Dow Jones futures rose late Wednesday, along with S&P 500 futures and Nasdaq futures, with Apple stock, Facebook (FB), ServiceNow (NOW) and Qualcomm (QCOM) headlining notable earnings movers. President Joe Biden touted his tax hike proposals and latest spending plans in a primetime address before Congress.
The stock market rally edged lower Wednesday, awaiting Apple earnings and Biden tax hike details. Investors also digested the latest Fed meeting announcement and Fed chief Jerome Powell’s comments as well as overnight results from Microsoft stock, Google parent Alphabet (GOOGL) and many others. Google stock jumped to a new high while Microsoft retreated modestly. Tesla (TSLA) stock fell slightly, testing its 50-day line after Tuesday’s post-earnings sell-off.
Apple (AAPL), Facebook, ServiceNow, Ford Motor (F), Qualcomm, Century Communities (CCS) and Align Technology (ALGN) all reported late Wednesday. So did Element Solutions (ESI) and shale plays Matador Resources (MTDR) and Continental Resources (CLR). All these stocks, from Apple to iPhone supplier Qualcomm stock, were in or near buy zones or early entries.
Apple and Facebook reported blowout earnings. But ServiceNow, Ford, Qualcomm, Century Communities, Align Technology, Element Solutions, Matador and Continental Resources also beat profit views.
All 10 stocks were in or near buy zones or early buy signals heading into earnings.
Apple stock rose overnight signaling a breakout. FB stock popped to a record high, triggering an alternate entry. Align stock jumped and ESI stock rose, both possible breakouts. Qualcomm stock, Matador and Continental Resources flashed buy signals but ServiceNow and Ford stock retreated, with Ford slashing guidance on chip shortages.
Biden Touts Spending, Tax Hike Proposals
President Biden laid out his $1.8 trillion proposal for new spending on education, child care and education as well as extending tax breaks created or expanded as part of the $1.9 trillion stimulus package passed earlier this year. It also follows a $2.3 trillion proposal for infrastructure and many other spending programs.
Investors will pay close attention to his tax hike proposals. President Biden has already proposed hiking the corporate income tax to 28% from 21%, as well as making other changes with the aim of making sure many giants pay some income tax. That would help offset the infrastructure and friends legislation.
Biden favors raising the top income tax rate to 39.6%, from 37% currently. He also proposed nearly doubling the top capital gains tax rate to 39.6% from 20% to help pay for his third massive spending bill. Including an ObamaCare surcharge, the top rate would be 43.4%. In many states, including California and New York, the federal-and-state cap gains rate would top 50%. The higher capital gains tax rate would only apply to those making at least $1 million a year.
Another concern is whether the massive fiscal stimulus, combined with an all-out Federal Reserve, will generate inflation as the U.S. economy already benefits from a pandemic recovery. That, along with Biden tax hikes, could be a one-two punch for the stock market.
President Biden doesn’t seem too concerned about the impact on stock prices. In excerpts from his speech, Biden plans to tell Congress that “Wall Street didn’t build this country,” middle America did.
Many analysts believe that the Biden tax hike proposals ultimately will be watered down to clear the 50-50 Senate. But Wall Street didn’t expect the Biden stimulus package to end up being so large.
The Fed meeting and Fed chief Jerome Powell’s press conference were essentially nonevents. Policymakers took no action, they didn’t talk about making future moves and didn’t offer hints about talking about future moves. While the economy has “strengthened,” policymakers want “substantial further action,” according to the Fed meeting policy announcement.
Fed chief Jerome Powell once again said it’s too soon to talk about tapering bond purchases. However, Powell added that capital markets appear “a bit frothy,” echoing some prior statements.
The June Fed meeting could be a different story, but for now policymakers continue to step on the gas.
Key Earnings Thursday
Generac (GNRC), Caterpillar (CAT), Mastercard (MA) and McDonald’s (MCD) headline notable earnings before Thursday’s open. Generac stock fell Wednesday after flirting with a buy point Tuesday. Caterpillar stock is near a breakout while Mastercard and McDonald’s are in buy zones.
Amazon cleared a buy point Wednesday, perhaps buoyed by Shopify (SHOP) earnings. Nio stock edged lower Wednesday, still hitting resistance at its falling 50-day line, far off prior highs. Tesla stock tested its 50-day line, falling 1.5% after sinking 4.5% Tuesday following its earnings report.
