Dow Jones futures and S&P 500 futures climbed solidly Thursday morning, while Nasdaq futures jumped. The major indexes rose modestly Wednesday, rebounding from sharp morning lows amid a McConnell debt-limit offer. It was a positive sign for the stock market rally attempt, but it’s still a market correction for now.
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Senate Minority Leader Mitch McConnell said Wednesday that Republicans would let Democrats pass a short-term debt-limit extension, helping to avoid a looming default that could come as soon as Oct. 18. Democratic senators signaled they would accept the offer.
Affirm Holdings (AFRM) surged yet again on Wednesday, this time on a new “buy now, pay later” partnership with Target (TGT). AFRM stock spiked, flashing multiple buy signals and hitting its highest levels since February.
After the close, Twitter (TWTR) agreed to sell its MoPub mobile ad network to AppLovin (APP) for $1.05 billion. TWTR stock rose modestly in extended trading, trying to get above its 200-day and 50-day lines. APP stock surged 9.5% overnight, signaling a strong move past a handle buy point.
Software Stocks Advance
SNOW stock, Fortinet (FTNT), Palo Alto Networks (PANW), Zscaler (ZS), Salesforce.com (CRM), Microsoft (MSFT) and Bill.com (BILL) are showing strength. Software makers are relatively insulated from supply-chain woes plaguing much of the economy.
Snowflake (SNOW), Fortinet, Palo Alto and ZS stock all rebounded from or reclaimed their 50-day moving averages, while Bill.com has bounced from its 10-week line. CRM stock rallied off its 21-day moving average, on the verge of reclaiming a breakout buy point. In a stronger market, aggressive investors could take advantage of all these names.
Meanwhile, MSFT stock rose to the cusp of its 50-day line. A flat-base buy point isn’t far above that key level, according to MarketSmith analysis.
The price of Bitcoin raced higher Wednesday, topping $55,000 intraday before pulling back slightly overnight. Bitcoin- and crypto-related plays also rallied, including Marathon Digital (MARA), Grayscale Bitcoin Trust (GBTC) and Coindesk (COIN).
Meanwhile, energy stocks fell solidly as oil prices declined and natural gas prices tumbled, after both had soared to record highs. Financials were steady as Treasury yields reversed from multimonth highs to finish slightly lower.
Microsoft stock is on IBD Leaderboard. Fortinet stock and Microsoft are on IBD Long-Term Leaders.
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McConnell Debt Limit Offer
Senate minority leader McConnell said Republicans would let Democrats pass a two-month debt-limit extension via normal procedures. That would push off the risk of government default. Treasury Secretary Janet Yellen has suggested that Oct. 18 is the deadline, though other reports suggest the Treasury might be able to avoid a destabilizing default until early November.
McConnell’s offer came as Senate Majority Leader Chuck Schumer was poised to try yet again to push through a longer-term debt-limit hike, despite certain GOP opposition. Meanwhile, President Joe Biden urged some top CEOs at a White House meeting to raise the alarm on the debt limit. Democrats also have been trying to get centrist Senators to go along with a special exception from the filibuster for a debt limit hike, a move McConnell likely wanted to head off.
Sen. Chris Coons, D-Del., told CNN that “Mitch McConnell blinked” and that Democrats likely would accept his offer to extend the debt ceiling to December. As a practical matter, the Treasury could then use extraordinary measures once again, pushing the next effective debt default to February 2022 or slightly later.
Ultimately, Schumer and McConnell are playing a game of chicken, trying to pin or share the blame for a government default — or debt-limit increase — on the opposing party.
The debt limit hike also complicates, procedurally and politically, Democrat efforts to focus on a reconciliation bill. The White House, congressional leaders and progressives have backed off demands for a $3.5 trillion spending package. They are trying to get Sens. Joe Manchin and Krysten Sinema to accept something around $2 trillion in spending along with significant tax increases, but so far there’s no deal. Progressive, left-wing Democrats are blocking passage of a $1 trillion infrastructure spending bill until there is significant progress on the partisan reconciliation package.
Dow Jones Futures Today
Dow Jones futures rose 0.5% vs. fair value. S&P 500 futures advanced 0.7% and Nasdaq 100 futures jumped 1%.
Crude oil futures fell 2%, extending Wednesday’s losses. Energy prices cooled slightly in Europe, where natural gas prices have skyrocketed.
The 10-year Treasury yield was little changed at 1.53%.
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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Stock Market Rally Attempt
The stock market rally attempt struggled in the morning, but rebounded to close up modestly, at session highs, as the McConnell debt-limit hike offer eased default fears.
