Fed Rate Hike Looms After Market Rally Fails; Tesla stock hits new lows, Elon Musk admits

Dow Jones futures edged higher overnight, along with S&P 500 futures and Nasdaq futures. All eyes are awaiting the announcement of the Federal Reserve meeting and Fed Chair Jerome Powell. The signals on the prospects for a rate hike by the Fed will be crucial.




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The stock market rally ended slightly higher after initially bouncing off a tame CPI inflation report. Promising moves in leading stocks generally fizzled out or reversed lower.

Tesla (TSLA) plunged to fresh bear market lows on Tuesday as sentiment on the EV giant turns decidedly bearish. TSLA shares sold off in a big way. CEO Elon Musk himself appeared to acknowledge concerns about Tesla demand on Wednesday.

Among Dow Jones megacap techs are Apple (AAPL) shed a strong early gain amid reports of a major change in its App Store model. Microsoft (MSFT) closed higher but after hitting key resistance.

Airline stocks sold off hard JetBlue (JBLU) Added warning on recent travel demand concerns through 2023. United Airlines (UAL), which had been flirting with buy points for the past few weeks, plunged on Wednesday.

In the meantime, General Electric (GE), Goldman Sachs (GS) and Peabody energy (BTU) all found support at key levels and are near possible buy points. Peabody was Tuesday’s IBD stock of the day.

The video embedded in this article discussed Tuesday’s market action, analyzing Tesla shares, GE and Peabody Energy.

Fed rate hike outlook

The Federal Reserve will almost certainly hike rates by 50 basis points by 2pm ET after four consecutive 75 basis point hikes by the Fed. What investors want are signals for the Fed’s interest rate policy in early 2023.

Following Tuesday’s CPI inflation report, markets are now slightly tilted towards a quarter point rate hike on February 1st.

The CPI for November came in weaker-than-expected, up 0.1% on the month, or 0.2% excluding food and energy. CPI inflation fell to 7.1%, the lowest in a year, and below October’s 7.7%. Core CPI inflation slowed to 6% from 6.3%.

The Fed will also release quarterly economic forecasts, along with policymakers’ forecasts for rate hikes. That could provide some insight into where policymakers see the “terminal” or peak Fed Funds rate.

Fed Chair Jerome Powell will speak at 2:30 p.m. ET. His comments on inflation and recession risks and Fed interest rate hikes will be key to equities and Treasury yields.

Dow Jones futures today

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

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


Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live


stock market rally

The stock market rally got off to a strong start on Tuesday as the major indices broke all short-term highs in the CPI inflation report. But profits have dropped significantly.

The Dow Jones Industrial Average closed up 0.3% in trading on Tuesday. The S&P 500 index rose 0.7%. The Nasdaq Composite rose 1%. Small-cap Russell 2000 gained 0.3%.

Apple shares rose as high as 149.97 on the day but closed just 0.7% at 145.47. That just repeated the 50-day moving average. Apple will open its iPhone and iPad devices to multiple app stores in Europe, Bloomberg reported, to please European regulators. Apple has turned the App Store into a huge revenue generator in recent years.

Microsoft stock rose 1.75% to 256.92 to close above its Dec. 1 high. But stocks were a long way off the morning high of 263.92. MSFT stock peaked right at the 200-day moving average, a key area of ​​resistance.

US crude prices rose 3% to $75.39 a barrel.

The 10-year government bond yield fell 11 basis points to 3.5%, despite being below daily lows of 3.43%. The two-year Treasury yield, which is more closely linked to Fed policy, fell 18 basis points to 4.22%.

ETFs

Among the best ETFs, Innovator IBD 50 ETF (FFTY) is up 0.8%, while Innovator IBD Breakout Opportunities ETF (BOUT) is up 0.9%. The iShares Expanded Tech-Software Sector ETF (IGV) was up 1.6% with MSFT shares a key component. The VanEck Vectors Semiconductor ETF (SMH) is up 1.7%. Mirroring more speculative story stocks, ARK Innovation ETF (ARKK) fell 0.1% and ARK Genomics ETF (ARKG) rose 1.1%. Tesla stock is a key position in Ark Invest’s ETFs, but ARKK in particular.

The SPDR S&P Metals & Mining ETF (XME) was up 0.8% and the Global X US Infrastructure Development ETF (PAVE) was up 0.9%. The US Global Jets ETF (JETS) fell 2.85% with UAL shares and JetBlue both being components. The SPDR S&P Homebuilders ETF (XHB) was up 1.8%, with several home builders and home-related retailers showing strength. The Energy Select SPDR ETF (XLE) is up 1.9%. The Financial Select SPDR ETF (XLF) and Health Care Select Sector SPDR Fund (XLV) were both up modestly, up 0.3%.


