Big Fed rate hike – or very big hike? market expected

Dow Jones futures trended higher overnight, along with S&P 500 futures and Nasdaq futures. Tuesday’s stock market correction was mixed as US Treasury yields continue to rise sharply. Investors are focused on Wednesday’s Fed meeting announcement, with policymakers set to approve either a big or very big Fed rate hike.




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Quanta Services (PWR), HealthEquity (HQY), Chen energy (LNG), money tree (DLTR) and Li car (LI) are stocks to watch. All show strong lines of relative strength, although stock prices are struggling to hold up.

LNG stocks are on the IBD leaderboard. PWR stock is on the Leaderboard watch list and IBD Big Cap 20. Li Auto stock is on the IBD 50. HealthEquity was the IBD stock of the day on Tuesday.

The video embedded in the article discusses the market action and analyzes the shares of Cheniere Energy, Li Auto and DLTR.

Meanwhile, Tesla (TSLA) turned slightly higher after nearing 620.54 May 24th low. Tesla shares closed down 2.4% to 662.67, but a far cry from its November peak of 1,243.49. The National Highway Traffic Safety Administration is expected to release collision data with driver assistance systems over the next few days, highlighting the high number of Tesla Autopilot incidents.

Fed meeting

A two-day Fed meeting concludes Wednesday with the announcement at 2:00 p.m. ET, followed by Fed Chair Jerome Powell’s press conference. After Friday’s hot CPI report, which showed inflation hit a 40-year high of 8.6%, speculation mounted that Fed policymakers would hike rates by 75 basis points on Wednesday, not only by 50 basis points.

The Fed doesn’t like to surprise, and Powell said after the May Fed meeting that 75 basis points was off the table. It’s still possible for the central bank to hike rates by 50 basis points, with Powell then signaling that 75 basis points are on the table for July and September.

But after Fed officials appeared to leak to the Wall Street Journal on Monday that an outsized rate hike is being considered, markets see a 75 basis point move as overwhelmingly likely.

Dow Jones futures today

Dow Jones futures rose 0.2% versus fair value. S&P 500 futures were up 0.15%. Nasdaq 100 futures were up 0.3%.

Bitcoin price traded below $22,000, up slightly from Monday night’s 18-month low below $21,000.

Keep in mind that overnight action in Dow futures and elsewhere doesn’t necessarily translate to actual trading in the next regular trading session.


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Exchange Tuesday

The stock market traded mixed in Tuesday’s session, with light volume ahead of Wednesday’s Fed meeting announcement.

The Dow Jones Industrial Average fell 0.5% in trading on Tuesday. The S&P 500 index fell 0.4%. The Nasdaq Composite rose 0.2%. Small-cap Russell 2000 fell 0.4%.

The 10-year Treasury yield rose 12 basis points to 3.48% after making big moves over the past few days. The two-year yield jumped 15 basis points to 3.43%. The 30-year Treasury yield climbed 6 basis points to 3.43% but is now below the 10-year yield and level with the 2-year yield. When the 2-year yield moves above the 10-year yield, the curve inverts from the 2-year to the 30-year yield. The rising, flattening yield curve reflects risks of stagflation, with the likelihood of a recession increasing as inflation and Fed rate hikes take their toll.

US crude prices were lower, closing down 1.7% at $118.93 a barrel.

Natural gas prices plummeted 16%. Freeport’s LNG terminal, which was closed due to a fire on June 8, will not reopen for 90 days and will not be fully operational until the end of the year. That means fewer natural gas exports.

Among the best ETFs, Innovator IBD 50 ETF (FFTY) was up 0.8%, while Innovator IBD Breakout Opportunities ETF (BOUT) was down 0.6%. The iShares Expanded Tech-Software Sector ETF (IGV) rose 0.6%. The VanEck Vectors Semiconductor ETF (SMH) is up 0.7%.

