Dow Jones futures fell slightly Thursday morning, along with S&P 500 futures and Nasdaq futures. The stock market rally fell modestly on Wednesday as Federal Reserve policymakers signaled earlier interest-rate hikes amid hotter inflation. The 10-year Treasury yield jumped following the latest Fed meeting.
After the close, CureVac (CVAC) announced that its coronavirus vaccine candidate achieved a low 47% efficacy rate in a Phase 2b/3 trial. CVAC stock crashed, while BioNTech (BNTX), Moderna (MRNA) and Novavax (NVAX) rose slightly.
The Federal Reserve still isn’t in a hurry to change course. But new inflation targets, rate-hike projections and Fed chief Jerome Powell’s comments signaled that policymakers are getting closer to actual Fed taper talk.
Stock and bond markets got the message. The Dow Jones, S&P 500 and Nasdaq composite, down slightly to modestly before the Fed meeting decision, retreated after the 2 p.m. announcement and Powell’s comments, paring losses somewhat before the close. The 10-year Treasury yield jumped after hitting three-month lows last week. The U.S. dollar rallied.
Amid the market gyrations, several bank stocks or financial ETFs flashed buy signals, including Signature Bank (SBNY), Wells Fargo (WFC,) Goldman Sachs (GS), Bank of America (BAC) and the triple-levered Direxion Daily Financial Bull ETF (FAS).
Fed Meeting Surprise
The central bank left interest rates and bond buying unchanged at its latest two-day Fed meeting. But 11 of 18 policymakers now see two Fed rate hikes by the end of 2023, vs. just six in March. Another two project one rate increase in 2023 while only five see no move before 2024.
Seven policymakers expect a rate hike in 2022 vs. four back in March.
Fed chief Jerome Powell, in his post-meeting press conference, still sees current price pressures as transitory but conceded inflation could be “higher and more persistent” than previously expected. The Federal Reserve now expects its most-watched core inflation gauge to rise 3% in 2021 vs. March’s 2.2% projection. Policymakers see core inflation cooling to 2.1% next year, but higher than March’s target of 2%.
Fed chief Powell said policymakers discussed if enough progress has been made to begin tapering asset purchases. But he said that “substantial economic progress” — seen as a code word that the Fed is ready for taper talk — remains “a ways off.”
But, this was the “talking about talking about” meeting, Powell said.
CureVac Coronavirus Vaccine Flops
With a 47% efficacy rate, the CureVac coronavirus vaccine candidate is far behind the 95% rates from Pfizer (PFE)/BioNTech and Moderna vaccines, which also rely on messenger RNA. It’s also far below the 90% efficacy from the Novavax treatment, as well as the Johnson & Johnson (JNJ) and AstraZenca (AZN) offerings.
While CureVac said it isn’t giving up yet, investors are rushing for the exits. CVAC stock collapsed, tumbling 46% before the open. That would push CVAC stock to its lowest levels since late 2020, not far from its post-IPO lows.
Meanwhile, BNTX stock rose 2% and MRNA stock gained 2% in overnight trade. Both stocks hit record highs last week before pulling back in recent days. NVAX stock climbed 4%. Novavax plans to see FDA approval for its vaccine candidate in the third quarter.
Dow Jones Futures Today
Dow Jones futures fell 0.2% vs. fair value. S&P 500 futures sank 0.3% and Nasdaq 100 futures declined 0.4%. Those are off their Wednesday night lows.
The 10-year Treasury yield was steady at 1.57% after reaching 1.59% overnight.
Copper futures fell 2%, continuing a recent retreat. Meanwhile gold and silver futures tumbled 3%-4%, with a Fed-led stronger dollar taking a toll.
Microsoft CEO Satya Nadella will take on the additional role of chairman. John Thompson will be lead independent director.
Stock Market Rally Wednesday
The stock market rally had a relatively quiet session until the Fed meeting announcement and Fed chief Powell’s press conference. The major averages sold off, all losing at least 1% before paring losses to varying degrees by the close.
