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Dow Jones Futures: Inflation Report, Big Test for Federal Reserve Market Rally

Market Rally Awaits CPI Inflation Report, Federal Reserve After Ugly Week;  Here's what to do
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Dow Jones futures will open Sunday evening, along with S&P 500 futures and Nasdaq futures, with a focus on the CPI inflation report and the Federal Reserve.




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The stock market rally pulled back last week, with major indexes continuing their trend toward new highs but then falling back. It’s a tough environment to buy stocks.

Investors will get a shot or two of big economic news this coming week. On Tuesday, the Labor Department will release its November CPI inflation report. On Wednesday afternoon, the Federal Reserve will raise rates again, with Fed chief Jerome Powell signaling further tightening in early 2023.

This can be the catalyst for big market gains or losses, or volatile sideways movements can continue. Investors should probably wait for the inflation report and Fed news before taking exposure.

After briefly clearing a buy spot on Thursday with the FDA approval, DXCM shares fell on Friday, with misses or scratches widespread.

But here are five stocks to watch: Dow Jones giants Caterpillar (CAT) and Goldman Sachs (GS), Sanmina (SANM), McKesson (MCK) and MercadoLibre (MELI). To be clear, none of these stocks are working, especially the MELI stock needs some work.

Microsoft (MSFT) works relatively well for megacaps with apple (AAPL) below its 50-day line and Tesla (TSLA) tries not to set new bear market lows. But MSFT shares remain well below their 200-day line and haven’t made much progress over the past month.

The video embedded in the article provided an in-depth review and analysis of market action Dexcom (DXCM), MercadoLibre and CAT shares.


The economy, the S&P 500 faces a tough downturn — unless the Fed does


CPI Inflation and the Fed Meeting

On Tuesday, the Labor Department will release the consumer price index for November. Headline and core CPI inflation rates should cool over the next few months only as benchmarks tighten. But service prices have been stubbornly strong.

The Federal Reserve wants to see a more substantial reduction in service inflation, as well as wage increases, before halting rate hikes. At 2:00 PM ET, the Fed is expected to raise rates by 50 basis points to 4.25%-4.5%, ending four 75 basis point hikes. Investors will be looking for some clues about the February meeting and how high the fed funds rate could eventually go. Markets are currently pricing in another half-point rate hike from the Fed in February, though there’s a decent chance for a quarter-point move.

Fed Chair Powell’s comments at 2:30 PM ET, along with the CPI inflation report, could set the direction of Fed policy heading into 2023.

Powell and a number of policymakers have hinted that a recession may be necessary to bring inflation under control.

Dow Jones Futures today

Dow Jones futures open at 6:00 PM ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.

Don’t forget that it’s a one night stand Dow futures and elsewhere does not necessarily become the actual trade on a regular basis Stock market session.


Join IBD’s experts as they analyze the stocks that made the most of the stock rally on IBD Live


Stock market rally

The stock market rally has seen significant declines for the major indexes in the past week.

The Dow Jones Industrial Average fell 2.8% last week stock trading. The S&P 500 index lost 3.4%. The Nasdaq lost 4%. The small-cap Russell 2000 lost 5.1%.

The 10-year Treasury yield rose 6 basis points to 3.57%, back from the week’s average of 3.4%.

Last week, US crude oil futures fell 11% to $71.02 per barrel, while gasoline futures fell 9.8%. Both hit 2022 lows. Natural gas prices fell by 0.6%.

ETFs

Key growth ETFs include the iShares Expanded Tech-Software Sector ETF (IGV) down 4.6%, with Microsoft shares a key holding. VanEck Vectors Semiconductor ETF (SMH) retreated 1.7%.

Reflecting more speculative story stocks, the ARK Innovation ETF (ARKK) lost 9.2% last week and the ARK Genomics ETF (ARKG) 8.1%. TSLA stock is a large holding among Ark Invest’s ETFs.

SPDR S&P Metals & Mining ETF (XME) gave 6.4% last week. Global X US Infrastructure Development ETF (PEACE) decreased by 2.85%. US Global Jets ETF (JETS) decreased by 3.3%. SPDR S&P Homebuilders ETF (XHB) was 2%. Energy Select SPDR ETF (XLE) decisively broke its 50-day line and sank 8.45%. Financial Select SPDR ETF (XLF) retreated 3.9%. Healthcare Select Sector SPDR Fund (XLV) fell 1.3% after rising in eight of the previous nine weeks.


