Dow Jones Futures Climb Amid Fed Rate Decision; Focus on Nvidia and Tesla

Dow Jones futures saw a slight increase overnight, alongside rises in S&P 500 futures and Nasdaq futures. Investors await the Federal Reserve meeting, which is set to conclude Wednesday afternoon, where a hawkish rate cut is anticipated.

Currently, the stock market is experiencing weak breadth, leading to some declines. The Nasdaq has pulled back from its recent record highs, with many leading growth stocks under pressure. The Dow Jones has seen its longest losing streak since 1978, falling below key support levels.

Nvidia (NVDA) suffered another decline, triggering multiple sell signals, largely influenced by negative news from Microsoft (MSFT), which stated it is not constrained in chip supply. However, Nvidia's stock managed to recover slightly from its lows. In contrast, Tesla (TSLA) continued to gain momentum.

Current Status of Dow Jones Futures

Dow Jones futures have risen by 0.1% compared to fair value. Both S&P 500 futures and Nasdaq 100 futures are showing mild increases.

It's important to note that overnight movements in Dow futures and other markets do not always indicate how trading will unfold during the regular market hours.

Upcoming Fed Meeting Overview

The final Fed meeting of 2024 will conclude on Wednesday, with an announcement expected at 2 p.m. ET. The market is reacting to the strong probability of a quarter-point rate cut, which would represent a total of 100 basis points cut over three meeting sessions. With steady economic growth and persistent inflation, many investors are speculating that the Fed may accompany this cut with mildly hawkish guidance.

The upcoming meeting will be crucial, as it will reveal the latest economic projections and the policymakers' "dot plot" regarding future rate forecasts, particularly after Fed chairman Jerome Powell's comments.

Assessment of the Stock Market Rally

The stock market rally is showing signs of weakness, with the Nasdaq also reflecting a decline in breadth. In trading on Tuesday, the Dow Jones Industrial Average fell by 0.6%, marking its ninth consecutive decline and finishing just below its 50-day line. The S&P 500 index dropped by 0.4% but maintained its position above the 21-day line. The Nasdaq composite decreased by 0.3% after reaching a record high earlier, and the small-cap Russell 2000 dropped by 1.2%, nearing its 50-day line.

The Invesco S&P 500 Equal Weight ETF (RSP) fell 0.8%, while the First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) slipped 0.4%. Other ETFs, including the Invesco S&P MidCap Momentum ETF (XMMO), also experienced declines.

Tesla's stock has shown resilience, continuing to rise amid a market that is increasingly challenging for many leaders. Meanwhile, U.S. crude oil prices declined by 0.9%, settling at $70.08 per barrel, and the 10-year Treasury yield saw a slight decrease to 3.38%.

Analysis of ETFs

In the world of growth ETFs, the Innovator IBD 50 ETF (FFTY) decreased by nearly 1%, and the iShares Expanded Tech-Software Sector ETF (IGV) dropped by 0.9%. The VanEck Vectors Semiconductor ETF (SMH), which prominently features Nvidia, fell by 1.3%. Although Nvidia continues to be a significant stock within this ETF, its performance has raised concerns.

Meanwhile, the ARK Innovation ETF (ARKK) saw minor gains, while the ARK Genomics ETF (ARKG) lost 2.1%. Tesla remains a major holding in Ark Invest's ETF portfolios, along with Nvidia.

Focus on Nvidia Stock

Nvidia's stock slid to as low as 126.86 on Tuesday morning, clearly activating the 7%-8% sell rule for investors who had purchased shares at the buy point of 140.76. The stock eventually recovered slightly, closing down 1.2% at 130.39%, marking the fourth consecutive decline and the eighth drop in the last nine trading sessions. Nvidia's stock is now 6.3% lower than its 10-week moving average.

The company's troubles were exacerbated by Microsoft’s comments about its chip supply availability, leading to concerns about Nvidia's market position. Additionally, there are issues related to chip overheating and competition from custom-built chips.

While longer-term investors may choose not to sell Nvidia, having a clear exit strategy is advisable.

Focus on Tesla Stock

Tesla's stock climbed 3.6% to 479.86, achieving a striking 39% gain over the month, building on a 38% rise from November. Mizuho recently upgraded Tesla's stock and raised its price target to 515. Positive reports regarding Tesla’s EV sales in China have helped offset some weaknesses in other markets.

The company is also rolling out its Full Self-Driving (FSD) version 13 to owners, promising substantial improvements, which are vital for Tesla’s ambition to achieve full self-driving capability by mid-2025. This promise of innovation is a driving force behind Tesla's stock performance.

Currently, Tesla's shares are approximately 16.2% above their 10-day line and 55.2% above their 50-day moving average, although shares have shown slight declines in after-hours trading.

Investors must consider their strategies, deciding whether to take profits as Tesla's stock climbs or wait for potential sell signals during market fluctuations.

What to Consider Moving Forward

The stock market rally is facing challenges, with few exceptions from major players like Tesla. A persistently mixed market could lead to broader declines or shifts in sector performance.

With the current market facing downward pressure, it is difficult to maintain upward momentum despite isolated strength in specific stocks flashing buying signals. As the Fed's rate decision approaches, investors should exercise caution in the short term, being prepared to act quickly if needed.

There are still opportunities for stocks forming bases or trading tightly along their 21-day or around their 50-day lines. Should the market gain strength, it may present numerous buying chances.

To stay informed, consistently read market updates to align with the overall market trends and identify leading stocks and sectors.

Dow, Jones, Futures, Tesla, Nvidia