Dow Jones futures pushed higher Wednesday night along with the S&P 500 futures and Nasdaq futures. The stock market rally fell slightly on Wednesday, while government bond yields touched recent lows ahead of important inflation data. GME stock and RH earnings were in focus after closing.
GameStop (GME), the original meme stock, topped Q1 earnings forecasts, appointing a new CEO and CFO, adding its stable former exAmazon.com (AMZN) leaders. The company also said it plans to sell up to five million shares “on the market.” The GME stock fell sharply overnight.
This was followed by a generally weak session for Reddit-powered stocks. Clover health (CLOV) turned down and AMC Entertainment (AMC), Wendy’s (WEN) and Bed Bath & Beyond (BBBY) retires all. Lordstown Motors (RIDE) Whisk to unchanged. Some new meme stocks took off, including already hot steel producer Cleveland-Cliffs (CLF).
RH (RH) almost doubled earnings in the first quarter, with sales rising. The RH stock jumped and flashed early buy signals.
Signed jewelers (SIG) is due early Thursday. The SIG stock closed just below its 50-day high. A strong pull after earnings would offer an early entry as Signet works towards a flat-based buying point.
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CPI report in print
The Labor Department will release the consumer price index in May at 8:30 ET. Economists expect a 0.4% increase in consumer prices in general and excluding food and energy after large increases in April. Consumer inflation is expected to rise to 4.6% from 4.2% in April. Core inflation should reach 3.4%, compared with 3% in April. Both will be long-term heights.
The Federal Reserve has said it expects an inflation girl to be temporary and cool next year. The next Fed meeting is on 15-16. June. Investors are waiting for signs that Fed decision-makers are starting to talk about buying tapered assets, although actual restriction of bond purchases may not take place before the end of the year.
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The 10-year Treasury return fell four basis points on Wednesday to 1.49% after matching a three-month low of 1.47% within the day.
A warm inflation report has the potential to push up the 10-year interest rate, albeit only as a return to the average.
Why have government bond yields fallen sharply over the past week and month? Wall Street is lowering expectations of how much extra spending Congress can approve in the coming months. Also, growth in jobs while improving in May is still not rip-roaring. Vacancies are skyrocketing, but employers are struggling to find workers themselves with significant wage increases. Generous salary increases, a desire to continue staying at home and structural shifts in job vacancies are all possible factors.
Dow Jones Futures today
Dow Jones futures rose 0.1% relative to fair value. The S&P 500 futures rose 0.1%. The Nasdaq 100 futures were just over break-even.
The CPI report and the Treasury’s return response are likely to affect Dow Jones futures just before Thursday’s market opens.
Keep in mind that overnight trading in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
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Stock market rally
The stock market rally faded to the end of Wednesday, but the major indices are still at record highs.
The Dow Jones Industrial Average fell 0.4% in Wednesday’s stock market trading, the third just modest decline. The S&P 500 index dipped 0.2%. The Nasdaq composite fell 0.1% after being slightly higher most of the day. Russell 2000 withdrew 0.7%.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) dipped 0.3%, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 0.8%. IShare’s expanded Tech-Software Sector ETF (IGV) was largely flat. VanEck Vectors Semiconductor ETF (SMH) retreated 0.3%.
The SPDR S&P Metals & Mining ETF (XME) lost 0.4% and the Global X US Infrastructure Development ETF (PAVE) lost 0.8%. US Global Jets ETF (JETS) fell 0.6%. SPDR S&P Homebuilders ETF (XHB) fell 1.5% and continued to struggle despite sliding government interest rates.
Based on more speculative history holdings, the ARK Innovation ETF (ARKK) increased by 0.25% and the ARK Genomics ETF (ARKG) increased by 1.2%. ARKK remains below its 50-day and 200-day lines, while ARKG recalled both on Wednesday.
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RH earnings increased 385%, while revenue increased by 78%. While it was easy to compare – earnings and sales fell in the quarter the year before, when the pandemic hit, RH roared the views of the past. The upscale furniture retailer also provided bullish forecasts for Q2 and raised full-year revenue and margin targets.
