Dow Jones futures and S&P 500 futures tilted lower overnight, while Nasdaq futures rose slightly, as PacWest Bancorp (PACW) plummeted late on a report that it’s is mulling putting itself up for sale. HubSpot and Shopify led a slew of top stocks reporting earnings before Thursday’s market open. Apple looms Thursday night.
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The Federal Reserve hiked rates Wednesday afternoon, with the central bank and Fed chief Jerome Powell hinting at a pause. But they didn’t rule out further tightening, and Powell continued to push back at market calls for Fed rate cuts later this year.
The stock market rally reversed lower near the end of Powell’s comments. Bank stocks also reversed lower, adding to Tuesday’s painful losses. Then PACW stock dived on the sales report, sending Western Alliance Bancorp (WAL) plunging as well, with superregionals PNC Financial Services (PNC) and Comerica (CMA) also hitting fresh lows overnight.
Meanwhile, HubSpot (HUBS), MercadoLibre (MELI) and Axcelis Technologies (ACLS) reported Wednesday night.
All three stocks rose overnight on strong results after closing near buy points.
Shopify (SHOP), Cardinal Health (CAH), Regeneron Pharmaceuticals (REGN), Hyatt Hotels (H), Lantheus (LNTH), TopBuild (BLD), Installed Building Products (IBP), Quanta Services (PWR), Royal Caribbean (RCL) and Planet Fitness (PLNT) report early Thursday.
SHOP stock and Planet Fitness are near buy points, while LNTH stock is close to testing its 10-week line after a big run. CAH stock, Hyatt, TopBuild, Installed Building Products, Quanta Services and Regeneron are all in buy zones, with RCL stock flashing an early entry.
Apple (AAPL) reports Thursday evening. Apple stock is trading near an eight-month high.
MELI stock is on IBD Leaderboard, with HUBS stock on the Leaderboard watchlist. MercadoLibre, Hyatt, Lantheus, Quanta Services and Royal Caribbean are on the IBD 50. HUBS stock is on the IBD Big Cap 20.
Fed Rate-Hike Pause
As expected, the Federal Reserve raised rates by a quarter point to 5%-5.25%. The Fed meeting policy statement used language that hinted at a rate-hike pause but left the door open to further increases if needed. Policymakers noted that “inflation remains elevated.” While stating that “the U.S. banking system is sound and resilient,” policymakers acknowledged that “tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation.”
Fed chief Jerome Powell, speaking at 2:30 p.m. ET, said labor markets remain tight and that inflation is high. But he added that it will take time for the full impact of cumulative Fed rate hikes to take effect on inflation. Powell said it was “notable” that the Fed policy statement no longer says rate hikes may be needed. He also said Fed staff forecasts for the May meeting are “broadly similar” to their March forecast of a mild recession later this year. But Powell still sees a soft landing as possible.
All told, Powell and the central bank gave the impression that a rate-hike pause is likely without shutting the door on further tightening. Powell once again said he doesn’t expect Fed rate cuts later this year, even as markets continue to see easing starting in September.
The April jobs report is on tap Friday, after Wednesday’s ADP report showed private payrolls rising far more than expected.
Dow Jones Futures Today
Dow Jones futures fell a fraction vs. fair value, off Wednesday evening lows. S&P 500 futures edged lower. Nasdaq 100 futures rose 0.3%. The Nasdaq 100 includes the 100 largest non-financial Nasdaq components.
The 10-year Treasury yield sank 7 basis points to 3.33%.
Crude oil futures edged higher.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
PacWest Bank Mulls Sale
Fed chief Powell said the banking system is sound and improving.
But PacWest Bancorp crashed more than 50% after hours on a Bloomberg report the California bank is mulling strategic options, including putting itself up for sale. PacWest is also mulling a breakup or a capital raise.
Western Alliance dived 22%. Superregionals PNC stock, Regions Financial (RF), Truist (TFC) and KeyCorp (KEY) suffered significant losses.
In Wednesday’s session, PacWest Bancorp fell 2% after diving 28% to a record closing low Tuesday. Western Alliance sank 4.4% after skidding 15% Tuesday. Both had been modestly higher until late afternoon.
Among superregionals, CMA stock hit a fresh 30-month closing low, while PNC, Regions and KEY stock all hit their worst levels since 2020.
PacWest last week reported deposits had stabilized since late March, but fears can trigger deposit flight rapidly in today’s connected age.
On Wednesday, First Republic Bank (FRCB) crashed 90.5% to 33 cents. FRC stock had been halted on Monday and Tuesday after the FDIC seized and sold First Republic to JPMorgan Chase (JPM).
JPM stock sank 2.1% Wednesday, now down modestly for the week after briefly breaking out on Monday. JPMorgan just edged lower overnight.
