A Fed meeting is coming up as the market dives into this reality

Dow Jones futures will open Sunday evening, along with S&P 500 futures and Nasdaq futures, with the Federal Reserve meeting in focus.


The stock market suffered massive losses this past week due to a surprisingly hot CPI inflation report, as well as some gloomy earnings reports or warnings. The major indexes slipped below their 50-day moving averages and broke through some additional key levels on Friday. Many leading stocks also struggled.

It’s time for investors to have minimal exposure at most. Create watch lists of stocks that boast strong relative strength and hold key levels. Tesla (TSLA), Enphase Energy (ENPH), Celsius Holdings (CELH), Wolfspeed (WOLF) and Vertex Pharmaceuticals (VRTX) all meet the requirements.

Of course, shares of Tesla, Enphase, etc. they seem stable now but may not be for the next few days. Many stocks looked strong until last Tuesday. Others looked solid until Thursday or Friday.

WOLF shares are at IBD ranking watch list. Shares of Tesla, Enphase and CELH are included IBD 50. Shares of ENPH and Vertex are at IBD Big Cap 20.

Fed meeting

The Fed meeting is on September 20-21. As a result of Tuesday’s consumer price index, which showed strength everywhere outside of gasoline, markets boosted expectations for a third straight 75 basis point increase in interest rates from the Fed. (There’s little chance of a monster 100 basis point move.) Investors will be focused on what the Fed’s policy hints at going forward.

The Fed’s quarterly forecasts will signal where policymakers see the Fed’s interest rate going next.

The market is currently leaning towards another rate hike of 75 basis points in November, followed by either 25 or 50 basis points in December. That would raise the target federal funds rate to 4%-4.25% or 4.25%-4.5%, up from expectations of 3.75%-4% before the CPI report.

Fed Chairman Jerome Powell will deliver his comments after the meeting at 2:30 PM ET. Powell made it crystal clear in his speech in Jackson Hole on August 26 that the Federal Reserve will not repeat the mistakes of the 1970s by easing policy too quickly.

Dow Jones futures today

Dow Jones futures open at 6 PM ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.

Remember this night action in Dow futures and elsewhere does not necessarily become an actual trade in the next regular Stock Exchange session.

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Stock market last week

The stock market suffered sharp losses this past week, reversing strongly after solid gains on Monday.

The Dow Jones Industrial Average fell 4.1% last week Exchange Trading. The S&P 500 sank 4.8%. The Nasdaq Composite fell 5.5%. The small-cap Russell 2000 gave up 4.5%.

The yield on the 10-year Treasury rose 13 basis points to 3.45%, the seventh straight weekly increase. At one point on Friday, the 10-year yield hit 3.483%, exactly matching the 11-year high set on June 14.

U.S. crude futures fell 1.9 percent to $85.11 a barrel last week, a third straight weekly decline. Natural gas prices sank 2.7%, but after a wild week of gains and losses.


Avg the best ETFsInnovator IBD 50 ETF (FFTY) fell 5% last week, while the Innovator IBD Breakout Opportunities ETF (BOOTH) gave up 4.2%. iShares Expanded Tech-Software Sector ETF (IGV) fell by 8.3%. VanEck Vectors Semiconductor ETF (SMH) gave up 6%.

SPDR S&P Metals & Mining ETF (XME) fell 10.3% last week. Global X US Infrastructure Development ETF (PAVING) 7.5%. US Global Jets ETF (STREAMS) slipped 5%. SPDR S&P Homebuilders ETF (XHB) fell by 6.9%. Energy Select SPDR ETF (XLE) gave up 2.7%, and the Financial Select SPDR ETF (XLF) lost 3.9%. Select Healthcare Sector SPDR Fund (XLV) decreased by 2.3%

Reflecting the more speculative stocks of history, the ARK Innovation ETF (ARKK) fell 4.5% last week, and the ARK Genomics ETF (ARKG) 5.3%. Tesla stock is a major holding in Ark Invest’s ETF.

