Futures on the Dow Jones will open on Sunday evening, along with futures on the S&P 500 and the Nasdaq, with particular attention to the CPI inflation report and the Federal Reserve.
The stock market rally retreated last week, with major indexes continuing their trend to new highs, but then fading. It’s a tough environment for buying stocks.
This coming week, investors will get a glimpse of major economic news. On Tuesday, the Department of Labor will release its report on November CPI inflation. On Wednesday afternoon, the Federal Reserve will raise rates again, with Fed Chief Jerome Powell offering signals of further tightening in early 2023.
This could be a catalyst for big gains or losses in the market, or jerky sideways action could continue. Investors should probably wait for the inflation report and news from the Fed before adding exposure.
Failures or fizzles are widespread, with DXCM’s stock falling on Friday after briefly crossing a buy point on Thursday on FDA approval.
But here are five stocks to watch: The Dow Jones giants caterpillar (CAT) and Goldman Sachs (GS), sanmina (SANM), McKesson (MCK) and Free market (MELI). To be clear, none of these stocks are mineable, with the MELI stock in particular requiring work.
Microsoft (MSFT) is doing relatively well for megacaps, with Apple (AAPL) below its 50-day line and You’re here (TSLA) trying to avoid setting new lows in the bear market. But MSFT’s stock remains well below its 200-day line and hasn’t made much progress over the past month.
The video embedded in the article reviews the market action in depth and analyzes Dexcom (DXCM), MercadoLibre and stock CAT.
The economy and the S&P 500 face a hard landing – unless the Fed does
CPI inflation and Fed meeting
Early Tuesday, the Department of Labor will release the consumer price index for November. Headline and core CPI inflation rates are expected to slow in the coming months, if only as comparisons become more difficult. But service prices have remained stubbornly high.
The Federal Reserve wants to see more substantial declines in services inflation, as well as wage gains, before halting rate hikes. At 2 p.m. ET, the Fed is expected to raise its federal funds rate by 50 basis points, to 4.25%-4.5%, ending a series of four 75 basis point hikes. Investors will want clues about the February meeting and how high the fed funds rate might go going forward. Markets are currently pricing in another half-point Fed rate hike in February, although there is a good chance of a quarter-point move.
Comments from Fed Chief Powell at 2:30 p.m. ET, along with the CPI inflation report, could set the tone for Fed policy heading into 2023.
Powell and several policymakers have signaled that a recession may be needed to bring inflation under control.
Dow Jones Futures Today
Dow Jones futures open Sunday at 6 p.m. ET, along with S&P 500 and Nasdaq 100 futures.
Remember that overnight action on futures contracts on Dow Jones and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join the experts at IBD as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
The stock market rally has seen significant setbacks for key indices over the past week.
The Dow Jones Industrial Average fell 2.8% in stock trading last week. The S&P 500 index lost 3.4%. The Nasdaq composite fell 4%. The small-cap Russell 2000 plunged 5.1%.
The 10-year Treasury yield rose 6 basis points to 3.57%, rebounding 3.4% mid-week.
U.S. crude oil futures plunged 11% to $71.02 a barrel last week, with gasoline futures falling 9.8%. Both hit 2022 lows. Natural gas prices fell 0.6%.
Among key growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) fell 4.6%, with Microsoft stock a major holding. ETF VanEck Vectors Semiconductor (SMH) fell 1.7%.
Reflecting more speculative stocks, ARK Innovation ETF (ARKK) fell 9.2% last week and ARK Genomics ETF (ARKG) 8.1%. TSLA stock is a massive holding in ETFs from Ark Invest.
The SPDR S&P Metals & Mining ETF (XME) fell 6.4% last week. The Global X US Infrastructure Development ETF (PAVE) fell 2.85%. The US Global Jets ETF (JETS) fell 3.3%. The SPDR S&P Homebuilders ETF (XHB) fell 2%. The Energy Select SPDR ETF (XLE) plunged 8.45%, decisively breaking its 50-day line. The Financial Select SPDR ETF (XLF) fell 3.9%. The SPDR healthcare sector fund (XLV) fell 1.3% after climbing in eight of the previous nine weeks.
