Dow Jones futures tilted higher overnight, along with S&P 500 futures and Nasdaq futures. A key inflation report is on tap as markets start to price in two more Fed rate hikes this year. Nike (OF) reported mixed earnings late. Apple (AAPL) got a new Street-high price target as it nears a $3 trillion valuation.
The stock market rally had a mixed session, as Treasury yields jumped on the latest batch of stronger-than-expected economic data.
The Dow Jones and Russell 2000 rallied, with financials leading the way after the 23 largest banks passed annual Federal Reserve stress tests. Industrial stocks also did well. The Nasdaq composite edged lower.
Visa (V) blasted above its 50-day line, flashing an early entry. Mastercard (MA) also is actionable. JPMorgan Chase (JPM) rebounded to just above a proper buy point. Rambus (RMBS) rebounded bullishly, offering an aggressive entry. General Electric (GE) also is actionable.
PCE Inflation Report
The personal consumer expenditures price index, the Fed’s favorite inflation gauge, is due out at 8:30 a.m. ET Friday. Economists see the overall PCE price index rising just 0.1% in May, bringing the PCE inflation rate down to 3.8% from April’s 4.1%. The core PCE price index is expected to climb 0.4% once again, leaving the core PCE inflation rate at 4.7%.
Meanwhile, Fed chief Jerome Powell has highlighted the importance of service prices excluding energy and housing.
The PCE inflation report follows a number of surprisingly strong U.S. economic reports, including solid durable goods orders, blowout new-home sale, a sharp drop in weekly jobless claims and upwardly revised Q1 GDP growth.
Fed Rate Hike Odds Rise
At the last Fed meeting, policymakers forecast two rate hikes this year. That’s what Fed chief Powell has stressed multiple times since then. Investors didn’t believe there would be a second hike, but these recent economic reports are starting to sway them.
Markets have almost locked in a Fed rate hike at the late July meeting. Meanwhile, the odds of another quarter-point hike have risen to nearly 40%, up from less than 20% a week earlier.
Keep in mind that while U.S. economic data has come in strong, Chinese and European reports have been weak.
Overnight, the official China manufacturing index came in at 49.0 in June, up slightly from May’s 48.8 and in line with views. But it was the the third straight month of contraction.
Dow Jones Futures Today
Dow Jones futures edged higher vs. fair value, even with Nike stock weighing on blue chips. S&P 500 futures climbed 0.1% and Nasdaq 100 futures rose 0.25%.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Nike earnings missed fiscal Q4 views. Revenue slightly beat.
Nike stock fell more than 4% in extended trading. Shares edged up 0.3% to 113.37 in Thursday’s regular session, just above the 200-day line and modestly below a sliding 50-day line. NKE stock is a long way from a consolidation buy point of 131.31.
Nike earnings are important for other athletic shoe and apparel makers, including On Holding (ONON). ONON stock declined 1% after hours. The Swiss upscale athletic shoe maker fell 1.2% on Thursday to 31.61, ending a five-session win streak. It remains actionable, holding modestly above the 50-day line and a 31.45 short-term peak. On Holding stock has an official 34.88 cup-base buy point.
Modelo beer maker Constellation Brands (STZ) is on tap to report fiscal Q1 results early Friday. STZ stock nudged up 0.1% on Thursday to 247.04. Shares bounced from the 21-day line on Tuesday. Constellation Brands stock has a 248.43 saucer-with-handle buy point, but investors also could use 250.14 as an alternate handle.
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Stock Market Rally
The stock market rally had a mixed but generally positive session Thursday, with financials and industrials leading and growth names taking a breather.
The Dow Jones Industrial Average rose 0.8% in Thursday’s stock market trading. The S&P 500 index climbed 0.45%. The Nasdaq composite closed down less than 1 point. The small-cap Russell 2000 jumped 1.2%.
U.S. crude oil prices rose 0.4% to $69.86 a barrel. Copper futures sank 1.2%, their sixth consecutive loss.
The 10-year Treasury yield jumped 14 basis points to 3.85%, right at the top of a recent range and a three-month closing high.
With Treasury yields rising and overseas growth concerns mounting, the U.S. dollar had a solid advance.
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) rose 0.4%. The iShares Expanded Tech-Software Sector ETF (IGV) closed just below break-even. The VanEck Vectors Semiconductor ETF (SMH) edged down 0.15%.
SPDR S&P Metals & Mining ETF (XME) bounced 2.2% and the Global X U.S. Infrastructure Development ETF (PAVE) climbed 1.15%. U.S. Global Jets ETF (JETS) descended 0.5%. SPDR S&P Homebuilders ETF (XHB) stepped up 0.6%. The Energy Select SPDR ETF (XLE) rebounded 1.15% and the Health Care Select Sector SPDR Fund (XLV) gained 0.65%.