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ENPH Stock

Shares of Enphase rose 4% this past week to 318.01, continuing to find support at a rising 21-day line. A pullback to the 21-day, perhaps a pause for the 50-day line to catch up, could offer a safer buying opportunity. A number of solar plays still look strong.

Merchandise in Celsius

CELH shares fell 4.9% to 100.70 last week, but found support at the 10-week moving average. A move above Thursday’s high of 108.37 could suggest an aggressive entry. In a few weeks, Celsius stock may have a new base with a buy point at 118.29.

WOLF Stock

EV-focused chipmaker Wolfspeed rose 5.25 percent to 120.21 last week, including Friday’s gain of 2.8 percent. Investors could treat 123.35 as a point to buy shares of WOLF from a handle in a longer consolidation.

VRTX Stock

Vertex shares fell 0.9% last week to 289.42, but rose 0.8% on Friday to climb above the 21-day, 50-day and 10-week lines. A move above the September 12 high of 296.14 would suggest an early entry. VRTX stock may have a flat bottom in a few days with a buy point at 306.05.

Tesla stock

Tesla shares rose 1.2% to 303.35 last week after jumping 10.9% in the previous week. Shares of the EV giant held support at the 200-day moving average.

The line of relative strength for TSLA stock has improved significantly. over the past two weeks, hitting a five-month high. The RS line, the blue line in the provided chart, tracks the stock’s performance against the S&P 500 index.

Investors could use a move above Thursday’s high of 309.12 as an aggressive entry or the short-term high of 314.64. This would still be far from the traditional point of purchase.

For all of these stocks, weak market conditions raise the risks of any buying now.

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Stock market analysis

The stock market started last week with a strong run on Monday that now seems like a long time ago. The major indexes fell through their 50-day moving averages on Tuesday. On Friday, the Nasdaq and S&P 500 closed below their lowest levels since September and late July, even as they came off intraday lows.

The major indexes have now recovered more than half of their gains from mid-June to mid-August.

Yes, some top stocks held up, but for every Tesla, Vertex or Celsius, there were several quality names that suffered devastating losses

Tuesday’s CPI report not only caused major technical damage to the market, it undermined the broader bull case. Investors were betting that the moderate inflation report would spur the Fed to start slowing rate hikes, at least after September. Those hopes were dashed.

This is the second time markets have been too rosy about Fed policy. The summer rally was fueled in large part by investors expecting the Fed to end interest rate hikes soon — and then start cutting sometime in 2023. Powell’s Jackson Hole speech ended talk of a “Fed spin” on tapering of interest.

The actual Fed meeting on Wednesday may not be a big market mover given how much investors have adjusted over the past three weeks.

Prices will go high and stay there for an extended period of time. The Fed is willing to push the US into a recession to kick out inflation.

In addition to falling jobless claims, which only added to the Fed’s concerns, recent economic data has been disappointing. An environment of high inflation, high wages and low growth is a huge challenge for any company.

The catastrophic FedEx (FDX) earnings and comments, mixed results from Adobe (ADBE) and warnings from Nucor (NUE) and US Steel (x) reflect that companies are facing an extended period of uneven or weak performance. Multinationals and exporters, which dominate the S&P 500, may be particularly exposed given the strong dollar along with weakness in Europe and China.

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What should we do now

The stock market is not in good shape. Macroeconomic conditions are poor. Investors should keep in mind that the market could go below June lows or be limited for weeks or even months until there is real clarity on the Fed’s rate hike endgame.

Investor exposure should be minimal. There is nothing wrong with being 100% cash, especially if recent trades have been against you.

Focus on building your watchlists by paying attention to stocks showing resilience. If the market remains weak, some of these names will falter, while others will emerge. The key is to have an up-to-date list when market conditions improve and you are ready to take advantage.

Read it The big picture every day to stay in sync 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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