its 10-week line. The 2021 Chip Foundry IPO has a very deep double bottom base with a handle, offering a buy point of 66.06. By the end of this week, the handle in GFS stock will be long enough to be its own base, with the same entry of 66.06.

ENPH action

Enphase stock edged down 15 cents to 304.56, continuing to find support from its 21-day moving average. The ENPH stock is still extended from its 50-day line, but becoming less so. The RS line for Enphase shares has been hitting new highs for weeks.

Stock market analysis

As usual, the stock market soared on the Fed’s rate hike decision, new rate projections and Powell’s comments, rallying briefly before finally closing with steep losses. The major indices finally had awful reversal sessions, aside from the downside.

Although markets weren’t caught off guard on Wednesday, the Fed’s overall tone was likely a bit more hawkish than expected. But, ultimately, the Federal Reserve is raising rates aggressively despite growing recession risks, in order to put inflation back in its box.

Markets will often have a reaction from the Fed on the second day. But even if stocks rebounded on Thursday, it wouldn’t make sense.

The major indices all broke recent intraday lows on Wednesday and are losing sight of their 50-day moving averages. June lows are not that far away.


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What to do now

In the end, it’s not the news but the market’s reaction to the news that counts. And the stock market did not react well to Wednesday’s Fed meeting decision.

Could the market get a short-term bounce, or even a decent multi-week rally? Sure. But investors will want to see a lot more evidence.

Major stocks such as Celsius, Shockwave and Enphase can send buy signals at the start of a market rally attempt. But investors need to balance the urge to get into hot stocks quickly and ensure that a broad uptrend is underway. If the market heads towards the June lows or beyond, even the relative leaders will likely crash.

If a real stock market rally sets in, there will be plenty of opportunities. The key is to be ready.

Work on those watchlists. Focus on stocks with strong relative strength and names that hold or recover key moving averages.

Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.

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

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