Five best Chinese stocks to watch now
Apple stock fell 3.8% last week, falling below that key level on Tuesday and hitting resistance there on Friday. Bad iPhone production news could factor in and AAPL stock rebounds.
Shares of Dow tech titan Microsoft also fell 3.8%, but held support at the 21-day line, slightly above the 50-day high. But that’s well below the 200-day line. MSFT stock is essentially flat from a month ago, as are the S&P 500 and Nasdaq.
Tesla stock has fallen 8.1% in the past week, even with Friday’s 3.2% rise. TSLA stock jumps above recent bear market lows. Tesla announced new incentives in China last week with widespread media reports that the Shanghai factory will significantly reduce production over the next few weeks, even halting Model Y production.
Tesla vs. BYD: Which electric giant is the best buy?
Stocks to Watch
Caterpillar stock fell 3.7% to 227.29 last week, undercutting the 21-day line. Retirement could end up being a constructive jolt. CAT stock has a buy point at 238 or 239.95 from a long cup base. In another week, heavy equipment giant Dow could have a flat base with this buy point of 239.95. A slightly longer break would allow the fast-growing 50-day line to close the gap with CAT stock.
Goldman stock fell 5.6% last week to 359.14, making a round trip from a cut base with a buy point of 358.72, before rising slightly above . A solid rebound from here could offer fresh entry, especially if the 50-day or 10-week line catches up. On a weekly chart, GS stock has a 13-month cup-handle base, with a buy point of 389.68, according to MarketSmith analysis. The past week has now created more depth on this handle, which could also become a flat base within a week.
Sanmina shares fell 7.3% to 62.48 last week. SANM stock had solidly consolidated in the take-profit zone after breaking out in October from a cutting base. Stocks may begin to pull back towards the 50-day/10-week line, providing a buying opportunity, although the weekly decline has been steep. The SANM stock is also working on a possible flat basis.
McKesson stock fell 4% to 371.37 last week, falling just below the 50-day and 10-week lines on Friday. MCK stock is working on further consolidation after a sell-off on November 10-11 that hit many defensive medical stocks. A move above the December 2 high at 389.45 could offer an early entry, still close to the moving averages.
MELI stock fell 5.1% to 896.48, its fourth straight weekly decline. The Latin American e-commerce and payments giant has a buy point of 1,095.44, with a trendline entry around 1,025. An aggressive entry could be a decisive rally in the stock’s moving averages MELI, with the Dec 2 high of 957 as the trigger. While MercadoLibre’s stock has been 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 breaching its 200-day line for the first time in months. But as investors reassessed the jobs report and comments from Fed Chief Powell, major indexes retreated.
The S&P 500 fell below its 200-day line, while the Nasdaq tested its 50-day line. Both hit resistance at the 21-day line over the weekend. The Russell 2000 fell below its 200 and 21 day lines and went down to its 50 day mark, just below its 10 week line.
The rally-leading Dow maintains support around its 21-day range.
The S&P 500 is essentially where it was after Nov. 10, when an October CPI inflation report supported stocks. The Nasdaq and Russell 2000 returned to those early November levels, but also to late October highs.
If you were to design a scenario to cause investors to repeatedly take a beating, this current uptrend could be the template: a market rally of a few big gains in one day followed by multi-session pullbacks.
It’s still a confirmed stock market rally. However, further losses, such as the Nasdaq or especially the S&P 500 clearly exceeding their 50-day lines, would be worrying.
Tuesday’s November CPI inflation report and Wednesday’s Fed meeting announcement and Powell’s comments could provide a catalyst for a sustained market rally or selloff. But they could also spur 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 exposure until the CPI inflation report and Fed meeting are in the rearview mirror. Even as markets jump on inflation data and comments from Fed Chief Powell, investors should be selective about new purchases, in case the major indexes simply fall back in the coming sessions.
At some point, a sustained and steady market rally will set in. When that happens, there will be plenty of buying opportunities.
Prepare your shopping list for the holiday season. A large number of stocks from various sectors are in the process of establishing themselves or are about to do so.
Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.
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