Editorial StaffDow Jones futures rose modestly early Wednesday, along with S&P 500 futures and Nasdaq futures, while bond yields fell back somewhat.
The stock market correction had a mixed session on Tuesday, as Treasury yields continue to run sharply higher. Investors are focused on Wednesday’s Federal Reserve meeting announcement, with policymakers set to approve either a big or very big Fed rate hike.
Quanta Services (PWR), HealthEquity (HQY), Cheniere Energy (LNG), Dollar Tree (DLTR) and Li Auto (LI) are stocks to watch. All are showing strong relative strength lines, even if the share prices are struggling to hold.
LNG stock is on IBD Leaderboard. PWR stock is on the Leaderboard watchlist and on the IBD Big Cap 20. Li Auto stock is on the IBD 50. HealthEquity was Tuesday’s IBD Stock Of The Day.
The video embedded in the article discusses the market action and analyzes Cheniere Energy, Li Auto and DLTR stock.
Meanwhile, Tesla (TSLA) reversed modestly higher after moving toward its May 24 low of 620.54. Tesla stock closed up 2.4% to 662.67, but far off its November peak of 1,243.49 high. The National Highway Traffic Safety Administration is likely to release collision data involving driver-assist systems within the next few days, singling out the high number of Tesla Autopilot incidents. The NHTSA has been expanding a Tesla Autopilot probe.
Fed Meeting
A two-day Fed meeting ends Wednesday with announcement at 2 p.m. ET, followed by Fed chief Jerome Powell’s press conference. In the wake of Friday’s hot CPI report that showed inflation hitting a 40-year high of 8.6%, speculation grew that Fed policymakers would hike rates by 75 basis points on Wednesday, not just 50 basis points.
The Fed doesn’t like to surprise, and Powell said after the May Fed meeting that 75 basis points was off the table. It’s still possible that the central bank raises rates by 50 basis points, with Powell then signaling 75 basis points are on the table for July and September.
But after Fed officials apparently leaked to The Wall Street Journal on Monday that a supersize rate hike is being considered, markets see a 75-basis-point move as overwhelmingly likely.
Dow Jones Futures Today
Dow Jones futures climbed 0.6% vs. fair value. S&P 500 futures advanced 0.7%. Nasdaq 100 futures rose 0.8%.
The 10-year Treasury yield fell 9 basis points to 3.39%.
Crude oil prices fell 1%.
The Bitcoin price traded just above $20,000, right at 18-month lows.
Chinese economic data for May came in slightly better than expected amid still-heavy Covid restrictions. Retail sales fell 6.7% vs. a year earlier, topping views for a 7.1% decline. Industrial production rose 0.7% vs. forecasts for a 0.7% drop and April’s 2.9% decline. With Shanghai essentially ending its lockdown on June 1, economic activity should rebound this month.
Stock Market Tuesday
The stock market traded mixed in Tuesday’s session, with volume light ahead of Wednesday’s Fed meeting announcement.
The Dow Jones Industrial Average fell 0.5% in Tuesday’s stock market trading. The S&P 500 index retreated 0.4%. The Nasdaq composite edged up 0.2%. The small-cap Russell 2000 sank 0.4%.
The 10-year Treasury yield leapt 12 basis points to 3.48%, following huge moves in recent days. The two-year yield leapt 15 basis points to 3.43% The 30-year Treasury yield climbed 6 basis points to 3.43%, but is now below the 10-year yield and even with the 2-year yield. If the two-year yield moves above the 10-year yield, the curve will be inverted from the two-year to the 30-year yield. The rising, flattening yield curve reflects stagflation risks, with recession odds rising as inflation and Fed rate hikes take their toll.
U.S. crude oil prices reversed lower to close down 1.7% to $118.93 a barrel.
Natural gas prices plunged 16%. The Freeport LNG terminal, shut down due to a June 8 fire, will not reopen for 90 days and won’t be fully up and running until late in the year. That means fewer natural gas exports.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 0.8%, while the Innovator IBD Breakout Opportunities ETF (BOUT) sank 0.6%. The iShares Expanded Tech-Software Sector ETF (IGV) climbed 0.6%. The VanEck Vectors Semiconductor ETF (SMH) advanced 0.7%.