ServiceNow stock, Microsoft, Century Communities and Generac are on IBD Leaderboard. Microsoft, ServiceNow and Mastercard stock are on IBD Long-Term Leaders. CCS stock. Tesla and Generac are on the IBD 50. Generac stock is on the Big Cap 20.
Apple stock, Microsoft, Caterpillar and McDonald’s are on the Dow Jones Industrial Average.
Dow Jones Futures Today
Dow Jones futures rose 0.3% above fair value. S&P 500 futures climbed 0.6%. Nasdaq 100 futures jumped 1%, buoyed by Apple, Qualcomm and Facebook stock.
Futures extended gains on the Biden speech.
Coronavirus cases worldwide reached 150.21 million. Covid-19 deaths topped 3.16 million.
Coronavirus cases in the U.S. have hit 32.98 million, with deaths above 588,000.
President Biden, in Wednesday night’s speech, said the U.S. would “become an arsenal” of vaccines for other countries. But he said every American would have access to vaccines before he shares shots abroad.
Stock Market Rally
The stock market rally had another quiet session, trading in a relatively tight range Wednesday.
Stocks briefly erased early afternoon losses as Fed chief Jerome Powell spoke, though the major indexes closed lower following his “frothy” capital markets comment. The 10-year Treasury yield erased a modest intraday gain.
The Dow Jones Industrial Average lost 0.5% in Wednesday’s stock market trading. Boeing (BA) and Microsoft stock weighed on the Dow, while Visa (V) and Chevron (CVX) provided a boost. The S&P 500 index dipped 0.1% after hitting a record high. The Nasdaq composite lost 0.2%. The Russell 2000 eked out a 0.2% advance.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) dipped 0.2%, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 0.6%. The iShares Expanded Tech-Software Sector ETF (IGV) dipped 0.25%, with Microsoft stock the top holding. The VanEck Vectors Semiconductor ETF (SMH) retreated 1.6% as many chip stocks fell on earnings.
Apple earnings easily beat views as revenue surged 54% on iPhone sales, services and more. The tech titan also announced $90 billion for fresh buybacks and hiked its dividend. Apple stock rose 2% overnight, signaling a breakout. Shares dipped 0.6% to 133.58 on Wednesday. AAPL stock has a cup-with-handle buy point of 135.63, though the tiny handle likely didn’t shake out many weak holders.
Facebook earnings jumped 93% as revenue spiked 48%, the third straight quarter of accelerating sales growth and the best top-line growth in years.
FB stock leapt 6% in extended trade. Shares rose 1.2% to 307.10 on Wednesday. Facebook stock closed in range from a 299.81 handle entry on a consolidation going back to early September. FB appears likely to be extended from that buy point on Thursday, but investors could use 315.98 as an alternate entry.
ServiceNow earnings beat views, but the business software leader signed up fewer big customers than in prior quarters. NOW stock tumbled 7% in overnight action. Shares fell 1% to 557.24 on Wednesday. That pushed ServiceNow stock just below a 560.89 cup-with-handle buy point, according to MarketSmith analysis.
Qualcomm earnings crushed views. QCOM stock popped 5% overnight. Shares fell 1% to 136.57 on Wednesday. Qualcomm stock is far from a 167.68 buy point. Investors could view an earnings bounce from the 50-day line as an early entry, especially if it gets above 140.68.
Meanwhile, the Apple and Qualcomm earnings results buoyed other iPhone chip suppliers, including Qorvo (QRVO) and Skyworks (SWKS), both of which flashed buy signals overnight. Skyworks earnings are due late Thursday, with Qorvo next week.
Market Rally Analysis
The stock market rally continues to show healthy action. After a strong run-up, the major indexes have been going sideways for the past couple of weeks. The S&P 500 hit a fresh high Wednesday while the Dow Jones and Nasdaq are just below all-time levels.
Leading stocks are generally faring well, aside from individual earnings reactions.
If the stock market rally handles the next few days of earnings season, there may be a period of relative calm. A spring-summer 2021 rally could provide solid gains, but remember to follow sound buy and sell rules. Investors can’t expect another April-September 2020 supercharged run, where reckless behavior is rewarded.
As for Biden tax hikes and the Federal Reserve, investors should be aware of notable policy proposals and actual moves. But let the market tell you if Washington’s decisions are bullish, bearish or neutral for Wall Street.
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