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Megacap Stocks

Apple shares fell 3.8% last week, falling below that key level on Tuesday and holding resistance there on Friday. Bad news about iPhone production could weigh on prices, and AAPL shares are rising again.

Shares of fellow Dow tech titan Microsoft also fell 3.8%, but held support at the 21-day line, just above its rising 50-day high. However, it is well below the 200-day line. MSFT shares are mostly flat. a month ago, as did the S&P 500 and Nasdaq.

Tesla shares have lost 8.1% in the past week, even after losing 3.2% on Friday. TSLA shares are rising above recent monthly market lows. Tesla announced new Chinese incentives this past week, with media reports that its Shanghai plant will significantly reduce production over the next few weeks, even stopping Model Y production.


Tesla Vs. BYD: Which EV giant is better to buy?


Stocks to Watch

Caterpillar shares fell 3.7% last week to 227.29, hitting a 21-day low. A pullback can result in structural shaking. CAT stock has one point of purchase at 238 or 239.95 from the long cup base. In another week, the heavy equipment giant might have been the Dow flat base 239.95 with purchase points. A slightly longer break would allow the bullish 50-day line to narrow the gap with the CAT stock.

Goldman shares fell 5.6% in the past week to 359.14. main cup with a buy point of 358.72 before moving slightly higher. A solid bounce from here could suggest a new entry, especially when it holds the 50-day or 10-week line. On the weekly chart, GS shares are 13 months old base with cup handle389.68 with a buy point MarketSmith analysis. Last week created more depth in this handle, which could turn into a flat base in a week.

Sanmina shares fell 7.3% last week to 62.48. After breaking out of the cup base in October, SANM shares were firmly entrenched in the profit-taking zone. Shares may start to pull back toward the 50-day/10-week line, offering a buying opportunity, even if the weekly decline is sharp. The SANM fund also works on the possible flat base.

Shares of McKesson fell 4% last week to 371.37, falling just below the 50-day and 10-week lines on Friday. MCK shares are working on a new consolidation after a sharp sell-off in November. 10-11, hit many defensive medical resources. A move up from December. 2 high at 389.45 may suggest an early entry, still close to the moving averages.

MELI shares fell 5.1% to 896.48, their fourth weekly decline. The Latin American e-commerce and payments giant has a buy point at 1,095.44 and a trend line around 1,025. An aggressive entry could be a decisive retracement of MELI stock moving averages. 2 higher than 957 as this trigger. While MercadoLibre shares are trending lower, the weekly losses come on lighter volume with relatively strong positive closes.

Market rally analysis

A week ago, the stock market rally hit new highs, with the S&P 500 breaking above its 200-day line for the first time in months. But major indexes retreated as investors reassessed the jobs report and Fed Chair Powell’s comments.

The S&P 500 fell below its 200-day line, while the Nasdaq tested its 50-day line. Both found resistance at the 21-day line at the end of the week. The Russell 2000 fell below its 200-day and 21-day lines and broke below its 10-week line, falling to the 50-day.

The Dow, the leader in the rally, maintains support around the 21-day mark.

The S&P 500 is basically where it has been since November. 10, when October’s hawkish index inflation report boosted stocks. The Nasdaq and Russell 2000 returned to early November levels, while also reaching their late October highs.

If you had to come up with a scenario to get investors to get roughed up repeatedly, this might be the current bullish plan: A market rally of several big gains in a few days and a pullback in a few sessions.

This is still a confirmed market rally. However, further losses like the Nasdaq or especially the S&P 500 clearly breaching their 50-day lines would be worrisome.

Tuesday’s November CPI inflation report and Wednesday’s Fed meeting announcement and Powell’s comments could be the catalyst for a sustained market rally or decisive sell-off. But they could trigger another big market pop that looks decisive, only to be followed by another pullback.


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What to do now

Investors should be wary of adding risk until the CPI inflation report and the Fed meeting are in the rearview mirror. Even if markets jump on the inflation data and Fed Chair Powell’s comments, investors should be selective about new purchases if the major indexes are only to retreat over the next few sessions.

At some point, a sustained, steady market rally will take place. When this happens, buying opportunities will abound.

So prepare your stock market holiday shopping list. A large number of stocks from various sectors are building or close to doing so.

Read it The Big Picture daily to stay in sync with market direction and leading stocks and sectors.

Follow Ed Carson on Twitter @IBD_ECarson for stock updates and more.

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