The Dow Jones Industrial Average posted small losses in the first half of Thursday’s session after two Fed governors warned that current data did not justify pausing rate hikes. Semiconductors and FAANG stocks lead a powerful Big Tech rally. Walmart ( WMT ) eased fear for retail sector with strong quarter. Recent reports of debt ceiling optimism may turn out to be wildly inaccurate.
Voting FOMC member Lori Logan poured cold water on hopes for a rate break, talking about a June rate hike. Governor Philip Jefferson followed suit less than an hour later, warning that inflation “is still too high.”
CME FedWatch odds of a hike in June rose from 28% earlier to 45% on the news. It was only 11% a week ago.
The S&P Regional Bank ETF (KRE) traded flat through midday after a strong premarket rally. PacWest (PACW) rebounded nearly 9% in busy trading.
Semiconductors And FAANG Lead Big Tech Upside
Netflix ( NFLX ) rocketed more than 9% higher after announcing that the ad-supported tier had reached 5 million global monthly active users. The stock broke from a cup-with-handle base in heavy volume. It is just above buying range from its 349.90 buy point.
Also part of the fabulous FAANG five, Apple (AAPL), Amazon.com (AMZN) and Alphabet (GOOG) all gained more than 1%. Meta Platforms (META) was the bearish outlier, up just 0.2% on the hour.
The PHLX semiconductor sector index rose 2.8% in the first half of the session, with every chip stock on the IBD 50 list roaring through buy points.
Blue chip Broadcom (AVGO) traded in the buy zone, up 2.3%. AVGO shares came within four points of the 2021 high at 677.76.
Rambus (RMBS) rallied more than 9% after Jefferies upgraded the chip stock to buy from hold. The company also raised the price target to 65.
Axcelis Technologies (ACLS) is extended above the buy zone of a 136.48 consolidation base buy point. ACLS rallied 5.2%.
In the software industry, Synopsis (SPNS) broke from a flat base in heavy volume. The chip design software company beat estimates for its quarter ended April and raised its full-year outlook. Shares are in a buy zone from the 392.89 buy point, which goes up to 412.53.
Progressives want Biden to stop debt-ceiling talks
Stock indexes took a break from debt ceiling fears this week after both sides pointed to constructive talks. But a huge divide remains and all the happy talk in the world can’t hide deep divisions that could lead to a crisis as we near the end of the month.
According to Jake Sherman at the well-regarded political daily Punchbowl News, the progressive wings of the House and Senate could rebel against a debt ceiling deal that includes concessions to Republicans, demanding that the president invoke the 14th Amendment.
“There is a growing sense within the Senate Democratic Caucus that Biden may have made a serious mistake by entering into direct negotiations with McCarthy. And based on our conversations with them, many Senate Democrats seem in denial that, in this scenario, they , will have to swallow a deal passed to House Republicans – anything to avoid a default.”
Sherman also noted that Senators Bernie Sanders and Elizabeth Warren could lead a revolt against any deal. As Warren warned in a statement to Punchbowl, “we have to find a way to save our economy and our good name around the world. Plan A is for the Republicans to raise the debt limit in a clean bill. Plan B is, move to the 14th Amendment.”
However, invoking the 14th Amendment would likely trigger a stock market selloff, as many constitutional scholars believe it would be overturned by the Supreme Court. And the further delay may also push the US past debt default dates.
Dow Jones By The Numbers
The Dow Jones Industrial Average traded lower by 0.2% in the first half, while the S&P 500 added 0.4%. The Russell 2000 small-cap index rallied just 0.3% as it tested its advance above the 50-day moving average on Wednesday.
Big Tech once again showed superior performance, lifting the Nasdaq 100 1.3%. The Nasdaq composite gained 1.1% as buyers chose to ignore hawkish Fedspeak.
Growth stocks outperformed, with semiconductors lifting the Innovator IBD 50 ETF ( FFTY ) 1.4%.
Volume on the NYSE and Nasdaq rose slightly above Wednesday’s first-half levels. European and Asian markets traded generally higher.
The 10-year Treasury yield rose to a two-month high, strengthening April resistance above 3.60%. Bitcoin remained stuck in a trading range of $27,000 to $30,000.
Weekly jobless claims fell to 242,000, below 259,000 consensus. Continuous claims dropped to 1,799 million. The four-week moving average of continuous claims fell by 15,000, to 1.812 million. Together, these metrics signal continued tightness in the labor market, despite multiple rate hikes.
April existing home sales of 4.28 million missed estimates of 4.30 million. March was revised downwards, to 4.43 million from 4.44 million. The sales of new homes in April will be released on Tuesday morning.
Dow Jones Market Movers
Dow Jones component Walmart beat top- and bottom-line estimates in April-end, posting a profit of $1.47 per share on a 7.6% rise in revenue to $152.3 billion. The retail giant lowered Q2 EPS guidance but raised its fiscal year outlook above analyst consensus. WMT stock pared gains to 0.4%.
Also in Dow Jones, Cisco Systems ( CSCO ) fell just 0.1% after beating fiscal Q3 revenue and sales projections. The networking giant earned $1 per share on healthy 13.5% year-over-year revenue growth to $14.57 billion. However, some shareholders hit the exits when the company warned of “lengthy sales cycles” and an overall product order decline of 23%.
Alibaba ( BABA ) traded down 3.8% after beating fiscal Q4 profit estimates and reporting in-line revenue. BABA stock mounted the 21- and 200-day lines Wednesday and fell below those levels in early trading.
BTIG Research upgraded IBD 50 component Dynatrace (DT) to buy from neutral, with a 57 price target.
Analyst Gray Powell noted that “DT cleared all buy-side targets in print. Growth appears to stabilize despite macro headwinds and ongoing customer cloud optimization initiatives.”
DT stock traded 4.1% higher on the news and mounted the 48.10 buy point from a three-month cup base. JPMorgan, Wells Fargo and other companies raised their price targets on Dynatrace.
Deere (DE) closes a busy earnings week on Friday morning.
The once-dormant farm equipment giant has transformed into a tech play as it develops a fleet of autonomous farming and harvesting vehicles. THE stock has retreated since posting an all-time high above 400 in November. Revenues in 2023 are expected to grow a healthy 31%. The stock traded 0.2% higher.
Follow Alan Farley on Twitter at @msttrader.
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