Editorial StaffThe two-day Federal Reserve meeting ends Wednesday, with the Fed policy announcement at 2 p.m. ET and Fed chief Jerome Powell’s news conference at 2:30 p.m. ET. The Fed will almost certainly raise interest rates by 50 basis points, to a range of 0.75%-1%. Policymakers also are expected to approve reducing the balance sheet, ramping up over three months to about $95 billion per month.
The real question is whether the Fed statement and Fed chief Powell will pave the way for 75-basis-point hikes at the June and July meeting. Markets are already pricing in a strong chance of supersize Fed rate increases as policymakers belatedly take aggressive action vs. inflation.
Inflation may be peaking in terms of year-over-year gains, but it could remain elevated for a long time, as workers get used to bigger wage increases and companies are able to pass on their higher costs.
The Fed also has to worry about recession risks from aggressive monetary policy, while China’s Covid shutdowns and Russia’s Ukraine war chill global economic activity while roiling supply chains.
Stock Market Rally
The stock market rally didn’t have a lot of direction ahead of the Fed meeting announcement, ultimately closing with slim gains.
The Dow Jones Industrial Average rose 0.2% in Tuesday’s stock market trading. The S&P 500 index climbed 0.5%. The Nasdaq composite advanced 0.15%. The small-cap Russell 2000 gained 0.9%.
U.S. crude oil prices fell 2.6% to $102.41 a barrel.
The 10-year Treasury yield fell 4 basis points to 2.96% after hitting a three-year high of 3% on Monday.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.4%, while the Innovator IBD Breakout Opportunities ETF (BOUT) rallied 2.3%. The iShares Expanded Tech-Software Sector ETF (IGV) retreated 0.8%. The VanEck Vectors Semiconductor ETF (SMH) climbed 0.8%, with AMD stock a notable holding.
SPDR S&P Metals & Mining ETF (XME) bounced 2.3% and the Global X U.S. Infrastructure Development ETF (PAVE) gained 0.8%. U.S. Global Jets ETF (JETS) advanced 0.7%, shrugging off selling in hotel and online booking stocks. SPDR S&P Homebuilders ETF (XHB) rose 1.15%. The Energy Select SPDR ETF (XLE) added 2.8% and the Financial Select SPDR ETF (XLF) 1.3%. The Health Care Select Sector SPDR Fund (XLV) edged up 0.3%
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) sank 0.9% and ARK Genomics ETF (ARKG) dipped 0.3%.
Key Earnings
AMD earnings topped forecasts with revenue up 71%. The chip giant also guided up on Q2 sales. AMD stock jumped 6% before Wednesday’s open. Shares rose 1.4% to 91.13 on Tuesday, but are far below key moving averages. AMD stock recently hit its worst levels since last June.
Livent earnings easily beat views, while the lithium miner also gave bullish guidance. LTHM stock soared 20% overnight, signaling a big move back above its 50-day and 200-day lines. Shares climbed 2.6% on Tuesday to 21.92. In late April, Livent stock tumbled below its 50-day and 200-day lines, but didn’t undercut its early March lows. ALB stock, which reports Wednesday night, rose 3% in extended action after climbing 3% in Tuesday’s session.
Matson earnings narrowly beat while revenue just missed after the container shipping firm gave upbeat preliminary figures last month. MATX stock climbed modestly in extended action. Shares bounced 3.4% on Tuesday to 91.36, rebounding from its 200-day line.
Regeneron earnings comfortably beat Q1 views as revenue climbed 17%, also topping. REGN stock rose 1% Wednesday morning. Shares cleared a 645.10 early entry on March 11 and the official buy point of 673.96 a few days later. Regeneron stock hit a record 747.42 before giving all that back by Monday, but it did find support just above the 200-day line.
Cheniere Energy reported a GAAP loss as revenue soared past forecasts for the liquefied natural gas specialist. LNG stock rose 5% to 147 before the open. Shares rebounded from their 50-day line Tuesday. Cheniere Energy stock has a 149.52 flat-base buy point, according to MarketSmith analysis. But investors could buy LNG stock if it clears Friday’s high of 143.35, still close to the 50-day.
Sectors To Watch
Energy stocks are shaping up again, especially those with refinery or natural gas exposure, such as Exxon Mobil (XOM) or Cheniere Energy.
Fertilizer plays rebounded from 50-day lines Tuesday following Mosaic (MOS) and Nutrien (NTR) earnings, though after some sharp declines to that key level.
Wood products firms and some building products plays are looking good. Louisiana-Pacific and Atkore made bullish moves Tuesday on earnings, while Weyerhaeuser (WY), Boise Cascade (BCC) and Beacon Roofing Supply (BECN) are setting up.
Oceangoing shipping firms had a strong session. Dry-bulk leaders Star Bulk Carriers (SBLK) and Golden Ocean Group (GOGL) had been doing well while container-focused Matson bounced from its key support and ZIM stock reclaimed its 50-day line.
These are hopeful signs. And perhaps they’ll work if the stock market rally gains momentum. But other groups have looked promising in recent weeks, such as REITs, medical products and travel plays, and they’ve faltered or broken down.
Meanwhile, growth stocks still look terrible. Apple (AAPL) and Tesla (TSLA) are fighting around their 200-day moving average. Other megacaps look worse. Meanwhile, the modest declines in IGV and ARKK signal that even bargain hunters aren’t jumping at aggressive growth yet.
What To Do Now
While a market rally attempt is underway, it’s not a time to have much exposure, if any.
If the stock market rallies on the Fed rate hikes, investors might consider nibbling on a stock or two, or perhaps a broad sector ETF. But you have to be ready to get back out quickly.
There is nothing wrong with waiting for a follow-through day. Even when the market is back in a confirmed uptrend, you won’t want rush to ramp up exposure. Gradually expand your holdings as the market builds strength and be quick to exit if the rally fizzles.
For now, build up those watchlists — in pencil, not ink. The REITs, miners and medical products firms on your watchlists a week or two ago probably should be replaced with new names. But it’s not wasted effort. If you have an up-to-date watchlist when the market trends turn favorable, you’ll be in a great position to jump into the new leaders early.
Source: Investors.com
