Dow Jones Futures Rise Amid Mixed Evergrande News After Fed Meeting Fuels Stock Market Rally
Dow Jones futures rose Thursday morning, along with S&P 500 futures and Nasdaq futures, but were off highs amid mixed China news on Evergrande. The stock market rally rebounded strongly Wednesday, boosted by Evergrande debt news and a Fed meeting that walked a line between hawkish and dovish statements and hints.
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Overnight, China’s central bank injected the most short-term liquidity since late January, helping to soothe Evergrande default fears. That helped lift Dow Jones futures and stocks in Asia. But futures pared gains on a Wall Street Journal report that China is telling local government to prepare for a possible Evergrande default. Evergrande holds some $300 billion in debt, with projects across the country playing a huge role in construction and the economy overall.
Beijing has told Evergrande to focus on finishing existing projects and repaying individual investors, while avoiding a default for now. Evergrande stock jumped in Hong Kong overnight.
Stocks Flashing Buy Signals
On Wednesday, Snap stock extended Tuesday’s move above a trend line entry. Snap (SNAP) is rallying as FB stock loses sight of its 50-day line, with Facebook (FB) warning that Apple (AAPL) iOS ad-tracking changes remain a headwind.
Meanwhile, Nvidia (NVDA), Wells Fargo (WFC), Monolithic Power (MPWR) and Digital Turbine (APPS) also flashed buy signals.
Accenture stock is trying to rebound from its 10-week line for the first time since a late June breakout. Accenture (ACN) reports earnings before Thursday’s open.
Fed Meeting
Policymakers said in the post-Fed meeting statement that „a moderation in the pace of asset purchases may soon be warranted,“ but didn’t go ahead with a bond taper decision at the current meeting.
The Fed statement didn’t provide any specific timing for a taper, but Fed chief Jerome Powell said a November taper decision could „easily“ happen if the economy continues to show improvement. In his post-meeting news conference, Powell said several FOMC members were already ready to taper. He added that a taper could end by mid-2022, though he said the Fed could speed up or slow down the taper as conditions warrant.
But the end of the bond taper would set the stage for Fed rate hikes. Policymakers are now evenly split on whether they expect a Fed rate hike next year vs. seven of 18 in the prior meeting. There had been speculation that a majority would target a 2022 Fed rate hike.
Policymakers also now expect inflation to remain above 2% through 2024.
Nvidia stock and Snap are on IBD Leaderboard. Snap stock is on SwingTrader. MPWR stock is on IBD Long-Term Leaders. Snap stock, Nvidia and Monolithic Power are on the IBD 50.
Dow Jones Futures Today
Dow Jones futures rose 0.5% vs. fair value, coming off highs on renewed Evergrande default concerns. S&P 500 futures advanced 0.5% and Nasdaq 100 futures climbed 0.5%.
Crude oil and copper futures edged lower overnight, after rising Wednesday.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally
The stock market rally had a strong session Wednesday. The major indexes opened higher, buoyed by a key Evergrande unit pledging to make a key interest payment on domestic debt on Thursday. Stocks kept building momentum into the afternoon, after the Fed meeting announcement.
Stocks pared gains somewhat as Fed chief Powell discussed a November bond taper but firmed up somewhat for a strong close.
The Dow Jones Industrial Average rose 1% in Wednesday’s stock market trading. The S&P 500 index climbed almost 1%. The Nasdaq composite advanced 1%. The small-cap Russell 2000 ended 1.55% higher.
Facebook stock fell 4% to 343.21, a two-month low. Shares have now fallen 5.9% so far this week. Facebook acknowledged in a blog post that Apple iOS privacy changes are continuing to take a toll. FB stock already fell 3.7% last week amid Wall Street Journal reports that top Facebook executives knew that Instagram was harmful to teen girls and did nothing about it.
After the close, Facebook said Chief Technology Officer Mike Schroepfer will step down next year. But FB stock edged higher overnight.
Apple stock, for its part, closed 1.7% higher, but is still below its 50-day line. AAPL stock began pulling back significantly from record highs after suffering a key App Store legal defeat vs. Fornite video game publisher Epic Games. On Wednesday, it confirmed that it will continue to ban Fortnite from its App Store until all appeals are exhausted.
