Dow Jones Futures: Why Stocks Rallied On Big Fed Rate Hike; What To Do Now

Dow Jones futures rose overnight, along with S&P 500 futures and Nasdaq futures. The stock market wobbled Wednesday after the Federal Reserve raised interest rates by the most since 1994, but revved higher as Fed chief Jerome Powell signaled that policymakers might hike rates by a little less at the late July Fed meeting.

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Treasury yields fell sharply Wednesday after surging to multiyear highs on Tuesday.

Enphase Energy (ENPH), Harmony Biosciences (HRMY), AutoNation (AN), Ulta Beauty (ULTA) and Onsemi (ON) are five stocks to watch. All are in consolidations, holding above or near their 50-day moving averages, with their relative strength lines at or near highs.

ON stock is on the IBD Leaderboard watchlist. AN stock and Harmony Biosciences are on the IBD 50. AutoNation is Wednesday’s IBD Stock Of The Day.

Tesla (TSLA) rebounded solidly Wednesday even as the National Highway Traffic Safety Administration reported the EV giant dominates accidents involving driver-assist systems.

Dow Jones Futures Today

Dow Jones futures rose 0.5% vs. fair value. S&P 500 futures advanced 0.6% and Nasdaq 100 futures climbed 0.7%. Futures came off highs as bond yields moved off lows.

The 10-year Treasury yield dipped 3 basis points to 3.36%, off evening lows. The two-year yield reversed evening losses to edge up 2 basis points to 3.3%.

U.S. crude oil prices rose 1%.

Bitcoin traded back above $22,000 Wednesday night after hitting a fresh 18-month low of $20,087.90 earlier this week.

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

Policymakers voted to hike rates by 75 basis points for the first time since 1994, at the end of the two-day Fed meeting, to a range of 1.5%-1.75%.

That came after the May consumer price index on June 10 showed inflation unexpectedly rose to a 40-year high of 8.6%.

Fed chief Powell, speaking at a news conference after the policy meeting, said the central bank is raising rates “expeditiously,” deciding to “front load” hikes. He said “inflation is much too high,” with labor markets very tight.

But Powell said the Fed could raise rates by 50 or 75 basis points at the late July Fed meeting. He also stressed that policy will be “sensitive and flexible.” Before those comments, markets had fully priced in 75 basis points at next month’s meeting, according to the CME FedWatch tool. Markets still see a 70% chance of a three-quarter point move in late July.

All Fed officials see rates rising to at least 3% by year-end, with a median estimate of 3.4%. They see 3.8% by the end of 2023.

The central bank now sees 5.2% inflation this year, as measured by the personal consumption expenditures price index. That’s up from its 4.3% target in March and 2.6% last December.

Policymakers expect their preferred inflation gauge, the core PCE index, easing to a still-high 4.3% gain in the fourth quarter, slowing to 2.7% by the end of 2023.

The Federal Reserve and Fed chief Powell tried to strike a delicate balance Wednesday. On the one hand, they wanted to take a big step vs. inflation and restore lost credibility. On the other hand, Powell and his fellow policymakers don’t want to crush the economy. A surprise drop in retail sales was among several weak economic reports on Wednesday.

The central bank won over Wall Street, at least for one afternoon. The major indexes, which fell to mixed after the Fed rate hike and as Powell began speaking, surged to intraday highs as a “flexible” Fed chief left open the possibility of a half-point move. Stocks closed off their best levels but were still solidly or sharply higher.

Treasury yields fell sharply on Powell’s 50-or-75 comment, especially the two-year yield.

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Stock Market Wednesday

The stock market wobbled after the rate hike announcement, but rebounded following Powell’s comments.

The Dow Jones Industrial Average rose 1% in Wednesday’s stock market trading. The S&P 500 index climbed 1.5%. The Nasdaq composite leapt 2.5%. The small-cap Russell 2000 advanced 1.5%.

The 10-year Treasury yield tumbled 9 basis points to 3.39%. The two-year yield, more closely tied to Fed rate moves, skidded 15 basis points to 3.28%.

U.S. crude oil prices fell 3% to $115.31 a barrel. Natural gas prices rose modestly after tumbling 16% on Tuesday.

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) closed unchanged, while the Innovator IBD Breakout Opportunities ETF (BOUT) dipped 0.2%. The iShares Expanded Tech-Software Sector ETF (IGV) popped 2.65%. The VanEck Vectors Semiconductor ETF (SMH) advanced 1.8%.

SPDR S&P Metals & Mining ETF (XME) climbed 2.1% and the Global X U.S. Infrastructure Development ETF (PAVE) rose 0.8%. U.S. Global Jets ETF (JETS) ascended 1.55%. SPDR S&P Homebuilders ETF (XHB) edged up 0.3%. The Energy Select SPDR ETF (XLE) sank 2.2% and the Financial Select SPDR ETF (XLF) gained 1.1%….