The SPDR S&P Metals & Mining ETF (XME) fell 1.3% and the Global X US Infrastructure Development ETF (PAVE) lost 0.7%. The US Global Jets ETF (JETS) fell 1%. The SPDR S&P Homebuilders ETF (XHB) fell 0.8%. The Energy Select SPDR ETF (XLE) was up slightly 0.2% and the Financial Select SPDR ETF (XLF) was down 0.9%. The Health Care Select Sector SPDR Fund (XLV) fell nearly 1%.

Reflecting more speculative story stocks, ARK Innovation ETF (ARKK) was up 1.1% and ARK Genomics ETF (ARKG) was up 1.3%. Tesla stock remains a top position among Ark Invest’s ETFs.


The five best Chinese stocks to watch right now


stocks to look at

Quanta Services stock fell 1.8% to 123.55 on Tuesday, just above its 50-day moving average. PWR stock is in a cup and handle basis with a buy point of 138.56.

HealthEquity stock rose 5.9% to 68.42 on Tuesday, rebounding off its 50-day moving average, surmounting some short-term levels and breaking a trendline. In a better market, Tuesday’s action would have offered an early entry. At this point, the HQY inventory is now extended from this entry. It is approaching an official buy point of 72.80 from a cup basis. HealthEquity has nearly doubled since early December after a long slump, while earnings have been on the decline for several quarters.

LNG shares gained 2.2% to 130.40, still below the 50-day moving average. Cheniere stock broke the low of its consolidation on Monday and may set the stage for a double bottom base with a buy point of 146.45. Cheniere Energy, with its LNG export terminal, should benefit from Freeport LNG terminal troubles, which are driving down domestic nat gas prices and pushing up global LNG prices.

DLTR stock rose slightly by 0.65% to 156.02 and met resistance at its 50-day moving average. Dollar Tree stock has a buy point of 166.45 cups with handle, according to MarketSmith analysis. Stocks plummeted and rebounded in the second half of May from where they started target (TGT) Missing Earnings and Warning followed by Strong Earnings and Dollar Tree Predictions.

Shares of Li Auto surged nearly 11% to 32.22, its best since Jan. 3. Shares surged from 18.82 on May 9th and rallied above the 200-day moving average on June 6th. LI stock is racing on the right side of a deep consolidation with a potential buy point of 37.55. But stocks could use a long grip or even a separate basis within the deep consolidation to let the major averages, particularly the 50-day moving average, catch up. Li Auto is booming with other Chinese EV stocks no (NOK), Xpeng (XPEV) and BYD (BYDDF), local governments expand EV subsidies as Covid headwinds ease. All automakers have new models in the coming weeks, with Li Auto unveiling a new SUV hybrid later this month. More broadly, US-listed Chinese stocks, including internets, have rallied in recent weeks.

market analysis

The Dow Jones, S&P 500 and Nasdaq Composite all undercut Monday’s lows but ended mixed. The Russell 2000 undercut its May lows and hit its worst level since November 2020. The small-cap index is below its pre-Covid highs.

With the big Fed meeting on Wednesday afternoon, Tuesday’s low-volume market action isn’t that meaningful.

Regardless of whether the US Federal Reserve raises interest rates by 50 basis points or 75 basis points on Wednesday, the macroeconomic climate is not and may not be favorable for the market for some time. Recession risks are high, while inflation will remain high for the foreseeable future.

However, the reaction to the news is what really counts. The stock market could rally after Wednesday’s Fed rate hike and Powell’s comments, but that wouldn’t signal a change of character in itself. Investors need to see a following day to confirm a rally attempt. Even then, a confirmed uptrend could be another short-lived bear market rally.

Right now the Nasdaq Composite and S&P 500 are in a bear market while the Dow Jones is in a sharp correction.


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What now

A bear market is no time to be bold. Investors should stay on the sidelines. The only exceptions might be long-term winners or some positions in the energy sector, but again, investors need to consider at least some profit-taking.

For now, investors should be working on their watch lists, reviewing past trades and historical bear markets.

Read The Big Picture every day to keep up to date with 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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