Dow Jones futures rose slightly early Thursday while S&P 500 futures fell and Nasdaq futures tumbled, as the 10-year Treasury yield moved above 1.7% for the first time since January 2020. That comes amid concerns that the Federal Reserve and other central banks will let inflation pick up too fast.
That’s a reversal from Wednesday, when a dovish Fed meeting policy statement and comments from Fed chief Jerome Powell spurred a stock market rally. The Dow Jones hit a record while the Nasdaq reversed higher as Treasury yields pared sharp gains.
Williams-Sonoma (WSM), Five Below (FIVE) and Upstart Holdings (UPST) headlined key earnings after the close. Meanwhile, Translate Bio (TBIO) and Lordstown Motors (RIDE) also moved on news.
Treasury Yields Spike
The 10-year Treasury yield jumped 9 basis points to 1.73%, as the day two reaction to the Fed meeting was a lot different than on Wednesday. On Wednesday, the Federal Reserve signaled it won’t start rate hikes before 2024, unchanged from before. Fed chief Jerome Powell said it’s not time to talk about tapering the central bank’s big asset purchases.
That’s despite more bullish economic forecasts, as coronavirus restrictions wane and stimulus checks go out from the new $1.9 trillion spending package.
The Fed sees 2.4% inflation this year, but cooling to 2% in 2022. The Fed has a 2% inflation target, but says it’s OK with price increases exceeding that level for a short time.
The 10-year Treasury yield hit 1.69% before the Fed meeting announcement. The 10-year yield ended up 2 basis points to 1.64%, slightly below were it was before the 2 p.m. ET Fed announcement.
But while the Fed’s calm over inflation soothed investors on Wednesday, that didn’t last long.
If the Fed isn’t worried about inflation, bond traders will. With commodity prices high and U.S. retail gasoline prices now up for 46 straight days, some underlying inflation pressures are bubbling up.
Dow Jones Futures Today
Dow Jones futures rose 0.2% vs. fair value. S&P 500 futures fell 0.3%. Nasdaq 100 futures skidded 1.1%. That suggests that the Nasdaq composite will again test its 50-day moving average.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
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Coronavirus cases worldwide reached 121.92 million. Covid-19 deaths topped 2.69 million.
Coronavirus cases in the U.S. have hit 30.29 million, with deaths above 550,000.
Stock Market Rally Today
U.S. Stock Market Today Overview
Last Update: 4:22 PM ET 3/17/2021
The stock market rally traded mixed to lower for much of the session before the major indexes rallied together following the Fed meeting and Powell.
The Dow Jones Industrial Average rose 0.6% in Wednesday’s stock market trading. The S&P 500 index advanced 0.3%. The Nasdaq composite climbed 0.4% after slumping nearly 1.5% intraday.
The 10-year Treasury yield, which jumped to a 13-month high of 1.69%, pared gains to 1.64%.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rallied 0.9%, while the Innovator IBD Breakout Opportunities ETF (BOUT) climbed 1.3%. The iShares Expanded Tech-Software Sector ETF (IGV) dipped 0.2%. The VanEck Vectors Semiconductor ETF (SMH) advanced 0.9%.
Reflecting more-speculative story stocks, Ark Innovation ETF rose 0.75% and Ark Genomics ETF 1.1%. But both ARK ETFs are down nearly 2% in premarket trade, as Tesla (TSLA) and many other highly valued holdings retreat with spiking Treasury yields.
Williams-Sonoma reported better-than-expected earnings and a third straight quarter of accelerating revenue growth. The upscale home furnishings and housewares retailer reported same-store growth above 20% in all its chains. Williams-Sonoma also announced a $1 billion buyback and an 11% dividend hike.
WSM stock surged 12% overnight, signaling a move above a 151.26 buy point from a seven-week cup base, according to MarketSmith chart analysis. Williams Sonoma also has a 140.24 early entry from a handle that’s too low in the base to be valid.
WSM stock is part of the IBD 50.
Five Below earnings also beat while guidance was far above views. FIVE stock popped 6% late, back past a 198.20 flat-base buy point in a base-on-base pattern.
Upstart Holdings easily beat EPS views but revenue slightly missed. The AI lending platform guided higher. Upstart also announced it’ll buy Prodigy, a retail automotive retail software maker. UPST stock skyrocketed 43% early Thursday. That’ll send Upstart stock far above its 50-day line but still below its Feb. 11 peak of 105.58.
Technically, Lordstown Motors reported earnings, but the EV pickup startup has essentially zero revenue. Lordstown said its Endurance full-size pickup will start production in September, with the first beta vehicles ready for testing by the end of this month. An electric van should start output in late 2022. But Lordstown also disclosed an SEC probe. That comes after Hindenburg Research accused Lordstown of fraud. RIDE stock, which plunged last week on the Hindenburg report, fell 4% before the open.
Finally, Translate Bio reported weak results for its cystic fibrosis treatment. TBIO stock plunged 25% in premarket trade. Translate Bio stock had been holding its 21-day and 50-day lines.
Stock Market Rally Analysis
The Fed decision and Fed chief Powell’s comments initially gave a much-needed boost. The Nasdaq was undercutting the 50-day line Wednesday and testing its 21-day, before rebounding on the policy statement and Powell. Some big 2020 winners such as CrowdStrike (CRWD) and Twilio (TWLO) rebounded from their 50-day tests. Meanwhile, some recent breakouts and stocks flashing early buys shored up, including MKS Instruments (MKSI), Westlake Chemical (WLK) and 5G chipmaker Qorvo (QRVO).
But as Nasdaq futures today show, the stock market rally remains sensitive to Treasury yields, especially growth names. All of Wednesday’s gains, and then some, could be undone. The tech sector remains a work in progress. If the Nasdaq composite drops below the 50-day line and continues selling, tech stocks are going to come under heavy pressure.
Meanwhile, reopening plays have made big moves. Many are above pre-coronavirus levels, even though earnings are likely to be well below pre-pandemic reports. So don’t get too carried away.
Focus on stocks that are trading above their 21-day and 50-day moving averages.
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.
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