Dow Jones futures rose slightly on Thursday morning, along with S&P 500 and Nasdaq futures. The Treasury yield curve is getting more inverted. But copper futures jumped in a positive economic signal as China is reportedly planning new infrastructure spending.
The stock market rally rallied slightly on Wednesday’s up and down sessions as the Fed’s hawkish minutes delivered a few surprises. Treasury yields rebounded, still signaling a recession. Crude oil prices fell again, but broke away from the lows.
Microsoft shares and parent Google Alphabet (GOOGL) have retraced their 50-day moving averages. Amazon.com (AMZN) and Apple (AAPL) rose above their 10-week levels. Microsoft (MSFT) and Google stock are the long-term leaders of IBD.
Tesla’s competitors BYD (BYDDF) and Lee Auto (LI) are in buy zones. BYD shares rose slightly in the buying zone, while Li Auto shares returned to the range. Tesla shares fell.
Split of GME shares
After Wednesday close original memes game stop (GME) announced plans for a 4-for-1 stock split. GME shares rose 6% early Thursday after falling 2.4% to 117.30.
The stock split is back in favor. Amazon shares split 20-to-1 in early June. Google shares will be split 10 to 1 on July 15, while Tesla proposed a 3 to 1 split. But these tech titans have or have had high stock prices, making it difficult to trade, say, options on AMZN stock. This does not apply to GME shares.
In other news Merck (MRK) Close to $40 Billion Cancer Biotech Deal Seagen (SGEN), according to The Wall Street Journal. The two companies have been in talks for several weeks to raise SGEN shares. Seagen rose solidly before the open, while Merck fell slightly.
Dow Jones futures today
Dow Jones futures were up 0.45% compared to fair value. S&P 500 futures were up 0.35%, while Nasdaq 100 futures were up 0.4%.
Crude oil prices rose 1%.
Copper futures jumped 4%. Copper, a key industrial metal, has raised recession alarms with its steep decline in recent months. Hard-hit mining and metals stocks bounce back on Thursday.
A likely catalyst for copper today? China is considering allowing local governments to sell up to $220 billion worth of bonds for infrastructure spending, Bloomberg reported.
The 10-year Treasury yield rose 3 basis points to 2.93%. The 2-year yield is up 4 basis points to 3%, which means the yield curve is getting a bit more inverted.
British Prime Minister Boris Johnson announced his resignation on Thursday following key exits from his government and growing calls from his Conservative Party to step down.
Shares in the chips rose after Samsung Electronics calculated its second quarter posted its best earnings since 2018, helped by sales of memory chips to server customers. Estimated earnings were just below views, but it follows a dismal Micron Technologies (MU) guidance last week.
At 8:30 AM ET, the Department of Labor releases its weekly jobless claims report. This preceded Friday’s June jobs report.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze valuable stocks in the stock market rally in IBD Live.
Fed minutes, economic data
The minutes of the Fed’s June 14-15 policy meeting showed policymakers saying a “restrictive policy” is needed and may need to become “more restrictive” for fear that inflation could “take a foothold.”
According to the minutes of the Fed’s meeting, politicians considered a 50 or 75 bps increase likely at the end of July. But Fed chief Jerome Powell already said that after the meeting.
Overall, the Fed’s minutes brought no surprises and highlighted the big changes in economic conditions over the past three weeks.
The Fed’s minutes slightly bolstered market expectations for a 75 bps rate hike later this month and 50 bps in September. December still marks the likely end of Fed rate hikes.
Earlier Wednesday, the Labor Department’s JOLTS study showed job openings fell to 11.254 million in May from an upwardly revised 11.68 million in April. It was slightly higher than expected, but it’s the biggest monthly drop since August 2020.
The June ISM non-manufacturing index fell to a two-year low, but exceeded forecasts and still points to strong growth. The employment sub-index fell to 47.4 from 50.2, below the break-even level of 50.
stock market rally
The stock market rally fluctuated between minor gains and losses for most of Wednesday’s trading. Major indexes gained momentum after the release of the minutes of the Fed meeting at 14:00 ET, but then reduced the gains in the final minutes.
The Dow Jones Industrial Average rose 0.2% in stock trading on Wednesday. The S&P 500 rose 0.4%. The Nasdaq Composite Index rose 0.35%. Small-cap Russell 2000 shares fell 0.8%.
Shares of Microsoft and Google rose just over 1%, above their 50-day moving averages. Amazon shares rose 0.7%, approaching the 50-day line and above the 10-week line. Apple stock didn’t hit its 50-day high, but a 1% gain on Wednesday pushed the iPhone giant above its 10-week milestone.