The Dow Jones Industrial Average rose 0.3% in Wednesday’s stock market trading. The S&P 500 index climbed 0.4%. The Nasdaq composite gained 0.5%. The small-cap Russell 2000 dipped 0.5%, though it did finish near session highs.
Microsoft stock is a member of the Dow Jones, S&P 500 and Nasdaq composite. NYSE-listed CRM stock is on the Dow Jones and S&P 500.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) climbed 0.7%, while the Innovator IBD Breakout Opportunities ETF (BOUT) retreated 0.7%. The iShares Expanded Tech-Software Sector ETF (IGV) added 0.6%. MSFT stock and Salesforce are among the biggest IGV components, while Fortinet, Zscaler, Bill.com and PANW stock also are holdings. The VanEck Vectors Semiconductor ETF (SMH) edged up 0.3%.
SPDR S&P Metals & Mining ETF (XME) slumped 2% and Global X U.S. Infrastructure Development ETF (PAVE) dipped 0.1%. U.S. Global Jets ETF (JETS) fell 1.4%. SPDR S&P Homebuilders ETF (XHB) edged up 0.3%. The Energy Select SPDR ETF (XLE) lost just over 1% and the Financial Select SPDR ETF (XLF) edged up 0.1%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) rose 0.8% and ARK Genomics ETF (ARKG) slid 1.3%. Several ARK ETFs have bought COIN stock.
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Affirm Spikes Again
AFRM stock jumped as the fintech reached a partnership with Target. Affirm already works with Walmart (WMT) and forged a deal with Amazon.com (AMZN) in late August. Those deals have provided tremendous validation for Affirm and the “buy now, pay later” consumer financing boom.
AFRM stock shot up 20% to 133.70. That cleared a 133.27 handle buy point in a very deep cup-with-handle base going back to early February. Earlier in the session, Affirm stock was buyable as it began to rally from its 21-day line. But either entry was especially aggressive given the current market correction.
Affirm stock has had a series of big moves in just over two months. Shares jumped 15% on Aug. 2, in reaction to Square (SQ) agreeing to pay $29 billion for Afterpay. AFRM stock skyrocketed 47% on Aug. 30 following the Amazon partnership, then gapped up 34% on Sept. 10 on quarterly results.
Bitcoin Price
Bitcoin jumped nearly 8% vs. 24 hours earlier to below $55,000 after topping $55,400 Wednesday night. SEC Chairman Gary Gensler said Tuesday that he wasn’t looking at a China-like crypto ban. Gensler has sought more oversight and curbs on cryptocurrencies, but Tuesday’s comments suggested he’s not fundamentally opposed to alt-coins. Bitcoin has rallied strongly since falling to $41,000 in late September on China’s ban on crypto transactions.
Other digital coins were winners Wednesday, including Ethereum. MARA stock popped 4.8%, while GBTC gained 5.6%. COIN stock leapt 4.3%.
Market Rally Analysis
The stock market rally attempt showed resilience. The major indexes fell more than 1% intraday but rebounded for slim gains. The advance came on slightly higher volume than the prior session, another positive.
Software and Bitcoin plays led the way, though AFRM stock was the clear standout Wednesday.
Cheaper energy prices may have eased inflation fears somewhat, with Treasury yields retreating from highs. Those moves, along with hope for a debt-limit hike resolution, may have buoyed the stock market rally attempt, especially techs. But energy costs and the 10-year Treasury yield remain in uptrends.
Wednesday was day two of a stock market rally attempt for the S&P 500 and Nasdaq, which both undercut recent lows on Monday. The Dow Jones was on day four of a rally attempt. That means the Dow could stage a follow-through day at any time, confirming the new uptrend. Generally, it’s preferable to see a broader follow-through day, via the S&P 500 or Nasdaq, but Dow Jones FTDs can and do work. Also, sometimes one index will stage a follow-through, with the other indexes providing confirmation later.
But just because the major indexes could stage follow-through days doesn’t mean they will. While Wednesday’s action was encouraging, this remains a stock market in correction.
The September jobs report is due Friday morning. That could be a catalyst for big market gains or losses. Investors likely will want to see stronger job growth than in August, but not so strong as to trigger a big spike in Treasury yields.
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What To Do Now
The stock market rally attempt had a slightly positive session, a big improvement from the morning. Investors who snuck into growth stocks the past couple of days are probably sitting on modest gains. But those gains could quickly disappear. Investors may want to take quick partial profits on any decent gains and absolutely must be ready to cut losses short.
There’s nothing wrong with being entirely in cash, or not making any new moves while holding onto a couple of long-term winners.
If the stock market rally is confirmed and continues to act well, there will be opportunities. So be prepared by bulking up your watchlists and staying engaged.
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