Dow Jones futures tilted lower Tuesday night, along with S&P 500 futures and Nasdaq futures, with the Fed taper on tap Wednesday. The stock market rally showed slim gains Tuesday, with all the major indexes hitting record highs intraday.
Tesla stock retreated modestly after Tesla CEO Elon Musk tweeted that the Hertz order for 100,000 Model 3 EVs is not signed. Meanwhile, Hertz rental car rival Avis (AVIS) skyrocketed Tuesday as strong earnings sent a short squeeze into overdrive. But CAR stock parked well off intraday highs.
Bed Bath & Beyond
BBBY stock skyrocketed as the housewares retailer will truly go “beyond” with an e-commerce pact with grocery giant Kroger (KR). Bed Bath & Beyond said after the close that it’ll launch a digital marketplace that will sell third-party goods, including from Kroger. Bed Bath & Beyond also said its BBBY stock buyback was ahead of schedule.
BBBY stock erupted for a 76% gain in extended trade, fueled by likely heavy short covering. Bed Bath & Beyond was one of the original meme stocks earlier this year and Reddit investors were buzzing about BBBY stock late Tuesday. Kroger stock rose slightly.
Meanwhile, AMC stock jumped 8% and GameStop 6% in extended trade, as Bed Bath & Beyond spurred a broader meme stock revival. AMC and GME stock arguably could be flashing aggressive entries from various trend lines.
Digital Turbine, CZR stock, Sprout Social and FRSH stock all closed ahead of earnings near buy areas.
SPT stock leapt 9% overnight, signaling an aggressive entry off a trend line and 50-day. Sprout Social beat views and announced an integration with WhatsApp, the messaging app owned by Meta Platforms (FB).
Caesars was little changed amid an earnings miss, after initially plunging late. CZR stock is trying to hold its 50-day line and an older buy point.
APPS stock fell solidly after Digital Turbine beat views, but only in-line EPS guidance. FRSH stock tumbled despite beating views, as Freshworks pointed to a wider-than-expected Q4 loss. SEDG stock retreated as the solar firm missed on revenue.
Several other stocks sold off on earnings.
House Speaker Nancy Pelosi said she hoped to have the text of the reconciliation bill done Tuesday night. The latest word is that the package will include a five-year, retroactive hike in SALT deductions, effectively giving a big tax cut to well-off, blue state voters. The legislation also will include prescription drug price controls, a possible blow to pharma and biotech names. The goal is to have at least the House vote on the partisan reconciliation bill and bipartisan infrastructure package this week, but that could slip if Pelosi can’t find the 218 votes necessary.
Over in the Senate, it’s unclear if all 50 Democrats will be on board. Sen. Bernie Sanders said he opposed the five-year SALT break.
Fed Taper Decision
The Federal Reserve concludes its two-day policy meeting on Wednesday afternoon. Fed policymakers are widely expected to announce a decision to scale back asset purchases. The actual Fed taper would kick in at year-end. Analysts are expected the central bank to reduce the $120 billion in monthly purchases — $80 billion in monthly Treasury purchases and $40 billion in government-backed mortgage securities — to zero by mid-2022. After that, Fed rate hikes could be on the table.
In addition to the Fed meeting announcement at 2 p.m. ET, Fed chief Jerome Powell will hold a press conference at 2:30 p.m. ET.
While a market “taper tantrum” is possible, this Fed decision certainly won’t be a surprise. With inflation expected to stay hot for some time, investors may welcome a shift away from easy monetary policies.
The 10-year Treasury yield fell three basis points to 1.55% on Tuesday, trending lower since late October. The two-year yield, more closely tied to Fed policy, fell 7 basis points to 0.45% after hovering near 19-month highs.
Dow Jones Futures Today
Dow Jones futures were just below fair value. S&P 500 futures and Nasdaq 100 futures edged lower.
Stock Market Rally
The stock market rally continued its steady ascent. The Dow Jones Industrial Average rose 0.4% in Tuesday’s stock market trading. The S&P 500 index advanced 0.4% and the Nasdaq composite climbed 0.3%. The small-cap Russell 2000 edged up 0.2%
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) edged down 0.1%, while the Innovator IBD Breakout Opportunities ETF (BOUT) gained 0.3%. The iShares Expanded Tech-Software Sector ETF (IGV) rose 0.2%. The VanEck Vectors Semiconductor ETF (SMH) climbed 1.1%.
SPDR S&P Metals & Mining ETF (XME) retreated 1.15% and Global X U.S. Infrastructure Development ETF (PAVE) advanced 0.9%. U.S. Global Jets ETF (JETS) sank 0.5%. SPDR S&P Homebuilders ETF (XHB) pulled back 0.45%. The Energy Select SPDR ETF (XLE) gave up 0.9% The Financial Select SPDR ETF (XLF) picked up 0.25%.
CAR stock shot up 108% to 357.17 on Tuesday, though shares came way off the intraday highs of 545. Before the open, Avis reported earnings skyrocketed 850% as revenue soared 96%, reflecting easy comparisons to a year earlier and sky-high rental rates. In the conference call, Avis pledged to buy more electric vehicles, coming on the heels off the Tesla-Hertz news.
Those news items triggered a massive short squeeze, one that had been going on for some time. CAR stock essentially doubled over the prior month heading into Tuesday. Avis stock became a top focus among Reddit traders.
But meme stocks, while they can have massive gains quickly, they often end soon. CAR stock closed in the lower half of its range. Any investors who owned CAR stock on Tuesday should have been locking in at least partial profits.
Tesla stock fell 3% to 1,172 on Tuesday, after Musk tweeted late Monday that there is no signed Hertz contract. He said it was odd that Tesla stock had surged so much on the Hertz announcement, saying Tesla doesn’t have a demand problem, but is focusing on ramping up production.
Tesla also disclosed a safety recall for FSD Beta vehicles, related to the recent problem of sudden emergency braking. Tesla sent an over-the-air fix for the issue several days ago.
While Tesla stock pulled back, it was an inside day. The dip follows a 33% spike since the Hertz deal was announced on Oct. 25. Also, TSLA had been getting very extended from moving averages. At Monday’s close, Tesla stock was 21% above its 10-day line and 49% above 50-day line. Shares are less extended now.
Market Rally Analysis
The stock market rally keeps chugging along. The Dow Jones, S&P 500, Nasdaq and even the Russell 2000 hit record-highs intraday.
The Nasdaq has rallied for seven straight sessions. Several of those gains were wafer thin. But it wouldn’t be surprising to see the market rally pause or pull back.
Despite the gradual advances in the major indexes, there was uneven action among leading stocks, as well as some up and down intraday action.
Financials are doing well heading into a likely Fed taper. Energy stocks are holding steady. Steel stocks are bending, but not breaking, after showing strength in late October.
What To Do Now
The stock market rally continues to trend higher, not taking a break but not racing higher. At least, that’s the case with the major indexes. Your portfolio might be quite different. Some stocks might be spiking higher while others have faltered. You may need to cut some losses while taking partial profits in some extended stocks.
If you’ve been seeing solid gains, you might look for new buys or adds to increase or maintain your exposure. But don’t get too concentrated in a particular sector.
If you’re not making any headway, you’re out of sync with the market. Scale back your exposure, even if it’s only through cutting losers and not making new buys. Evaluate your trades, and stocks you passed on that went on to better and brighter things. The point isn’t to buy those missed opportunities now when they’re extended, but to figure out what stocks, sectors and strategies you should focus on next.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
YOU MAY ALSO LIKE: