Dow Jones futures rose slightly overnight, along with S&P 500 futures and Nasdaq futures. The stock market rallied from heavy morning losses to close mixed on Thursday as two hawkish Fed officials played down fears of a rate hike.
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Dow Jones component UnitedHealth Group ( UNH ) reports before the market opens on Friday, kicking off quarterly earnings for health insurers and medical services firms in general. Shares of UNH turned up from the 50-day line on Thursday to close up 0.2% at 502.43, not far from a 518.90 buy point.
Banking giants Wells Fargo ( WFC ) and Citigroup ( C ) also reported ahead of the open. Shares of WFC and Citigroup are in long downtrends. Indeed, Citi shares fell to their worst level since late 2020 on Thursday, following weaker-than-expected earnings for JPMorgan Chase ( JPM ) and Morgan Stanley ( MS ).
Meanwhile, Dollar Tree ( DLTR ), BJ’s Wholesale ( BJ ) and Lantheus Holdings ( LNTH ) flashed buy signals, while McKesson ( MCK ) had an upside shakeup.
Chinese electric car and battery giant BYD ( BYDDF ) jumped on upbeat earnings guidance but still posted a sharp decline for the week after rumors that Warren Buffett’s Berkshire Hathaway may sell some of its large stake in BYD stock. China’s EV startup Li Auto ( LI ) remains bullish, while Tesla ( TSLA ) takes between two key moving averages.
Lantheus shares are listed on IBD. DLTR and Li Auto shares are on SwingTrader. Dollar Tree, Lantheus, BJ’s Wholesale, McKesson, UnitedHealth and LI are in the IBD 50. MCK and Dollar Tree are also in the IBD Big Cap 20.
The video embedded in the article discusses Thursday’s market action and analyzes shares of Apple ( AAPL ), Costco Wholesale ( COST ), and BJ’s.
Fed Hawks show a small dove
Fed Board member Christopher Waller and St. Louis Fed President James Bullard, two of the Fed policymakers most vocal about initial rate hikes, lowered expectations on Thursday for a 100 basis point rate hike later this month. The prospect of a full rate hike rose on Wednesday after a hot June CPI report and Atlanta Federal Reserve President Raphael Bostick’s statement that “everything is on track.”
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Waller said on Thursday that 75 basis points was still his “core case” for a rate hike at the July 26-27 meeting, saying “markets may have gotten a little ahead of themselves” at 100 basis points, despite that he did not rule out a “bigger” move.
Bullard told the Nikkei he favors a move of 75 basis points, which he believes will bring the funds rate to a “neutral” level. He said further tightening would be needed, but “we can assess” as the year goes on.
Ahead of the open, the producer price index unexpectedly accelerated in June to a scorching 11.3 percent gain from a year earlier. But core inflation slowed more than expected. In particular, the core PPI rose 0.4% from the previous month, cooling from a 0.7% rise in May. This was in contrast to the core CPI, which showed accelerating monthly gains.
Markets are now pricing in a 57% chance the Fed will raise interest rates by 75 basis points. On Wednesday, the odds of an overall rise increased to 80% from around 8% the previous day.
Dow Jones futures today
Dow Jones futures were up 0.3% at fair value. S&P 500 futures advanced 0.35%. Nasdaq 100 futures rose 0.5%.
Chinese economic data was mixed overnight. Second-quarter GDP rose 0.4% from a year earlier, managing to grow despite the second-quarter Covid lockdown but missing views by 1%. Industrial production in June rose 3.9% from a year earlier, slightly below consensus for 4.1%. However, retail sales rose 3.1%, despite unchanged results.
China posted GDP growth of 0.4% in the second quarter from a year earlier, missing expectations as the economy struggled to shake off the impact of Covid controls.
On Friday morning, investors will receive data on US retail sales and industrial production for June, along with the Empire State Manufacturing Index for July.
Remember, overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
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Stock market rallies
The stock market rally collapsed Thursday morning on fresh inflation concerns and weak earnings at JPMorgan. The key indexes generally closed lower, but finished near their best levels of the day.
The Dow Jones Industrial Average closed down 0.5% in Thursday trading. The S&P 500 was down 0.3%. The Nasdaq composite posted a marginal gain. The small-cap Russell 2000 fell 1%.
U.S. crude oil prices were down 0.5 percent at $95.78 a barrel, off the intraday lows but still the lowest close since April. Gasoline futures fell more than 1%, continuing a rapid decline.
The yield on the 10-year Treasury rose 6 basis points to 2.96%, although it closed near session lows. The two-year yield erased big gains to fall 1 basis point to 3.13%. The yield on one-year government bonds sank 3 basis points to 3.18%. The yield curve remains inverted from the one-year to the 10-year, but less so.
