Market rally robust after Fed surprise; Tesla ends record run, big warning fuels this group

The stock market rally showed resilience on Wednesday. Indexes initially fell on the US Federal Reserve's surprisingly dovish rate hike outlook, but ended mixed on relatively dovish comments from Fed Chair Jerome Powell.




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Dow Jones futures trended lower overnight, as did S&P 500 futures and Nasdaq futures. China cut interest rates amid fresh disappointing economic data.

The central bank took a pause after the end of its two-day monetary policy meeting on Wednesday afternoon, but policymakers signaled two more Fed rate hikes are imminent. However, Fed Chair Jerome Powell stressed that Fed officials are not sticking with a rate hike in July.

Nvidia (NVDA) surged to a record high a day after it closed above a $1 trillion market cap for the first time. Tesla (TSLA) ended a record winning streak, but reluctantly.

handyman lennar (LEN) reported gains after the market close.

A number of manufacturers of medical products and systems issued buy signals Wednesday after insurance giant Dow Jones UnitedHealth (UNH) warned that patients are spending more on medical procedures.

Shockwave Medical (SWAV). Dexcom (DXCM), Edwards Life Sciences (EW), Smith & Nephew (SNN), stryker (SYK), Zimmer Biomet Holdings (ZBH), Boston Scientific (BSX) and In fashion (INMD) issued buy signals on Wednesday morning. Most pared gains significantly, with SWAV stock closing well below intraday highs.

Tesla and Nvidia stocks make the IBD leaderboard. SWAV stock is in the IBD 50. TSLA stock is in the IBD Big Cap 20.

Dow Jones futures today

Dow Jones futures fell 0.15% from fair value. S&P 500 futures are down 0.15% and Nasdaq 100 futures are down 0.15%.

Overnight, the People's Bank of China cut its benchmark one-year lending rate by 10 basis points to 2.65%, the first cut in 10 months. Earlier this week, the People's Bank of China cut a short-term interest rate by the same amount. This is happening amid a faltering economic recovery.

Shortly after the PBOC was cut, China reported that retail sales rose 12.7% in May compared to a year earlier, when much of the country was under lockdown. That was below the views of 13.6%. Industrial production grew by 3.5%, just below the forecast of 3.6%. China's youth unemployment rate rose to a new record of 20.8%.

Keep in mind that nightly action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular trading session.

Fed meeting

As expected, Fed policymakers took no action on Wednesday, leaving interest rates at 5% to 5.25% after raising them a full five percentage points in just over a year.

However, the newly released forecasts from Fed policymakers show that interest rates are expected to average 5.6% through year-end, signaling two more interest rates. Markets had been expecting another quarter-point rise, perhaps in July, and even that wasn't a bull's eye.

Fed Chair Powell sounded more dovish. He stressed that policymakers were not committed to a July rate hike and said it would be a “live session”. He said the labor market remains “very tight” but also noted that it was beginning to ease. However, Powell noted that core inflation remains stubborn.

Markets now see a 69% chance of a rate hike on July 26, up only slightly from Tuesday. Investors see only an 8 percent chance of two Fed rate hikes by the end of the year.

lennar earnings

Lennar's profits declined but were significantly better than expected. The construction company also forecast higher guidance for the fiscal third quarter and full-year home deliveries.

LEN shares rose 2% in late trade. Shares fell 1.1% to 114.75 in Wednesday's regular session, right at the top of the short consolidation. That could be seen as a reach for a mammoth cup-with-handle base stretching back to the end of 2021. Lennar stock was actionable earlier in the month, moving up from the 50-day moving average on strong volume.

The home builder will hold a conference call after the opening bell on Thursday morning.


Join IBD experts as they analyze actionable stocks from the stock market rally on IBD Live


stock market rally

The stock market rally ended after the Fed and Fed Chair Powell's rate pause mixed

The Dow Jones Industrial Average fell 0.7% in trading on Wednesday, weighed down by UNH stock. The S&P 500 Index was up 0.1%. The Nasdaq Composite rose 0.4%, with Nvidia leading the way. The Russell 2000 small-cap index fell 1.2%.

US crude prices fell 1.7% to $68.27 a barrel.

The 10-year Treasury yield fell 4 basis points to 3.8% after a brief rise to 3.85% shortly after the Fed meeting announcement.

ETFs

Among growth ETFs, iShares Expanded Tech-Software Sector ETF (IGV) climbed 0.6%. The VanEck Vectors Semiconductor ETF (SMH) is up 1.5%. NVDA stock, SMH's largest stock, rose 4.8% to 429.97.

