Futures Rise, Lithium Play Soars, But All Eyes On Fed

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Dow Jones futures rose slightly overnight, along with S&P 500 futures and Nasdaq futures. Advanced Micro Devices (AMD) and lithium play Livent (LTHM) headlined another busy night of after-hours earnings. But investor focus is on the Federal Reserve meeting decision Wednesday.

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It’s day two of a stock market rally attempt, but investors aren’t making big bets with Fed rate hikes on tap.

AMD stock, Livent and shipping firm Matson (MATX) were among the notable earnings reports after the close. AMD is just off 2022 lows, but their earnings and guidance are important for the semiconductor space. LTHM stock kicks off earnings for EV battery materials firms, with lithium giant Albemarle (ALB) due Wednesday and rare earths miner MP Materials (MP) on Thursday. MATX stock is among shipping stocks trying to come back into favor.

Early Wednesday, LNG leader Cheniere Energy (LNG) and Regeneron Pharmaceuticals (REGN) are on tap. LNG stock is setting up in a new base. REGN stock has round-tripped a solid gain from a traditional buy point and early entry, though it hasn’t broken down.

There were some positive earnings movers Tuesday. LPX stock and Atkore (ATKR) flashed buy signals on their strong results.

LNG stock is on IBD Leaderboard. REGN stock is on the IBD 50. Louisiana-Pacific (LPX) was Tuesday’s IBD Stock Of The Day.

The video embedded in this article discussed Tuesday’s market action and the upcoming Fed meeting announcement. It also analyzed Louisiana-Pacific, ATKR stock and ZIM Integrated Shipping (ZIM).

Dow Jones Futures Today

Dow Jones futures advanced 0.3% vs. fair value. S&P 500 futures climbed 0.3%. Nasdaq 100 futures rose 0.4%.

Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.

Fed Meeting Decision

The two-day Federal Reserve meeting ends Wednesday, with the Fed policy announcement at 2 p.m. ET and Fed chief Jerome Powell’s news conference at 2:30 p.m. ET. The Fed will almost certainly raise interest rates by 50 basis points, to a range of 0.75%-1%. Policymakers also are expected to approve reducing the balance sheet, ramping up over three months to about $95 billion per month.

The real question is whether the Fed statement and Fed chief Powell will pave the way for 75-basis-point hikes at the June and July meeting. Markets are already pricing in a strong chance of supersize Fed rate increases as policymakers belatedly take aggressive action vs. inflation.

Inflation may be peaking in terms of year-over-year gains, but it could remain elevated for a long time, as workers get used to bigger wage increases and companies are able to pass on their higher costs.

The Fed also has to worry about recession risks from aggressive monetary policy, while China’s Covid shutdowns and Russia’s Ukraine war chill global economic activity while roiling supply chains.


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Stock Market Rally

The stock market rally didn’t have a lot of direction ahead of the Fed meeting announcement, ultimately closing with slim gains.

The Dow Jones Industrial Average rose 0.2% in Tuesday’s stock market trading. The S&P 500 index climbed 0.5%. The Nasdaq composite advanced 0.15%. The small-cap Russell 2000 gained 0.9%.

U.S. crude oil prices fell 2.6% to $102.41 a barrel.

The 10-year Treasury yield fell 4 basis points to 2.96% after hitting a three-year high of 3% on Monday.

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.4%, while the Innovator IBD Breakout Opportunities ETF (BOUT) rallied 2.3%. The iShares Expanded Tech-Software Sector ETF (IGV) retreated 0.8%. The VanEck Vectors Semiconductor ETF (SMH) climbed 0.8%, with AMD stock a notable holding.

SPDR S&P Metals & Mining ETF (XME) bounced 2.3% and the Global X U.S. Infrastructure Development ETF (PAVE) gained 0.8%. U.S. Global Jets ETF (JETS) advanced 0.7%, shrugging off selling in hotel and online booking stocks. SPDR S&P Homebuilders ETF (XHB) rose 1.15%. The Energy Select SPDR ETF (XLE) added 2.8% and the Financial Select SPDR ETF (XLF) 1.3%. The Health Care Select Sector SPDR Fund (XLV) edged up 0.3%

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) sank 0.9% and ARK Genomics ETF (ARKG) dipped 0.3%.


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Key Earnings

AMD earnings topped forecasts with revenue up 71%. The chip giant also guided up on Q2 sales. AMD stock jumped 7% in overnight action. Shares rose 1.4% to 91.13 on Tuesday, but are far below key moving averages. AMD stock recently hit its worst levels since last June.

Livent earnings easily beat views, while the lithium miner also gave bullish guidance. LTHM stock soared 17% overnight, signaling a big move back above its 50-day and 200-day lines. Shares climbed 2.6% on Tuesday to 21.92. In late April, Livent stock tumbled below its 50-day and 200-day lines, but didn’t undercut its early March lows. ALB stock, which reports Wednesday night, rose 3% in extended action after climbing 3% in Tuesday’s session.

Matson earnings narrowly beat while revenue just missed after the container shipping firm gave upbeat preliminary figures last month. MATX stock climbed modestly in extended action. Shares bounced 3.4% on Tuesday to 91.36, rebounding from its 200-day line.


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Market Rally Analysis

Tuesday’s modest gains were probably ideal heading into a huge Fed meeting decision.

The market reaction to the Fed rate hikes and guidance will be key, but don’t be surprised by big swings Wednesday afternoon and beyond.

Tuesday marked day two of a stock market rally attempt. In a couple of days, investors could start looking for a follow-through day on one or more of the major indexes to confirm the new market rally.

But we’re not there yet.

Sectors To Watch

Energy stocks are shaping up again, especially those with refinery or natural gas exposure, such as Exxon Mobil (XOM) or Cheniere Energy.

Fertilizer plays rebounded from 50-day lines Tuesday following Mosaic (MOS) and Nutrien (NTR) earnings, though after some sharp declines to that key level.

Wood products firms and some building products plays are looking good. Louisiana-Pacific and Atkore made bullish moves Tuesday on earnings, while Weyerhaeuser (WY), Boise Cascade (BCC) and Beacon Roofing Supply (BECN) are setting up.

Oceangoing shipping firms had a strong session. Dry-bulk leaders Star Bulk Carriers (SBLK) and Golden Ocean Group (GOGL) had been doing well while container-focused Matson bounced from its key support and ZIM stock reclaimed its 50-day line.

These are hopeful signs. And perhaps they’ll work if the stock market rally gains momentum. But other groups have looked promising in recent weeks, such as REITs, medical products and travel plays, and they’ve faltered or broken down.

Meanwhile, growth stocks still look terrible. Apple (AAPL) and Tesla (TSLA) are fighting around their 200-day moving average. Other megacaps look worse. Meanwhile, the modest declines in IGV and ARKK signal that even bargain hunters aren’t jumping at aggressive growth yet.


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What To Do Now

While a market rally attempt is underway, it’s not a time to have much exposure, if any.

If the stock market rallies on the Fed rate hikes, investors might consider nibbling on a stock or two, or perhaps a broad sector ETF. But you have to be ready to get back out quickly.

There is nothing wrong with waiting for a follow-through day. Even when the market is back in a confirmed uptrend, you won’t want rush to ramp up exposure. Gradually expand your holdings as the market builds strength and be quick to exit if the rally fizzles.

For now, build up those watchlists — in pencil, not ink. The REITs, miners and medical products firms on your watchlists a week or two ago probably should be replaced with new names. But it’s not wasted effort. If you have an up-to-date watchlist when the market trends turn favorable, you’ll be in a great position to jump into the new leaders early.

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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