Dow Jones Futures: The market is expecting something like this from Fed chief Powell. 5 Shares in Market Zones

Dow Jones futures were slightly lower on Friday morning, along with S&P 500 futures and Nasdaq futures, with Fed chief Jerome Powell delivering his much-anticipated Jackson Hole policy speech shortly after starting bell.




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The stock market rally had a strong session on Thursday, with major indexes climbing back above a key near-term level despite concerns that Fed chief Powell will signal the need for tighter monetary policy in the longer term.

Axcelis Technologies (ACLS), GlobalFoundries (GFS), Steel Dynamics (STLD), Insulet (PODD) and RPM International (RPM) was among several stocks that broke out or are flashing buy signals.

Profits

Ulta Beauty ( ULTA ) was active Thursday but took gains after the close. ULTA stock rose modestly on strong results and guidance. Shares closed up 1.75% on Thursday at 419.25, clearing buy points at 417.08 and 418.89.

Working day (WDAY) and Affirm Holdings (AFRM) also reported. WDAY stock jumped 10% overnight but remained below its 200-day line. AFRM stock fell more than 10% on heavy losses and weak guidance.

Axcelis and STLD shares joined the IBD Leaderboard on Thursday. GFS stock and Steel Dynamics are new swingers on SwingTrader. ACLS stock is in the IBD 50. Steel Dynamics stock is Thursday’s IBD Stock of the Day.

The video embedded in the article discussed Thursday’s market rally and what to expect from Fed Chair Powell. He also analyzed Axcelis, Steel Dynamics and PODD stock.


Fed Chairman Powell’s speech: The two words that could upset the S&P 500


Fed chief Powell’s speech as they saw the Hawkeyes

Fed chief Powell, scheduled to speak Friday at 10 a.m. ET at the Jackson Hole conference, likely won’t provide much insight into the size of the Fed’s rate hike in September. Instead, it is expected to accentuate long-term inflationary pressures. This would include chronic labor shortages, but also, perhaps, sustained higher energy and commodity prices, rising trade barriers and tight housing supply.

All of this suggests that the Federal Reserve will need to push interest rates significantly higher — and keep them there for the foreseeable future. Fed chief Powell may even hint that a recession or a long stretch of lower growth will be necessary to lift unemployment to curb wage-inflationary pressures.

That could mean subdued demand, a strong dollar and keeping bond yields higher. This could weigh on profitability and valuations of companies, particularly highly valued growth.

Just a few weeks ago, markets saw interest rate hikes tapering off quickly after September and perhaps reversing lower sometime next year.

Dow Jones Futures Today

Dow Jones futures were 0.1% below fair value. S&P 500 futures fell 0.15% and Nasdaq 100 futures lost 0.2%.

The yield on the 10-year note rose 2 basis points to 3.05%.

Crude oil futures rose slightly while natgas prices rose 2%.

Before Powell’s speech and the opening bell, the Commerce Department will release its July revenue and spending report. This report includes the personal consumption expenditure index, the Fed’s favorite gauge of inflation.

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


Join IBD’s experts as they analyze stocks that can act in the stock market’s rally on IBD Live


Stock market rally

The stock market rally had a solid session, especially techs and small caps, returning above some key levels despite mixed gains and guidance from some notable companies.

The Dow Jones Industrial Average rose 1% in Thursday trading, even with Salesforce.com (CRM) with a steady decline in profits. The S&P 500 fell 1.4%. The Nasdaq composite jumped 1.7%. The small-cap Russell 2000 rose 1.55%.

US crude oil prices fell 2.5% to $92.52 a barrel.

The yield on the 10-year note fell 8 basis points to 3.03% after rising 23 basis points in the previous four sessions.

ETFs

Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) rose 1.7%, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) rose 1.1%. The iShares Expanded Tech-Software Sector ETF ( IGV ) gained 0.8%, despite the CRM stock being a major component. The VanEck Vectors Semiconductor ETF ( SMH ) jumped 3.4%.

The SPDR S&P Metals & Mining ETF ( XME ) fell 2.6%, with STLD holding the lead. The SPDR S&P Homebuilders ETF ( XHB ) rose 1.8%. The Energy Select SPDR ETF (XLE) rose 0.8%. The Health Care Select Sector SPDR Fund ( XLV ) advanced 1.1%.

Reflecting the top performing stocks, the ARK Innovation ETF (ARKK) gained 2.9% and the ARK Genomics ETF (ARKG) gained 2.5%.


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Shares in market zones

ACLS stock jumped higher on huge volume, rising 13% to 81.73. Axcelis stock first broke above a downtrend of a handle and then broke through the official cup-with-handle buy point of 79.93, according to MarketSmith analysis. The relative strength line hit a new high, a bullish signal to a breakout, as ACLS stock outperformed the S&P 500.

GFS stock rose 6.8% to 64.50 in heavy trade, breaking the downtrend in a grip. The official buy point is 66.06 as part of a very deep consolidation that looks like a double bottom. GlobalFoundries stock went public in October 2021.

Steel Dynamics stock rallied 6.6% to 86.76, breaking a downtrend of a handle and the official buy point of 86.04 cup-with-handle. The volume was way above normal. Nucor (NUE) and Commercial metals (CMC) also broke down, but on lighter volume.

On Wednesday, Cleveland-Cliffs (CLF) announced a price increase of at least $75 per ton for carbon steel products.

PODD stock rose 3.35% to 282.86, clearing a buy point at 276.48. Volume was slightly below normal, but Insulet stock rebounded from its 21-day line on Wednesday in above-average trading.

RPM stock rose 5.6% to 97.83, clearing a 95.80 entry from a “hold” that needed another day to get right. The RS line for RPM stock hit a new high.

Market Rally Analysis

Who heads the Fed? The stock market rally came on Thursday despite Friday’s big news.

The Dow Jones, S&P 500 and Nasdaq composite returned above their 21-day moving averages after hitting resistance there in the previous two sessions. The small-cap Russell 2000 and S&P Midcap 400, which both recovered the 21-day line on Wednesday, are heading toward the 200-day line.

Even better, a growing number of stocks are flashing buy signals from various sectors as well. The moves in shares of ACLS, Steel Dynamics and others reflect handles that were developed or extended during the pullback of the market rally.

Previous outbreaks continue to work.

So there is a lot of positive action out there. But it comes right before Powell’s speech.

Powell may or may not be particularly bullish, but ultimately it’s the market’s reaction that matters. The good news is that markets are bracing for a hawkish speech.

Fed chief Powell could push major indexes higher, giving a turbo boost to top stocks and potential leaders being set up. But a negative reaction to Powell’s speech could push the market’s rally significantly lower, erasing strong gains in winning stocks.


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What should we do now

Well, now we wait. Thursday’s breakouts and buy signals certainly gave investors reasons to take some new positions. If you decided that subtlety was the better part of bravery in Powell’s speech, that’s okay. If the market continues to advance in the coming days, a number of setups will soon turn into buy signals.

Create your watchlists. Be sure to cast a wide net to find top stocks from a range of industries. Pay close attention to a select group in or near market zones.

Be ready to act on Friday. The market rally could see Powell’s speech, but at some point you may want to add or reduce exposure.

Read The Big Picture every day to stay in sync with market direction and top stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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