SPDR S&P Metals & Mining ETF (XME) fell 1.3% and the Global X U.S. Infrastructure Development ETF (PAVE) declined 0.7%. U.S. Global Jets ETF (JETS) gave up 1%. SPDR S&P Homebuilders ETF (XHB) slumped 0.8%. The Energy Select SPDR ETF (XLE) edged up 0.2% and the Financial Select SPDR ETF (XLF) retreated 0.9%. The Health Care Select Sector SPDR Fund (XLV) gave up nearly 1%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) rose 1.1% and ARK Genomics ETF (ARKG) 1.3%. Tesla stock remains a top holding across Ark Invest’s ETFs.
Stocks To Watch
Quanta Services stock fell 1.8% to 123.55 on Tuesday, just above its 50-day line. PWR stock is in a cup-with-handle base with a 138.56 buy point.
HealthEquity stock popped 5.9% to 68.42 on Tuesday, rebounding from its 50-day line, clearing some short-term levels and breaking a trendline. In a better market, Tuesday’s action would have offered an early entry. At this point, HQY stock is now extended from that entry. It’s closing in on an official 72.80 buy point from a cup base. HealthEquity has nearly doubled from early December after a long slump, while earnings has trended lower for several quarters.
LNG stock gained 2.2% to 130.40, still below the 50-day moving average. Cheniere stock undercut the low of its consolidation on Monday, potentially setting the stage for a double-bottom base with a 146.45 buy point. Cheniere Energy, with its LNG export terminal, should benefit from the Freeport LNG terminal woes, which cut domestic natgas prices and lift global LNG prices.
DLTR stock edged up 0.65% to 156.02, hitting resistance at its 50-day line. Dollar Tree stock has a 166.45 cup-with-handle buy point, according to MarketSmith analysis. Shares plunged and rebounded in the latter half of May on the initial Target (TGT) earnings miss and warning, following by strong Dollar Tree earnings and guidance.
Li Auto stock shot up nearly 11% to 32.22, hitting its best level since Jan. 3. Shares have rocketed from 18.82 on May 9, rebounding above the 200-day line on June 6. LI stock is racing up the right side of a deep consolidation, with a potential 37.55 buy point. But shares could use a long handle or even a separate base within the deep consolidation to let the major averages catch up, especially the 50-day line. Li Auto is surging with other China EV stocks Nio (NIO), Xpeng (XPEV) and BYD (BYDDF), as Covid headwinds wane, local governments expand EV subsidies.
The automakers all have new models in the coming weeks, with Nio releasing the ES7, an all-electric SUV, on Wednesday. Li Auto unveils a new SUV hybrid, the L9, on June 21. More broadly, U.S.-listed Chinese stocks, including internets, have been rallying in recent weeks.
Market Analysis
The Dow Jones, S&P 500 and Nasdaq composite all undercut Monday’s lows, but closed mixed. The Russell 2000 undercut its May lows, hitting its worst levels since November 2020. The small-cap index is below its pre-Covid highs.
Given the huge Fed meeting on tap Wednesday afternoon, Tuesday’s low-volume market action isn’t that meaningful.
Whether the Federal Reserve hikes rates by 50 basis points or 75 basis points on Wednesday, the macroeconomic climate is not favorable for the market, and may not be favorable for some time to come. Recession risks are high, while inflation will remain elevated for the foreseeable future.
Still, the reaction to the news is what really matters. The stock market could rebound following Wednesday’s Fed rate hike and Powell comments, but that wouldn’t signal a character change by itself. Investors need to see a follow-through day to confirm any rally attempt. Even then, a confirmed uptrend could be yet another short-lived bear market rally.
Right now, the Nasdaq composite and S&P 500 are in bear markets, while the Dow Jones is in a sharp correction.
What To Do Now
A bear market is no time to be brave. Investors should be on the sidelines. The only exceptions might be long-term winners or some positions in the energy sector, but even here investors have to consider taking at least partial profits.
Right now, investors should work on their watchlists, review past trades and historical bear markets.
