Tech Futures Jump on Meta Spike After ‘Joyful’ Fed Rally; Apple, Amazon, Google Earnings Next
Dow Jones futures fell modestly early Thursday, while S&P 500 futures and especially Nasdaq futures rose with Facebook’s parent Meta platforms (META) soaring on its earnings report. It followed a big day for the stock market rally as investors hailed comments from Fed chief Jerome Powell.
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Apple, Amazon and Google parent Alphabet (GOOGLE) is in print.
The major indexes rose on Wednesday, turning higher after the long-awaited Fed meeting and especially Fed chief Powell. The Federal Reserve raised interest rates by a quarter point, saying it still sees “ongoing increases” ahead. Powell backed that up, but said it is a “good thing” and “gratifying” that inflation is falling even without labor markets weakening.
The market rally cleared several key levels on Wednesday, while a large number of stocks broke out or flashed other buy signals, including the Chinese search and AI giant Baidu (BEGINNING), chip-gear maker Lamb Research (LRCX), maker of network monitoring software Dynatrace (DT), Delta Air Lines (VALLEY) and more.
Key earnings
Meta Platform’s earnings fell short, but revenue, sales guidance and Facebook users topped the views. It also announced a $40 billion share buyback. The Facebook and Instagram parent lowered its forecast for expenses, including capital expenditures. META stock rose 19% after hours. Shares rose 2.8% to 153.12 in Wednesday’s session, retracing the 200-day line for the first time in more than a year and pulling back from weak earnings forecasts from Snap (SNAP).
Qorvo (QRVO) topped earnings for the third quarter. But like many other chip stocks, Qorvo guided significantly lower for the current quarter. QRVO stock fell 3% in extended trading. Shares of the 5G and Apple iPhone chipmaker rose 4.5% to 113.53 on Wednesday.
ELF beauty (PIXIE) crushed earnings views and comfortably beat revenue. EPS doubled and growth accelerated for the third consecutive quarter. Sales grew by 49%, increasing the pace for the fourth quarter in a row. The cosmetics manufacturer also guided up. ELF shares rose 16% to record highs in overnight action. Shares rose 1.8% to 58.58 on Wednesday, just below the Jan. 6 record.
early Thursday, Merck (MRK) modestly topped Q4 views but guided low on 2023 EPS. Eli Lilly (LLY) topped profit views but missed sales, but guided slightly higher on 2023 EPS. Bristol Myers Squibb (BMY) beat. MRK shares and LLY shares fell slightly. BMY rose higher.
Big pharma, which fared well in 2022’s bear market, is so far lagging in a growth-led 2023 market rally. Shares of LLY, Merck and Bristol Myers are all below their 50-day moving averages.
late Thursday, Apple (AAPL), Amazon.com (AMZN) and the Google report. All return in 2023, but below their 200-day line. GOOGL shares and Amazon rose more than 4% overnight in sympathy with Meta.
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Dow Jones Futures Today
Dow Jones futures fell 0.4% relative to fair value, with MRK stock and Honeywell (HON) acts as a drag. S&P 500 futures rose 0.35 percent. Nasdaq 100 futures rose 1.25%, with META shares leading along with Google and AMZN shares. Tesla (TSLA) also helped, with Blackstone revealing a big TSLA effort.
Meanwhile, the Bank of England raised interest rates by 50 basis points on Thursday morning. The European Central Bank is also expected to do so before US markets open.
Remember the action overnight Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
Bold rate hikes ‘Ongoing’
As expected, the Fed raised interest rates by a quarter point on Wednesday, lifting the Fed Funds rate to 4.5%-4.75%. That follows a half-point Fed rate hike in December and four consecutive 75-basis-point moves before that.
The Fed’s policy still stated that politicians expect “ongoing increases” in the Fed Funds rate, a clear signal that the Fed rate hikes are not done.
Fed chief Powell’s ‘Good Thing’
Fed chief Jerome Powell backed that up, saying there is “more work to do,” later specifying that “we’re talking about a few more rate hikes.” He added that labor markets remain “extremely tight.”
However, Powell also said that “the process of disinflation has started.” Noting that inflation is falling even without a significant easing of working conditions, he said that is a “good thing” and “satisfying”. He also said that policymakers “have no incentive, desire to tighten too much.”
That statement appeared to spark an afternoon rally.
On Wednesday morning, the Labor Department reported that job openings rose to 11.01 million, well above views. On Friday, the January jobs report is in print. But Powell’s comments suggest that markets need not be quite as fixated on labor data as they have been.