The Financial Select SPDR ETF (XLF), which includes giants such as JPMorgan, fell 1.1% to the lowest since April 10. The SPDR S&P Regional Banking ETF (KRE) slumped 1.8% to a fresh 30-month low. PACW stock and WAL stock are among the many KRE components, along with CMA stock, PNC, Regions Financial, Truist and KeyCorp.
XLF sank 0.7% overnight. KRE tumbled more than 4% on the PACW sale report.
Key Earnings
HUBS stock popped after HubSpot reported strong earnings and guided higher. The digital marketing software maker edged up 0.8% to 417.99 in Wednesday’s session, just below a 418.49 flat-base buy point just above a cup-with-handle base. HUBS stock has been finding support at the 10-week line and had been working on yet another flat base.
MELI stock rose modestly after hours. MercadoLibre earnings comfortably beat forecasts. Shares of the Latin American digital-payments giant rose 1.9% to 1,279.99 on Wednesday. MELI stock, which has been consolidating for the past few months, could be actionable off the 10-week line.
ACLS stock climbed modestly in extended trade. Axcelis earnings topped consensus, but the chip equipment maker gave mixed signals. Shares edged up 0.7% to 122.61 on Wednesday. After surging 175% over six months to the March 21 peak of 136.38, Axcelis stock has pulled back, but shares have been finding their footing in recent days. ACLS stock is on track to have a base after this week with a 136.48 buy point, but a decisive move above the 50-day line would offer an early entry.
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Stock Market Rally
The stock market rally largely held slim gains after the Fed rate hike. But the major indexes turned negative after Fed chief Jerome Powell said he wasn’t expecting rate cuts later this year.
The Dow Jones Industrial Average sank 0.8% in Wednesday’s stock market trading. The S&P 500 index declined 0.7%. The Nasdaq composite retreated 0.5%. The small-cap Russell 2000 rose 0.4% but closed near session lows.
U.S. crude oil prices slumped 4.3% to $68.60 a barrel after tumbling 5.3% on Tuesday. That’s the lowest close in over six weeks. Gasoline futures sank 4.7% to the weakest settlement in two months.
The 10-year Treasury yield fell 4 basis points to 3.4%. The three-month Treasury yield, closely tied to Fed policy, rose 3 basis points to 5.26%. The sharp yield curve inversion from the three-month to the 10-year is a notable recession signal.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) edged up 0.4%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 1%. The VanEck Vectors Semiconductor ETF (SMH) sank 1%.
Reflecting stocks with more speculative stories, the ARK Innovation ETF (ARKK) dipped 0.4% and ARK Genomics (ARKG) bounced 2%.
The SPDR S&P Metals & Mining ETF (XME) retreated 1%. U.S. Global Jets (JETS) edged up 0.3%. SPDR S&P Homebuilders (XHB) climbed 0.6%. The Energy Select SPDR ETF (XLE) slumped 1.9%, and the Health Care Select Sector SPDR Fund (XLV) dipped 0.1%.
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Market Rally Analysis
The stock market rally once again hit resistance near 2023 highs. All the major indexes fell below their 21-day moving averages Wednesday after finding support at those levels Tuesday.
Winners led slightly on the Nasdaq and lagged losers slightly on the NYSE. That follows terrible breadth Tuesday.
The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) dipped 0.35%, reversing lower after briefly retaking the 50-day line and hitting resistance at the 21-day. The Invesco S&P 500 Equal Weight ETF (RSP) sank 0.6%, further below the 200-day after briefly reclaiming the 50-day line.
The housing sector looks strong, with homebuilders, building materials makers and installers such as TopBuild all showing strength.
Many restaurants are acting well, but by no means all.
The medical sector shows a lot of strength, notably drug and biotech giants as well as medical products and systems makers. Those include Regeneron and Lantheus.
But tech growth stocks are tricky. Chips are struggling outside of Nvidia (NVDA).
In short, the market rally remains “under pressure.” The major indexes are not far from 2023 highs but are clearly struggling at those levels. Meanwhile, breadth is poor and market leadership is narrow.
Remember, the market can often have a second-day reaction to Fed meetings. That may be especially true now, with Fed chief Powell trying to strike a delicate balance on the rate-hike outlook. Then on Friday, the April jobs report will be a market mover.
Banking woes also could keep the Fed on hold.
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What To Do Now
The market rally still isn’t giving many reasons to add exposure. The major indexes are still hitting resistance while not many stocks are flashing buy signals. Market, sector and stock reversals are still common.
A lot of stocks are in or around buy zones, but market conditions — and upcoming earnings — are reasons to be cautious. But be prepared. If the market rally gains momentum, many stocks will be flashing buy signals. So you’ll want to be ready to gradually step back into the market. On the flip side, investors need to have their exit strategies if conditions deteriorate.
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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