Top ETFs
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) gained 2.1%, hitting a record high. The Innovator IBD Breakout Opportunities ETF (BOUT) rallied 2.3%. The iShares Expanded Tech-Software Sector ETF (IGV) advanced 0.9%. SNAP stock is a significant IGV holding. The VanEck Vectors Semiconductor ETF (SMH) rose 1.8%, with NVDA stock a top SMH component.
SPDR S&P Metals & Mining ETF (XME) rebounded 2% and Global X U.S. Infrastructure Development ETF (PAVE) 1.4%. U.S. Global Jets ETF (JETS) ascended 2.7%. The SPDR S&P Homebuilders ETF (XHB) picked up 1.15%. The Energy Select SPDR ETF (XLE) popped 3.1% and the Financial Select SPDR ETF (XLF) climbed 1.7%. WFC stock is a big XLF holding.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) rose 0.8% and ARK Genomics ETF (ARKG) sank 0.6%.
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Snap Stock
Snap stock rose 3.3% to 78.60, still in range of a trend line just cleared in Tuesday’s 6.1% surge from the 50-day line. Wednesday was the third above-average volume up session in four, broken only by Monday’s low-volume retreat. Snap stock also broke a short-term high of 77.88 in the middle of its current flat base. The flat base, part of a base-on-base formation, has an official 80.95 buy point, according to MarketSmith analysis.
It’s possible that Facebook woes are spurring advertisers to shift more digital ad spending to Snap. If nothing else, speculation that this could be happening likely helped fuel Snap stock.
Nvidia Stock
Nvidia stock climbed 3.3% to 219.41, moving above Monday’s intraday high and its 21-day line. That — along with a 50-day/10-week line rebound — gives investors an aggressive entry in NVDA stock, which had round-tripped a double-digit gain at Monday’s low. Nvidia stock, trading tightly on a weekly basis, could have a flat base after next week.
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Monolithic Power Stock
MPWR stock advanced 3.1% to 507.93, continuing a rebound from the 21-day line and 10-week line and hitting a new high. Investors could use this as a chance to start a Monolithic Power stake.
Digital Turbine stock
APPS stock popped 7.5% to 70.41, jumping above its 200-day moving average after recently breaking a long downtrend. Digital Turbine stock was a huge pandemic winner, peaking at 102.56 in early March. Shares then tumbled to 47.57 on Aug. 19, when markets rebounded from a short-term low.
Wednesday’s move could be an opportunity to initiate a position in APPS stock, but this is a high risk, high reward bet. There is plenty of overhead supply.
Wells Fargo Stock
WFC stock rose 2.7% to 47.10, moving above the 50-day line and breaking a trend line, offering an early entry. That’s despite Fed chief Powell saying that caps on Wells Fargo assets will remain until chronic problems are addressed.
Wells Fargo stock should have a base with a 51.51 buy point at the end of this week. That consolidation would be next to a flat base that had a short-lived early August breakout.
Market Rally Analysis
The stock market rally had a solid rebound Wednesday after Tuesday’s anemic response to Monday’s sell-off. The Dow Jones and S&P 500 remain below their 50-day moving averages, but the Nasdaq moved back above that key level. The Russell 2000 reclaimed its 200-day line, ending right around its 50-day.
Growth stocks were strong, with the FFTY ETF near record highs, though ARK ETFs pointed to a mixed reaction among speculative growth. But as the major indexes and sector ETF showed, Wednesday’s market rally was broad-based. Energy stocks were big winners, along with miners, financials, airlines and more.
While Wednesday was a good first start, the market rally is still under pressure. It wouldn’t take much for the Nasdaq and Russell 2000 to fall back below the 50-day line — or for the indexes to run down to new lows.
Dow Jones futures suggest that the market rebound will continue, at least to Thursday’s open.
What To Do Now
Investors could make a few buys Wednesday with a little more confidence. The Fed meeting is out of the way while an Evergrande default is off the table, at least for a few days. But a one-day advance doesn’t mean that the market will continue to advance Thursday and beyond.
So if you do make buys, boost your exposure gradually. Wait for the market rally to prove itself once again. Meanwhile, run your screens and build up your watchlists. Look for pullbacks to key support levels. Identify your top-tier candidates and set up alerts. If and when they flash buy signals, you can move quickly.
But be ready to sell quickly if your new positions or the broader market go south.
Staying alert and being flexible are absolute musts in the current market environment.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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