The Dow Jones Industrial Average retreated 0.8% in Wednesday’s stock market trading, continuing to lag. The S&P 500 index fell 0.5%. The Nasdaq composite dipped 0.2%, after briefly turning positive. The small-cap Russell 2000 lost 0.2%.
The 10-year Treasury yield jumped 7 basis points to 1.57%. Last week, the 10-year yield hit a three-month low of 1.45%.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 0.7%, while the Innovator IBD Breakout Opportunities ETF (BOUT) rose 0.4%. The iShares Expanded Tech-Software Sector ETF (IGV) dipped 0.6%. The VanEck Vectors Semiconductor ETF (SMH) retreated 0.8%.
The SPDR S&P Metals & Mining ETF (XME) sank 1.4%, and Global X U.S. Infrastructure Development ETF (PAVE) declined 1%. The U.S. Global Jets ETF (JETS) dipped 0.2%. SPDR S&P Homebuilders (XHB) fell 1.2%.
Reflecting stocks with more-speculative stories, the ARK Innovation ETF (ARKK) slid 0.5% and ARK Genomics (ARKG) shed 0.6%. ARKK is just below its 50-day line after slipping back under its 200-day line on Tuesday. ARKG is just above both key levels.
Bank Stocks In Buy Range
After struggling with declining Treasury yields over the past several weeks, bank stocks and ETFs rebounded bullishly Wednesday.
Signature Bank stock jumped 6.7% to 258.35, briefly clearing a 260.47 buy point from a flat base, according to MarketSmith. Investors could still buy SBNY stock for rebounding from its 50-day line and clearing a downward-sloping trend line. The first or second test of the 50-day moving average or 10-week line after a breakout is considered actionable.
Wells Fargo stock edged up 0.2% to 45.56 after undercutting its 50-day line intraday. Investors could buy it here or wait for a little bit more strength to get WFC stock above its 21-day moving average on a daily chart or its 10-week line on a weekly chart. WFC stock is on track to have a new flat base at the end of this week with a 48.23 buy point.
Goldman stock dipped 0.1% at 371, but closed near session highs after finding support at its 10-week line. GS stock also technically is still in range of a 356.95 buy point from a shallow cup base. Investors could buy GS stock here or after it reclaims its 21-day line and a three-weeks-tight entry at 377.08.
BAC stock edged up 0.6% to 41.62, rebounding from a test of its 50-day and 10-week lines. It’s the second 50-day/10-week test since a February breakout. Investors might want to wait. Arguably BAC stock has a four-weeks-tight entry of 43.36.
The FAS ETF rose 2 cents to 114.18 after undercutting its 50-day line intraday. As with XLF, the triple-levered FAS hadn’t touched its 50-day line in four months. Investors could buy here or — as with WFC stock, Goldman and BofA — wait to get above its 21-day line.
All of these bank plays got a boost with Treasury yields on Wednesday. If yields resume their decline, it would be a big headwind.
Market Rally Analysis
The stock market rally retreated for a second straight session, though the damage was rather limited. The 10-year Treasury yield had a big gain, but is only recouping a portion of its recent slide. The Fed’s early warning on taper talk and rate hikes gives the market rally plenty of time to digest the news and move forward.
As of Wednesday’s close, the major indexes held up OK, though the Dow Jones is now below its 50-day line. Financials did well, understandably, but there were a few other breakouts, including Generac (GNRC) and Occidental Petroleum (OXY).
Sometimes there’s a day-two reaction to Fed meetings, and that could be positive or negative. Ultimately, if the stock market rally can’t handle a 10-year Treasury yield above 1.5% and — shield your eyes — moving toward 2% amid a booming economy, then this isn’t much of a rally.
What To Do Now
Look for the stock market rally to decisively break out above old highs, especially on the S&P 500 and Nasdaq. Doing so would signal real strength, and a green light to step up exposure.
Investors may want to rethink holdings amid ongoing rotation. Homebuilders were slumping even as interest rates were falling. Rising Treasury yields put further pressure on that sector. Miners continue to struggle while steelmakers are trying to fight. Financials like Goldman stock are flashing some buy signals again.
Of course, these mini-trends could continue for several weeks or reverse at Thursday’s opening bell.
So stay engaged and remain flexible.
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