Resilient Market Rally After Fed Surprise; Tesla completes record run, big warning feeds this group

The stock market rally showed resilience on Wednesday. The indices initially lost ground on a surprisingly hawkish rate hike outlook from the Federal Reserve, but closed mixed on relatively dovish comments from Fed Chief Jerome Powell.


Dow Jones futures rose after hours, as did S&P 500 and Nasdaq futures.

The central bank paused after its two-day policy meeting ended Wednesday afternoon, but policymakers signaled two more Fed rate hikes were ahead. However, Fed Chief Jerome Powell stressed that officials are not locked into a rate hike in July.

Nvidia (NVDA) hit a record high, a day after closing above a market cap of $1 trillion for the first time. You’re here (TSLA) snapped a record winning streak, but reluctantly.

Mason Lennar (LEN) reported earnings after the close.

A slew of medical product and system makers issued buy signals on Wednesday, after insurance giant Dow Jones UnitedHealth (UNH) warned that patients are spending more on medical procedures.

medical shock wave (SWAV). Dexcom (DXCM), Edwards life sciences (EW), Blacksmith and nephew (SNN), stryker (SYK), Zimmer Biomet Holdings (ZBH), Scientific Boston (BSX) and InMode (INMD) issued buy signals on Wednesday morning. Most of the gains were pared significantly, with SWAV shares closing well past intraday highs.

Tesla and Nvidia shares are on the IBD ranking. The SWAV stock is on the IBD 50. The TSLA stock is on the IBD Big Cap 20.

Dow Jones Futures Today

Dow Jones futures were just above fair value. S&P 500 and Nasdaq 100 futures rose 0.15%.

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

Fed meeting

As expected, Fed policymakers took no action on Wednesday, leaving the federal funds rate at 5%-5.25% after raising it five percentage points in just over a year.

But recently released projections from Fed policymakers show a median expectation for a 5.6% federal funds rate by the end of the year, signaling two more rates. Markets were expecting another quarter-point rise, possibly in July, and even that wasn’t a slam dunk.

Fed chief Powell sounded more dovish. He pointed out that policymakers did not commit to a rate hike in July, saying it will be a “live meeting.” He said the labor market remained “very tight”, but noted that it was starting to ease. Powell noted that core inflation remains tenacious.

Markets now see a 64.5% chance of a rate hike on July 26, virtually unchanged from Tuesday. Investors only see a 7% chance of two Fed hikes by the end of the year.

Lennar Earnings

Lennar’s earnings fell, but were much better than expected. The automaker also guided home deliveries higher in the fiscal third quarter and full year.

LEN stock rose 2% late in the session. Shares fell 1.1% to 114.75 in Wednesday’s regular session, just on top of near-term consolidation. This could be seen as a handle for a gigantic handle cup base dating back to the end of 2021. Lennar’s stock was exploitable earlier this month with a move up from the 50-day line in heavy volume.

The homebuilder will hold a conference call Thursday morning after the opening bell.

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Stock market rally

Stock market rally closed mixed after Fed rate break and Fed chief Powell

The Dow Jones Industrial Average fell 0.7% in Wednesday’s trading, led by UNH stock. The S&P 500 index gained 0.1%. The Nasdaq composite rose 0.4%, with Nvidia leading. The small-cap Russell 2000 fell 1.2%.

US crude oil prices fell 1.7% to $68.27 a barrel.

The 10-year Treasury yield fell 4 basis points to 3.8% after briefly rising to 3.85% shortly after the Fed meeting was announced.


Among growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) rose 0.6%. ETF VanEck Vectors Semiconductor (SMH) jumped 1.5%. NVDA stock, SMH’s top holding, rebounded 4.8% to 429.97.

Reflecting more speculative stocks, ARK Innovation ETF (ARKK) fell 2% and ARK Genomics ETF (ARKG) fell 0.6%. Tesla stock is the top position among Ark Invest’s ETFs. TSLA stock fell 0.7% on Wednesday to 256.79 after surging 41% during a 13-day winning streak.

