Fed governor pours cold water on stock market rally; Nvidia, AMD take center stage

Major stock market indices saw mixed trading in the first half of Monday’s session. A Fed governor on Sunday told traders and investors to contain their enthusiasm following last week’s spectacular price moves, fueled by a rotation of 2022 winners to all sorts of heavily shorted laggards.


The Dow Jones Industrial Average gained 0.2% in light trading Monday morning, while the S&P 500 lost 0.1%. The Nasdaq index lost 0.6%. The Russell 2000 small-cap index fared better, down 0.4%.

Volume fell sharply on the Nasdaq and NYSE from Friday morning levels.

The 10-year Treasury yield bounced back to 3.87%, while crude oil fell more than 2% to $86.70 a barrel. Gold added a few dollars after hitting a three-month high on Friday.

The SPDR Gold Shares (GLD) ETF is approaching moving average resistance. Positive action in recent weeks has eroded the bottom of a 35-week consolidation pattern. But it will take weeks of buying pressure to confirm a bottom.

For now, prospectors and other enthusiasts should keep a close eye on the critical 200-day moving average, which stands at 168.

Crypto sentiment took another plunge over the weekend after the bankrupt exchange FTX was hacked, pulling some hundreds of millions of dollars out of exchange wallets. Bitcoin posted its biggest losses in five months last week, testing Wednesday’s overnight low.

The digital currency was trading at $16,450 early Monday, up 0.9%.

Fed governor warns investors

Fed Governor Christopher Waller warned on Sunday that the central bank “has a long way to go” before rate hikes come to an end. He scolded stock market investors, telling them last week’s weaker-than-expected CPI report was just one data point.

Waller agreed that the Fed could slow the pace of rate hikes to 50 basis points at the December meeting, but insists this would not mean a change in fiscal policy. He also warned that Fed interest rates will continue to rise and remain high until inflation falls near the Fed’s target of 2%.

Finally, he notes that CPI reports in the coming months should show that inflation is “on the decline”.

Friday’s Big Picture highlighted currency tailwinds that could support higher stock prices.

It notes: “The strong dollar has been a major headwind for the stock market, but signs of peak inflation have driven the currency down in recent days. Friday’s weakness in the US Dollar index extended a move that began Thursday amid cooler than expected U.S. consumer inflation data.”

This reversal should support stocks, as “many companies have seen their earnings fall due to expensive exchange rates. If the dollar continues to weaken, it will conversely boost earnings for companies with foreign operations.”

The US dollar index was up 0.5% on Monday morning, but is down 7% since its peak in September.

The CME FedWatch tool now predicts an 80.6% chance for a 50 basis point increase at the December meeting, while the 75 basis point crowd has fallen to just 19.4%.

IBD last week raised its outlook to “market in confirmed uptrend,” supporting equity exposure between 20% and 40% of a portfolio as major indices gauge long-term moving averages.

Walmart, Nvidia Top Earnings Calendar

Dow Jones Components walmart (WMT) and DIY store (HD) leads a long list of retail earnings releases this week. Target (TGT), Macy’s (M), TJX (TJX) and from Lowe (LOW) also report.

Meanwhile, most tech watchers will turn their attention to Cisco systems (CSCO) and Nvidia (NVDA), both report that on Wednesday evening.

Nvidia is expected to report earnings of 71 cents per share on revenue of $5.83 billion in the third quarter.

The chipmaker ended a torrid growth streak last quarter as profits fell 51% year over year and sales rose just 3%.

Earnings growth is expected to slow by 25% this year. But analysts are more optimistic about 2023, looking for a 31% increase. Funds are still unconvinced as ownership has remained flat over the past two quarters.

NVDA stock is down 52% from its all-time high in November 2021, but it’s up 51% from its two-year October low of 108.13. However, it is still trading below its 200-day moving average.

This week’s economic calendar features October retail sales, the producer price index (PPI) and the start of the housing market.

Goldman Sachs now forecasts that the core personal consumption expenditure (CPE) index, the Fed’s preferred inflation indicator, will decline from the current 5.1% to 2.9% in December 2023. The company expects the clearing of supply chains drive commodity prices, wage growth and rental costs, contributing to a more stable economic climate.

The New York Times recently reported that 1 million apartments are now under construction or have new permits. This marks the largest pipeline since 1974. Housing costs should come down as this huge supply comes online.

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Stock Exchange Movers And Shakers

The Innovator IBD 50 ETF (FFTY) was up 0.5%.

Advanced micro devices (AMD) rose 2.9% to a two-month high following double upgrades from UBS and Robert Baird.

AMD shares fell more than 65% between November 2021 and the October 2022 low of 54.57. It is up more than 20 points from its low, but still trades below its 200-day moving average.

The Earnings Per Share Rating for AMD has risen to 93, indicating superior earnings performance in recent months. However, fund holdings have fallen after a build-up phase and it will take months to recover lost sponsorship.

IBD 50 solar conductor Enphase energy (ENPH) tagged the buy zone of a cup-with-handle base and sold on Friday, triggering the 7% sell rule. ENPH shares added 3.0% Monday morning.

Friday was a bad day for most of the market leading groups. However, leaders sold before the end of the year often become aggressive dip-buying targets. This happens because funds want their portfolios to show strong annual performance to their investors, a market phenomenon known as window dressing.

Also in the IBD 50, Diamondback energy (FANG) has entered a buy zone, surpassing the buy point of 162.34 from a 104-day cup base. FANG stock is close to an all-time high, up 0.6%.

It boasts near-perfect composition, EPS and timeliness, but annual EPS growth is expected to level off in 2023, following windfalls in 2022.

However, investors don’t seem to be concerned about that hurdle at the moment, as energy prices remain firmly at a high level.

Follow Alan Farley on Twitter at @msttrader.


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