U.S. crude oil prices fell 1% to $98.53 a barrel, well above morning lows but after falling 8.2% on Tuesday. Gasoline futures, which were above $4 a gallon just a few weeks ago, fell 4% to $3.20. Pump prices have been falling for the past three weeks and should drop significantly in the next few weeks.
The 10-year Treasury yield jumped 10 basis points to 2.9% after falling 30 basis points in the previous three sessions. The two-year Treasury yield jumped 14 basis points to 2.96%. The Treasury yield curve is now slightly more inverted, reflecting rising recession risks.
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) was flat, while the Innovator IBD Breakout Opportunities (BOUT) ETF gained 1%. The iShares Advanced Technology & Software (IGV) ETF rose 0.1%, with MSFT leading the way. The VanEck Vectors Semiconductor (SMH) ETF rose 0.7%.
The SPDR S&P Metals & Mining ETF (XME) fell 0.7%, while the Global X US Infrastructure Development ETF (PAVE) rose 0.1%. The US Global Jets ETF (JETS) was down 1.5%. The SPDR S&P Homebuilders ETF (XHB) shed 0.6%. The Energy Select SPDR (XLE) ETF fell 1.7% and the Financial Select SPDR (XLF) ETF fell 0.25%. The Health Care Select Sector SPDR Fund (XLV) rose 0.7%.
Reflecting more speculative stocks, shares of the ARK Innovation ETF (ARKK) fell 2.25% and the ARK Genomics (ARKG) ETF shed 0.2% after rising above their 50-day levels on Tuesday. Tesla shares make up the bulk of the Ark Invest ETF. Ark Invest Cathy Wood also owns some shares in BYD.
Top 5 Chinese stocks to watch now
Chinese Electric Vehicle Stocks in Buy Zones
BYD rose 1.1% to 40.55 after briefly testing its 39.81 buy point off a deep cup-and-handle base for the fifth straight day. On Sunday, BYD reported June sales of 134,036 electric vehicles and plug-in hybrids, up 224% from a year earlier. In the second quarter, BYD’s sales surpassed Tesla’s shipments by more than 100,000 vehicles. Tesla continues to lead sales of all-electric BEVs, although that gap has narrowed significantly over the past year.
Shares of Li Auto fell 3.5% to 38.60. During the day, the stock fell to 37.10 but closed above the 37.55 buy point from a long deep base. LI stock is still 39% above its 50-day line. Ideally, the hybrid SUV maker should form a short base here, allowing Li Auto stock to digest its huge gains from early May to late June. Li Auto will begin deliveries of its second L9 premium SUV at the end of August.
Tesla shares fell 0.6% to 695.20 on Wednesday, just below the 21-day line.
The Chinese Ministry of Commerce and 16 other departments jointly issued a notice on July 7 supporting the purchase of new energy vehicles (NEV) and will consider extending the NEV purchase tax exemption at the end of last year. This follows similar signals from the June 22 high-level meeting when it expires.
This could benefit BYD, Li Auto, Tesla, and other electric vehicle manufacturers in China.
Tesla vs. BYD: Which electric car giant is the best buy?
Market Rally Analysis
The stock market rally added to Tuesday’s bounce off intraday lows, but the majors still seemed to be looking for direction.
The Nasdaq Composite advanced above its 21-day moving average on Wednesday, but the S&P 500 and Dow Jones faced resistance on the short-term moving average. All three major indices are now back above their subsequent day lows on June 24th. A drop below their FTD last week pushed the market rally to “under pressure” where it remains.
The end of June and the 50-day line loom above the 21-day lines, and the early June peaks above them.
While the majors rose on Wednesday, breadth was weak, with losers easily outnumbering winners on the Nasdaq and NYSE.
Good news about inflation and Fed rate hikes, including falling commodity prices and weakening labor markets, is bad news about a possible recession. So the markets don’t quite know how to deal with economic data.
It is possible that the market will be in a sideways trend for some time. This would form many bases and bring clarity to the economics and policy of the Fed. But even then, there can be fakes and shake-ups along the way for both individual stocks and the market as a whole.
Medical stocks remain clear leaders right now, including IBD 50 members Evolent Health (EVH), McKesson (MKK), UnitedHealth (UNH), Bioscience Harmony (HRMY) and AstraZeneca (manat).
Market Time with IBD ETF Market Strategy
What to do now
The stock market rally is under pressure as the major indices still face many key resistance levels. While a number of medical stocks and a handful of other stocks are doing well, even these can be subject to noticeable jolts.
Therefore, if you are going to open positions, keep them small and look for early entries. Consider taking at least partial profits quickly to lock them in. Feel free to cut losses.
Read The Big Picture every day to stay up to date on market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson to update the stock market and much more.
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