ARK Innovation ETF (ARKK) tumbled 2% and ARK Genomics ETF (ARKG) fell 0.6%, reflecting more speculative story stocks. Tesla stock is Ark Invest's #1 ETF. TSLA shares fell 0.7% on Wednesday to 256.79 after rising 41% in a 13-day winning streak.

The SPDR S&P Metals & Mining ETF (XME) was down 1% and the Global X US Infrastructure Development ETF (PAVE) was down 0.6%. The US Global Jets ETF (JETS) rose 0.7%. The SPDR S&P Homebuilders ETF (XHB) is down 1.1%. The Energy Select SPDR ETF (XLE) lost 1%.

The Health Care Select Sector SPDR Fund (XLV) lost 1%. UNH stock is #1 in the XLV, but Dexcom, Boston Scientific, Edwards Lifesciences, Zimmer Biomet, and Stryker are also represented in the ETF.

The Financial Select SPDR ETF (XLF) fell 0.4%. The SPDR S&P Regional Banking ETF (KRE) fell 2.9%.


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Stocks in buy zones

SWAV stock rose as high as 315.95 on Wednesday morning, breaching a mug and handle buy point of 308.09. However, Shockwave Medical fell back to close 1.1% at 295.05. That's below the 300 mark, which marks an early entry.

DXCM shares rose 0.9% to 127.06, back above the flat base buy point of 126.44. Dexcom is trying to make a major breakthrough, which the company has been struggling to do since November.

EW stock rose 3.6% to 90.53, overcoming a brief big-volume consolidation a day after surging above the 50-day moving average. Edwards Lifesciences stock has still not broken the 50-day moving average. Investors could use 89.72 15th May high as a buying point.

SNN shares broke through the 50-day moving average on heavy volume, rising 5.55% to 31.57. This offered early entry into a flat base, part of a base-on-base formation. Smith & Nephew stock is also approaching a trendline that would allow for another early entry. The official buy point is at 33.19.

SYK shares rose 4.2% to 293.57 in heavy trading, breaking a downtrend and breaching the 50-day moving average. That provided an early entry, although stocks closed near daily lows. Stryker stock has an official buy point of 306.56 on a flat basis that is part of a base-to-base pattern.

ZBH shares rose 3.8% to 142.01 a day after recovering near the 50-day moving average. Zimmer Biomet has done most of the trading in a 16% deep consolidation and is trading in the area of ​​the 50-day moving average. There is still some distance to the buy point of 149.25. The ZBH share also closed well below the daily highs.

BSX shares rose 4.2% to 53.31 and traded above the 50-day moving average. It's the first test of the 50-day/10-week moving average since a breakout in late March. Boston Scientific stock is consolidating in the near term.

INMD stock climbed 1.7% to 36.42 after just surmounting a trendline on Tuesday. But stocks weathered their intraday highs just fine. InMode stock is near a short-term high of 38.38, a zone where it will face resistance several times in 2023. The official buy point is 41.84 on a four month basis according to MarketSmith analysis.


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Analysis of the market rally

The stock market rally showed surprising resilience on Wednesday amid a restrictive rate hike outlook.

The S&P 500 and Nasdaq Composite Index ended slightly higher after a brief downtrend on comments from Fed Chair Powell.

The Nasdaq could probably use a pause or pullback. It is now 9.2% above its 50-day moving average and is trading above the top of a regression line. The Nasdaq 100 is now 10.6% above this key level.

The Dow Jones fell, largely on the back of UNH stock, but recovered from the lows just above its 10-day moving average.

Market breadth was weak, disrupting a positive trend. Small caps saw a significant decline, mid caps a slight decline. The Invesco S&P 500 Equal Weight ETF (RSP) was down just 0.2%. The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) rose nearly 0.2% but lagged the Nasdaq 100's 0.7% gain.

New highs continued to easily surpass new lows.


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What now

Investors could have nibbled on one of the many medical device stocks that signaled buy signals Wednesday, although there's a good chance those buys were slightly undercut by Wednesday's close.

Otherwise, there weren't many buying opportunities. Many market leaders like Nvidia and Tesla are heavily expanded, while others have risen to around buy points from a bottom of their base.

With the Nasdaq overdue for a pause or decline, investors should be cautious about adding exposure, particularly to technology. You might consider taking partial wins on some extended winners.

But you want to acknowledge this market rally. It shows real strength, the breadth and leadership increasing dramatically. So while caution is warranted in the near term, the market as a whole is sending strong bullish signals.

If there is a market pullback, it could be an opportunity to enter or expand on the big winners. So stay engaged.

Read The Big Picture daily to stay up to date on market direction and the leading stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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