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stocks to look at

GE stock fell 0.4% to 82.88 after beating its 21-day moving average on the intraday. General Electric posted a solid gain from a bottom base on Monday with a buy point of 81.40. On the weekly chart, GE stock has found support at the 10-week moving average for the first time since the early November breakout. A strong rebound from these levels, perhaps surpassing Tuesday’s intraday high of 84.90, would present a buying opportunity.

GE’s earnings, while mixed, have rebounded in 2022, with even stronger growth next year.

GS stock also recently overcame a breakout on the cup basis and found support at the 10-week moving average, touching below the 358.72 buy point. The investment bank is recovering this week. On a weekly chart, Goldman stock is operating on a 13-month Cup with Henkel basis with a buy point of 389.68, according to MarketSmith analysis.

On Tuesday, shares were up 1.5% to 368.89, slightly above their 21-day moving average but below intraday highs of 378.56. A move above Tuesday’s high could offer an early entry into GS stock.

Peabody Energy Stock

BTU shares rose 2.2% to 28.47 on Tuesday, recovering off its 50-day and 10-week moving averages but encountering resistance at the 21-day moving average. Peabody stock has a handle buy point of 32.99 after a consolidation stretching back almost eight months. But BTU shares, much like the general market, have a tendency for rapid rises followed by more gradual pullbacks, giving up much of the previous gain. A move above Tuesday’s intraday high of 29.08 could offer an early entry from both the 50-day and 21-day moving averages and break the handle’s downtrend.

Tesla stock

Tesla stock opened higher but quickly gave back gains before turning sharply lower for a second straight session. Shares broke their November 21st bear market lows and closed up 4.1% at 160.95. Volume was the highest in over a year, with several other high trade declines in recent weeks.

It’s possible that some large TSLA stock investors or mutual funds will sell stocks as they tumble down and the year comes to a close.

More broadly, Tesla stock has lost about half of its value since late September. Sharp sell-offs were followed by tepid, brief rebounds.

On Tuesday, data showed that Tesla China’s vehicle registrations came in below forecasts over the past week. This adds to concerns about demand in China and comes amid widespread reports that Tesla will slow production at its Shanghai plant and potentially halt production by the end of the year.

Elon Musk appeared to acknowledge Tuesday that demand for Tesla is a problem. “Tesla will be great over the long term but isn’t controlling the macro tides,” Musk tweeted.

While a weak global economy is likely a factor, Tesla also faces growing competition, particularly in China.

Meanwhile, Elon Musk’s Twitter reign is weighing on Tesla stock. His attention seems focused on Twitter versus the EV giant. Meanwhile, Musk’s increasingly partisan trolling tweets have damaged his brand image, particularly among Democrats. The concern of TSLA stock investors is that Elon Musk’s negatives will deter potential Tesla electric vehicle buyers.


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Analysis of the market rally

The stock market rally surfaced Tuesday’s opening of the tame CPI inflation report, but quickly gave up much of those gains.

All major indices briefly surpassed their Dec. 1st intraday highs before retreating. The S&P 500 closed back above its 200-day moving average. The Nasdaq continued to recover from its 50-day and 21-day moving averages.

The Russell 2000 opened above the 200-day moving average but faded well below that level and closed below its 21-day moving average.

If the major indices, particularly the S&P 500, could climb above their Dec. 1 highs, it would be a bullish sign, but not necessarily definitive. The current market rally has produced a series of large one-day gains that were soon followed by pullbacks that nullified this action. This has made it difficult to buy on strength.

Unsurprisingly, many stocks made big gains at Tuesday’s open but fell back for small gains or outright losses. Megacaps are neutral at best, like Microsoft stock, laggards like Apple stock, or outright losers like Tesla.


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What now

Market action on Tuesday shows why investors should not buy right on the open, especially when the major indices are gapping news. It also shows why investors need to keep their emotions in check.

If the market rebounds strongly following Wednesday’s Fed rate hike and Fed Chair Powell’s comments, there will likely be some buying opportunities. But gradually increase exposure, using early entries and pullbacks for slightly safer entries.

Until the market rally transitions from choppy action to sustained uptrend, increasing exposure is risky.

Lots of stocks from different sectors are building. So you want to be prepared and work on your watch lists. Stay engaged so you can represent clear buy points as stocks.

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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