Blink and you missed a post-Federal Reserve bounce, as stock futures signal a reboot for Wall Street selling on Thursday.
“Whatever reaction we see today is likely to be a one-day thing (just like last FOMC). The Fed has no idea where inflation is going, and neither do we. The economic data is what matters, not Fed dots or forecasts or guidance,” said Brent Donnelly, president of Spectra Markets, in a Wednesday tweet that seems to have aged well.
Sifting through the market rubble is our call of the day from Fundstrat’s Mark Newton, who offered up a few investing ideas. For starters, he said no one should expect a material rally or markets to start trending soon, hence a short-term mind-set is required.
For the S&P 500 SPX, he sees important resistance above 3,837 at 3,900, while a move to under 3,875 opens the door to test 3,705 in the short run.
Fundstrat’s head of technical strategy zeroes in on crude prices, where he sees half of May gains erased, which could bring prices down to the lower $100s — first $111, then $108. “Given the ongoing positive intermediate-term momentum, a pullback like this would be a chance to buy energy,” he told clients in a note.
Newton is also looking at “real deterioration” for utilities and REITS, even if markets are pretty volatile. A robust rally in Treasury yields has coincided with declines in those defensive groups along with precious metals.
In year-to-date terms, utilities remain an outperformer to broader U.S. benchmarks, and any near-term weakness is likely a buying opportunity, he said.
“Reasons to buy dips are threefold. First, defensive sectors like utilities are likely to outperform as equity markets enter a volatile stretch into end of Q2. Second, U.S. Treasury yields are showing evidence that a cyclical peak could be near (and should be in place by the end of June),” Newton said.
The third, as shown on the chart below, prices on utility ETFs such as Invesco S&P 500 Equal Weight Utilities RYU or Utilities Select Sector SPDR XLU are nearing trend-line support that has held since last summer, he said.
“This held already twice since the initial trough was formed last July, and points to a decline to $64.42 as providing an excellent entry for longs,” Newton said.
Fundstrat
On this weakness, he likes utilities such as Consolidated Edison ED, Duke Energy DUK, Southern Co. SO, Atmos Energy ATO, Xcel Energy XEL and Eversource Energy ES. They have outperformed XLU this year and are anywhere from 13% to 16% off 52-week highs, he said.
He said steer clear of laggards such as American Water Works AWK, AES AES, NextEra Energy NEE, Pinnacle West PNW, FirstEnergy FE, all having broken to at least fresh six-month lows and new annual lows for some and likely to lose more.
Newton is also keeping a close watch on the Cboe Volatility Index, or the VIX VIX, noting a giant triangle pattern forming as shown in this chart, which is likely to resolve in massive upside breakout. The VIX tends to decline during market rallies and rise during times of stress:
Fundstrat
He said “any move back above this week’s highs of 35.05 will be hugely significant technically, and likely coincide with a possible final equity market washout into late June.” A break below 23.75 would be a positive for markets, but a solid drop below 20 is needed to “truly believe equity markets are in the clear.”
“Given the uncertainty ahead of the end of quarter, buying implied volatility on the recent pullback seems prudent and, technically, looking to sell on an upside breakout,” he said.
The buzz
Shock and awe from the world’s central banks continues, with the Fed hike followed by a surprise 50 basis-point Swiss National Bank rate rise that is sending the franc USDCHF sharply higher. The Bank of England raised rates 25 basis points to a 13-year high.
Tesla TSLA has raised auto prices. Stocks are dropping in premarket along with the sector as techs look set to get particularly hit hard today. Elsewhere, CEO Elon Musk will meet Twitter TWTR employees, and he is expected to confirm his desire to get that $44 billion takeover deal done.
Elsewhere, U.S. weekly jobless claims, building permits and housing starts and a Philadelphia Federal Reserve survey are all hitting at 8:30 a.m. ET.
Boeing BA was upgraded to buy/high risk from neutral at Citi, which trimmed its price target to $209 from $219. But it prefers Airbus FR:AIR.
Revlon has filed for bankruptcy.
European gas prices are surging a second day after Russia’s Gazprom cut supplies through the continent’s biggest pipeline. German, French and Italian leaders have headed to Kyiv to show support for Ukraine as Russia’s war approaches four months.
The markets
Stock futures ES00 YM00 NQ00 are tumbling, bond yields BX:TMUBMUSD10Y are climbing, and the dollar DXY has turned lower. Gold GC00 is up some, while oil CL00 has turned lower. Bitcoin BTCUSD and other cryptos have also come off a post-Fed bounce.
The tickers
These were the top-searched tickers on MarketWatch as of 6 a.m. Eastern:
Random reads
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