The RH share jumped almost 7% in late trading. It signals an early entry over the 50-day line and over a downward slope line. RH shares have hit resistance on the 50-day line.
Shares fell 2.8% to 611.33 on Wednesday.
GameStop Earnings Peak, CEO Named
GameStop earnings topped the shows with a smaller-than-expected loss and a 25% revenue gain compared to the pandemic hit the year before.
GameStop appointed Matt Furlong as CEO and Mike Recupero as CFO, both former Amazon executives, with effect from June 21st. They join three other Amazon executives who have taken the best GameStop positions.
Earlier Wednesday, Ryan Cohen formally became chairman of GameStop’s annual shareholders’ meeting. That Cool (CHWY) co-founder, who owns 12% of GME shares as he heralded a digital future for the longtime mall-based video game retailer, says he has big plans but did not spell his vision.
“You can not find us in talking a big game, giving a lot of high promises or telegraphing our strategy to the competition.”
To that point, GameStop once again took no questions about its earnings call.
GME stock fell 7% in action overnight, low after closing time after closing time. Shares rose 0.85% to 302.56 on Wednesday. The GME stock has risen 122% from its lowest level on May 11 at 136.50 and 1,500% so far this year. It hit record 483 on January 28th.
Meme stores were a mixed bag Wednesday.
The CLOV stock fell 24% to 16.92 on Wednesday after hitting a record 28.85 intraday. This follows an increase of 86% on Wednesday. Clover Health was announced on January 8 through a special purpose acquisition company or SPAC run by venture capitalist Chamath Palihapitiya.
Wendy’s stock fell 13% to 25.21. While it did not wipe out the 26% gain of the WEN stock on Tuesday, it signed Tuesday’s intraday. So anyone who bought Wendy’s shares on Tuesday will lose money.
The AMC stock retreated 10% to 49.34. Shares from the theater owner have been consolidated since the AMC stock shot up 95% on June 2nd.
Lordstown Motors stock rose 0.1% to 11.23 after a wild session. Lordstown came back from steep losses after saying it has enough capital to continue operations and that it is in active talks to get new funding. On Wednesday, the RIDE stock jumped to 15.80, but then returned to a 16% loss to 11.22, after the EV pickup startup announced a “going concern”.
Reddit investors can be volatile and move quickly from “old” meme stocks like AMC.
Clean energy fuels (CLNE) and Geo Group (GEO), two newer meme stocks, increased 31.5% and 39%, respectively.
Cleveland-Cliffs, which has had a huge run over the past year, shot up nearly 15% up to 23.22 and burst out of a brief consolidation amid reports of social media chatting. A cyclical steel producer experiencing booming earnings and sales growth is a departure for Reddit-driven meme stock mania.
News about coronavirus
Coronavirus cases worldwide reached 175.10 million. Covid-19 deaths topped 3.77 million.
Coronavirus cases in the United States have affected 34.26 million with deaths over 613,000.
Analysis of market rally
The stock market rally trades just below all-time levels. The S&P 500 could easily hit record highs with Russell 2000, the Dow Jones and Nasdaq. It is unclear whether the key indices will just pause, or whether record highs will serve as real resistance.
Do not get lulled by a few quiet days. The large indices can easily move 1% or more to up or down.
Growth stocks look stronger. But is this the start of an expanded growth-driven rally or just the latest sector rotation? Falling government interest rates have been a tailwind for growth stocks, especially highly valued technologies trying to recover from deep sales. But if the 10-year government dividend recovers much of its recent losses – via a hot inflation report or Fed-conical talks – growth names could come under pressure again.
So do not ignore top stocks from other sectors. Miners dig bases out after strong runs along with several mall-based retailers. Finance has held up reasonably well as the 10-year return has been withdrawn. Higher prices can revive their fortunes quickly.
Read the big picture every day to be in sync with the market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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