The Industrial Select Sector SPDR Fund (XLI) climbed 1%. GE stock is a significant XLI component.
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Stocks In Buy Zones
Visa stock rose 2.8% to 234.32, running past the 50-day line and a short-term high. A little higher up, it also crossed a trendline. All those offered buying opportunities in the Dow Jones giant. Visa stock has a 235.57 flat-base buy point. One could view the 8%-deep base as a handle to a mammoth consolidation going back almost two years.
MA stock climbed 2% to 387.67, clearing some short-term levels after retaking the 50-day line last week. Mastercard stock also has a flat base, with an official 392.20 buy point, according to MarketSmith analysis.
JPM stock jumped 3.5% to 143.43, rebounding from the 50-day line. That’s just above a 143.37 flat-base buy point. JPMorgan and other big banks passed Fed stress tests. The bank crisis earlier this year really affected smaller banks.
The current bases for Visa, Mastercard and JPMorgan are all next to failed breakouts from prior consolidations. The relative strength lines on these financial giants are weak, reflecting their underperformance vs. the S&P 500 over the past several months.
GE stock edged up 0.6% to 107.74, hitting a five-year closing high and extending this week’s move off the 21-day and 10-week lines. It’s the second test of the 10-week line since General Electric broke out to start the year. Meanwhile, GE stock has cleared the bulk of a three-weeks tight pattern. Both offer opportunities to start a position or add a few shares. The RS line is right at long-term highs.
RMBS stock popped 5.5% to 63.10, moving back above the 21-day line after rebounding from the 10-week line earlier in the week. Shares did come off intraday highs of 64.49. Rambus stock was one of the first big winners to undercut the 21-day line during the market pullback, but has recovered.
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Late Thursday, Citigroup analyst Atif Malik initiated Apple stock with a buy rating and a 240 price target, the highest on Wall Street and a 27% upside to Thursday’s close.
Malik cited expanding gross margins and growing iPhone market share from Android handsets.
AAPL stock edged higher in overnight trading. Shares rose 0.2% on Thursday to 189.59, hitting a fresh record high. Apple stock closed with a $2.98 billion market cap.
Market Rally Analysis
The Nasdaq pausing while the broader market advances is just about ideal for the stock market rally right now. Many growth plays could still use a pause, but investors wouldn’t want to see a violent shakeout. Meanwhile, solid market breadth and improving leadership is a positive.
Even a few days of the Nasdaq trading flat or fractionally lower would let the 50-day line close the gap somewhat, providing a little more room for growth stocks to run.
The Dow Jones, which bounced off its 50-day line to start the week, moved solidly from its 21-day line. The Russell 2000, which neared its 200-day line on June 23, has regained most of its recent losses.
So has the Invesco S&P 500 Equal Weight ETF (RSP). RSP rose 0.8% on Thursday and is up 2.5% for the week.
The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) lost a fraction vs. the Nasdaq 100’s 0.2% decline.
Chips and software had a relatively quiet session.
Nvidia (NVDA) staged an inside day within an inside day within an inside day, modestly above the 21-day line. A pullback and bounce from the 21-day could offer an aggressive entry soon. Meanwhile, several software plays that moved out bullishly Wednesday stepped back Thursday, though not all.
The entire housing sector looks robust. Builders are extended, but building materials and retailers are showing strength. Industrials like General Electric are powering higher, along with some steel plays.
Some financials are doing well, with Visa and JPMorgan among the payment stocks, insurers and banks flashing buy signals. Travel plays continue to act well. Cruise lines and airlines are leading the way, but hotels and rental-car plays are setting up as well. One could view Visa and Mastercard stock as partial travel plays, given their reliance on cross-border payments.
Several medical products firms are around buy points.
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What To Do Now
The stock market rally continues to serve up buying opportunities. On Thursday, financials and industrials took the lead, though RMBS stock showed that some techs were flexing.
Having a diversity of leadership can help you avoid big one-day drawdowns in your portfolio. It also helps keep investors in tune with the broader market.
Investors can be nibbling at various opportunities, but the current market environment isn’t a great time to be significantly adding exposure in the very short run. You don’t have to be making new buys, especially if you’re already significantly invested.
If you do make new purchases, try to act close to the buy point. That can minimize the risk of downside reversals, as several software stocks did on Thursday.
So have your watchlists up to date and alerts sent. Then stay engaged so you’re ready to act.
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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