The SPDR S&P Metals & Mining ETF (XME) fell 1% and the Global X US Infrastructure Development ETF (PAVE) fell 0.6%. The US Global Jets ETF (JETS) rose 0.7%. SPDR S&P Homebuilders ETF (XHB) dropped 1.1%. ETF Energy Select SPDR (XLE) lost 1%.

The SPDR healthcare sector fund (XLV) lost 1%. The UNH stock is the first stake in XLV, but Dexcom, Boston Scientific, Edwards Lifesciences, Zimmer Biomet and Stryker are also part of the ETF.

The Financial Select SPDR ETF (XLF) fell 0.4%. The SPDR S&P Regional Banking (KRE) ETF fell 2.9%.

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SWAV stock jumped up to 315.95 on Wednesday morning, clearing a buy point of 308.09 cup with handle. But Shockwave Medical fell back, closing up 1.1% at 295.05. It is below the 300 level which marks an early entry.

DXCM stock edged up 0.9% to 127.06, returning above a fixed-base buy point of 126.44. Dexcom is trying to break through decisively, something it has struggled to do since November.

EW stock rose 3.6% to 90.53, erasing a short consolidation in high volume a day after breaking above the 50-day line. Edwards Lifesciences stock is still not extended from the 50-day line. Investors could use the May 15 high at 89.72 as a buy point.

SNN stock broke above the 50-day line in heavy volume, rising 5.55% to 31.57. This offered an early entry into a flat base, part of a base-to-base formation. Smith & Nephew stock is also touching a trend line that would offer another early entry. The official buy point is 33.19.

SYK stock jumped 4.2% to 293.57 in heavy trade, breaking a downtrend and erasing the 50-day line. This offered an early entry, although shares closed near session lows. Stryker stock has an official buy point of 306.56 from a flat base, part of a base-to-base pattern.

ZBH stock jumped 3.8% to 142.01 a day after bouncing near the 50-day line. Zimmer Biomet cleared the bulk of trade in a 16% consolidation and is within the range of the 50-day line. It still has some distance from the buy point of 149.25. ZBH stock also closed session highs.

BSX stock rose 4.2% to 53.31, crossing above the 50-day line. This is the first test of the 50 day/10 week line since a breakout in late March. Boston Scientific stock is working on a short consolidation.

INMD stock climbed 1.7% to 36.42, after just crossing a trendline on Tuesday. But stocks have moved well away from intraday highs. InMode stock is near a short-term high of 38.38, an area where it has hit resistance several times in 2023. The official buy point is 41.84 on a four-month basis, according to MarketSmith analysis.

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Market rally analysis

The stock market rally showed surprising resilience on Wednesday amid hawkish rate hikes.

The S&P 500 and Nasdaq composite, after briefly reversing lower, closed slightly higher on comments from Fed chief Powell.

The Nasdaq could probably use a pause or a pullback. It is now 9.2% above its 50-day line and trading above the top of a regression line. The Nasdaq 100 is now 10.6% above that key level.

The Dow fell, largely on UNH stocks, but rebounded just above its 10-day line.

The market extent was weak, interrupting a positive trend. Small caps fell sharply and mid caps modestly. The Invesco S&P 500 Equal Weight (RSP) ETF plunged just 0.2%. The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) rose nearly 0.2%, although that lagged the Nasdaq 100’s 0.7% advance.

New highs continued to easily overtake new lows.

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What to do now

Investors could have nibbled on any of the many medical goods stocks showing buy signals on Wednesday, although there’s a good chance those buying was slightly underwater at Wednesday’s close.

Otherwise, there weren’t many buying opportunities. Many leaders like Nvidia and Tesla are stretched significantly while others have gone from low in their bases to around buy points.

With the Nasdaq overdue for a break or pullback, investors may want to be cautious about adding exposure, especially in technology. You might consider taking partial profits on some extended winners.

But you want to credit this market rally. It shows real strength, with dramatically expanding scale and leadership. Thus, although short-term caution is in order, the market is sending strong bullish signals overall.

When a market pullback occurs, it could be an opportunity to enter or add to the big winners. So stay engaged.

Read The Big Picture every day to stay in tune 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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