The market largely expects another Fed rate hike at the end of March, with odds rising slightly on Wednesday to 86%.
But despite Powell backing a “few more” hikes, investors are still leaning toward March’s Fed rate hike being the climax. That would leave the Fed Funds rate range at 4.75%-5%, below the Fed’s forecast of 5%-5.25%.
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Stock market rally on Wednesday
Stocks rose modestly ahead of the Fed news, but rallied when Fed Chairman Powell spoke.
The Dow Jones Industrial Average rose a fraction on Wednesday stock exchange trading, but after falling more than 1% intraday before the Fed announcement. The S&P 500 index rose just over 1 percent. The Nasdaq composite rose 2 per cent. The small-cap Russell 2000 rose 1.5 per cent.
US crude oil prices slipped 3.1% to $76.41 a barrel. barrel as domestic crude inventories rose for a sixth consecutive week. Natural gas prices fell 8%, continuing an epic collapse. Copper futures fell 2.8% and prices fell ahead of the Fed rate hike announcement.
The 10-year government rate fell 13 basis points to 3.4 per cent. The two-year Treasury yield, which is more closely tied to Fed policy, fell 10 basis points to 4.11%. That is well below the current interest rate range for hedge funds.
The US dollar fell to an eight-month low.
ETFs
Among growth ETFs is the Innovator IBD 50 ETF (FFTY) increased by 1.5 per cent. iShares Expanded Tech-Software Sector ETF (IGV) jumped 2.85%. VanEck Vectors Semiconductor ETF (SMH) increased by 4.7 per cent. Lam Research and AMAT shares are major SMH holdings, with QRVO shares also a component.
Reflecting more speculative history stocks, the ARK Innovation ETF (SHEET) sprinted 4.4% and the ARK Genomics ETF (ARKG) increased by 2.4 per cent.
SPDR S&P Metals & Mining ETF (XME) 1.8% and the Global X US Infrastructure Development ETF (POPE) 1.5%. US Global Jets ETF (JETS) rose 1%, with the DAL stock a top component. SPDR S&P Homebuilders ETF (XHB) jumped 2%. Energy Select SPDR ETF (XLE) fell 2% and the Financial Select SPDR ETF (45) was flat. Health Care Select Sector SPDR Fund (XLV) increased by 0.5 per cent.
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Analysis of market rally
The major indexes continued to build momentum with big improvements after Fed Chair Powell began speaking.
The Nasdaq appears decisively above its 200-day moving average and the end of the 2022 highs. The Russell 2000 has clearly passed that level.
The S&P 500 also appears to be leaving its 200-day line. The benchmark index also moved off its highs in December.
The Dow Jones, now a laggard, tested its 200-day line before bouncing for a small gain.
Remember that the market often has a day-two reaction to Fed meetings.
Meanwhile, the rest of the week is packed with news. Big earnings on Thursday night are due to Apple, Amazon, Google, Qualcomm (QCOM), Ford Motor (F) and more with the jobs report for January Friday.
The S&P 500’s biggest daily gainers and losers over the past few weeks have been dominated by earnings movers.
DT stock, OI glass (HI), Striking (SICK) and To drive (ATKR) went out of bases on earnings on Wednesday.
But there were plenty of good non-earning moves on Wednesday, especially after Fed Chair Powell’s comments.
LRCX storage and co-equipment giant Materials used (HUGE) broke out of bottom bases while DAL stocks and JB Hunt Transport Services (JBHT) and Performance Food Group (PFGC) cleared traditional points of purchase. BIDU shares also broke out.
Arista network (pages), Clean storage (PSTG) and Global Foundries (GFS) all cleared early entries on Wednesday. But Meta Platforms’ lowered capex plans could hit Arista and Pure Storage. ANET shares fell modestly after hours.
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What should I do now
The stock market rally continues to gain power, with the Nasdaq, Russell 2000 and leading stocks leading the way. The Fed meeting is out of the way, while there is increasing clarity about the central bank’s end game.
There is growing evidence that the current market rally will be a lasting uptrend.
So investors could have added new positions on Wednesday, benefiting from a fresh crop of buying opportunities. It is still wise to do it gradually, not to buy extended or get too concentrated. If this market rally has legs, steadily increasing exposure can quickly see you fully invested or more. If this market rally falters, even if only for a short time, you won’t be caught. With Apple and Google earnings looming and the Nasdaq running so fast in 2023, a pullback wouldn’t be a surprise.
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