ETFs
Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) rose 0.45%, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) sank 0.5%. The iShares Expanded Tech-Software Sector ETF ( IGV ) sank 0.9%. The VanEck Vectors Semiconductor ETF ( SMH ) jumped 2.1% as Taiwan Semiconductor’s ( TSM ) earnings and guidance lifted the chip sector.
The SPDR S&P Metals & Mining ETF (XME) tumbled nearly 3%, and the Global X US Infrastructure Development ETF (PAVE) fell 0.6%. The US Global Jets ETF ( JETS ) was down 0.7%. The SPDR S&P Homebuilders ETF ( XHB ) fell 1.1%. The Energy Select SPDR ETF (XLE) and the Financial Select SPDR ETF (XLF) lost 1.9%. The Healthcare Select Sector SPDR Fund ( XLV ) was down 0.3%. UNH stock is a major component of XLV.
Reflecting more speculative stocks, the ARK Innovation ETF ( ARKK ) fell 2.1% and the ARK Genomics ETF ( ARKG ) fell 1.8%. Tesla stock remains the top holding of Ark Invest’s ETF. Cathie Wood’s Ark also owns some shares of BYD.
The five best Chinese stocks to watch now
Stocks near points of purchase
Shares of Dollar Tree rose 1.7% to 168.76. This pushed DLTR shares back above a 166.45 cup-handled buy point. Shares of the dollar store giant are 7.8% above their 50-day line. The relative strength line, the blue line in the charts provided, is making new weekly highs, according to MarketSmith analysis.
BJ’s shares rose 2.95% to 70.16, just below a buy point of 71.10. Shares crossed a downtrend line, suggesting an early entry. Volume has been quite light, while BJ’s stock is 14% above its 50-day line, which should give investors pause. Ideally, the membership warehouse chain would consolidate around current levels, perhaps forging a handle. The RS line for BJ stock hits new highs.
Shares of LNTH rose 0.7% to 67.91, bouncing back from its 50-day line. Despite not clearing Friday’s intraday high of 69.08, Lantheus shares are up for grabs. LNTH stock should have a suitable base after this week with a buy point at 73.88.
Shares of McKesson got off to a weak start on Thursday, falling below the 50-day line to 315.78 intraday. But the stock recovered to close up 0.4% at 362.55. MCK shares have a 340.04 flat base to buy, but investors could use 335.47, just above Monday’s intraday high, as an early entry.
BYD Stock Spikes
The EV giant said on Thursday it expects first-half net profit to rise 139%-207% from a year earlier in local currency terms, to 2.8 billion-3.6 billion yuan ($533 million). Excluding one-time gains and losses, profit should skyrocket 578%-795%.
Shares of BYD jumped 8.4% to 37.71, bouncing back above the 50-day line after finding support at the 200-day on Wednesday. But stocks are still down sharply for the week. BYD shares fell 11.3% on Tuesday amid rumors that Buffett may decide to sell some or all of his stake in the electric car maker. This rumor remains unconfirmed. But BYD shares should rebuild, building a new base until the deep consolidation from November to June.
Smaller rival Li Auto rose 0.4 percent to 38.18. LI shares are still actionable after bouncing off their 21-day line on Wednesday. Li Auto shares are working on another consolidation after more than doubling from early May to late June.
Tesla shares rose 0.5% to 714.94. The stock is just above its 21-day line and below the falling 50-day line. Shares of TSLA are again just above the 10-week line. Tesla’s second quarter earnings are expected on July 20.
Tesla Vs. BYD: Which EV giant is the better buy?
Market Rally Analysis
For the second session in a row, major indexes fell sharply in the morning but soon recovered, with the Nasdaq turning positive in the afternoon. On Thursday, the Nasdaq managed to scratch out a small advance, while the S&P 500, Dow Jones and Russell 2000 fell for a fifth straight session.
All the major indexes were sharply lower for the week, which began with the Nasdaq hitting resistance again at its 10-week moving average. All indexes are below their 21-day moving averages.
After a downtrend for several sessions, perhaps the “uptrend under pressure” is due for a bounce. But that shouldn’t happen anytime soon, and perhaps Thursday’s rally was the “bounce.”
It is likely that the major indices are range bound, with early or late June highs marking the top and mid-June lows marking the bottom. There is a lot of volatility in this range.
With earnings season heating up, adding to the whirlwind of inflation-recession-Fed uncertainty, volatility for the market rally and individual stocks looks very likely to continue.
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What should we do now
Medical stocks such as UnitedHealth and McKesson, which didn’t look good in the morning, recovered, but investors can’t count on an intraday rally to save the day.
The market is looking for direction in the short term within a long, painful downtrend. It’s just not a good environment for a lot of exposure. Quickly claim earnings to lock…
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