Dow Jones futures rose slightly early Thursday, while S&P 500 futures advanced modestly and Nasdaq futures jumped. The stock market rally attempt suffered a nasty downside reversal Wednesday following the Fed meeting and comments by Treasury Secretary Janet Yellen. KB Home and Coinbase were key movers overnight.

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The Federal Reserve raised rates by a quarter point and signaled just one more hike this year. Soon after, Fed chief Jerome Powell said he remains committed to fighting inflation. But he also said that the tighter conditions from Bank Woes took some pressure off monetary policy.

Meanwhile, Treasury Secretary Yellen, testing before a Senate panel, said there would be “no blanket insurance” for all deposits, denying a report that regulators were considering such a step. On Tuesday, Yellen, Powell’s predecessor as Fed chief, signaled regulators are ready to cover deposits more broadly at smaller banks, if needed.

Bank stocks struggled, notably First Republic Bancorp (FRC) and PacWest Bancorp (PACW).

More broadly, the market rally effort has relied heavily on six megacaps: Apple stock, Microsoft (MSFT), Google parent Alphabets (GOOGLE), Tesla (TSLA), Meta Platforms (META) and Nvidia (NVDA). They’ve powered higher in recent weeks, masking weak overall breadth. apples (AAPL), Google and Meta stock are all actionable now, despite Wednesday’s reversals. Microsoft is just below a buy point while Tesla stock is setting up. Nvidia is significantly extended.

Nvidia stock and Meta are on IBD Leaderboard. AAPL stock and Meta are on SwingTrader. Microsoft and Google are on IBD Long-Term Leaders.

But even with these six megacaps, this is not yet a confirmed uptrend. Investors should be cautious.

Dow Jones Futures Today

Dow Jones futures rose 0.2% vs. fair value. S&P 500 futures rose 0.5%. Nasdaq 100 futures popped 1%.

The 10-year Treasury yield fell 1 basis point to 3.49%.

Crude oil futures declined slightly.

Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.

Fed Rate Hikes

The Fed raised rates by a quarter-point to a 4.75%-5% range, as expected. New quarterly projections show policymakers expect the Fed’s key interest rate to end 2023 at 5.1%, implying one further rate hike.

But even that hike isn’t clear. The Fed policy statement said “some additional policy firming may be appropriate,” a little less hawkish than prior statements’ language of “ongoing rate increases.” Fed chief Powell said people should pay attention to “may” and “some.”

The Fed rate outlook will depend greatly on the banking system. Fed chief Powell said bank deposits are “safe” due to the Fed, FDIC and Treasury. But he said that it’s too soon to tell how monetary policy should respond to banking stress.

The statement also noted that banking woes are “likely to result in tighter credit conditions.” Powell said that means monetary policy has less to do.

Markets now see just a 44% chance of a quarter-point hike in May, down from 60% on Tuesday.

Investors still see rate cuts over the summer, even with Powell signaling that’s unlikely.

Key Earnings

KB Home (KBH) reported after the close. KBH stock rose 2.7% in extended trade after KB Home earnings topped views and management gave bullish guidance. Shares edged up 0.4% to 36.80 on Wednesday, a day after cracking the 50-day line. KB Home stock has a 41.02 buy point on a new base after a 62% run from late September to Feb. 2.

Commercial Metals (CMC), Accenture (ACN), Darden Restaurants (DRI), General Mills (GIS) and FactSet Research Systems (FDS) all topped quarterly forecasts early Thursday. ACN stock rose solidly. Darden Restaurants fell slightly and GIS stock edged higher while Commercial Metals and FDS were not yet active.

SEC Warns Coinbase Of Potential Charges

The SEC late Tuesday issued a Wells notice to Coinbase (COIN), a formal warning to the cryptocurrency exchange that the regulator may take “enforcement actions” for potential violations of securities laws. Coinbase said it would operate normally for now.

COIN stock plunged 11% in premarket trading. In Wednesday’s session, Coinbase stock skidded 8.2% as Bitcoin and other cryptocurrencies sold off following the Fed’s rate hike.

Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live

Stock Market Rally

The stock market rally attempt was quiet until the Fed rate hiked and Fed chief Powell’s comments, then whipped in the final two hours of trading, closing at session lows. Bank stocks were significant losers Wednesday, tumbling on Powell’s comments.

The Dow Jones Industrial Average fell 1.6% in Wednesday’s stock market trading. The S&P 500 lost 1.6%, with FRC stock the day’s worst performer. The Nasdaq composite gave up 1.65%. The small-cap Russell 2000, heavily weighted in financials, sold off 2.9%.

US crude oil prices rose 1.8% to $70.90 a barrel, up 6.2% so far this week. Copper futures, which closed before the Fed meeting decision, climbed 1.2%, its fifth straight advance.

The 10-year Treasury yield fell 11 basis points to 3.5%. The 2-year Treasury yield tumbled 20 basis points to 3.98%.

The US dollar fell sharply to the lowest levels since early February, extending a losing streak.

ETFs

Among growth ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.3%, while the Innovator IBD Breakout Opportunities ETF (BOUT) lost 1%. The iShares Expanded Tech-Software Sector ETF (IGV) slumped 2%, with MSFT stock a core IGV component. The VanEck Vectors Semiconductor ETF (SMH) dipped 0.6%. Nvidia stock is a major SMH holding.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) skidded 4.8% and ARK Genomics ETF (ARKG) lost 4.3%. Tesla stock is a huge holding across Ark Invest’s ETFs.

The SPDR S&P Metals & Mining ETF (XME) retreated 2.2% and the Global X US Infrastructure Development ETF (PAVE) shed 2.1%. US Global Jets ETF (JETS) declined 2.3%. SPDR S&P Homebuilders ETF (XHB) gave up 1.7%. The Energy Select SPDR ETF (XLE) declined 2.1% The Health Care Select Sector SPDR Fund (XLV) 1.5%.

Bank Stocks

The Financial Select SPDR ETF (XLF) has a 2.3% penalty. The SPDR S&P Regional Banking ETF (KRE) tumbled 5.7% after popping 5.8% on Tuesday.

First Republic and PACW stock, among many KRE holdings, plunged 15.5% and 17%, respectively. First Republic could get government backing to help ease an investment or takeover, Bloomberg reported Tuesday. PACW stock said Wednesday that it gave up on a capital raise and obtained $1.4 billion in liquidity from Atlas SP, owned by Apollo Global Management (APO). While bank deposits may be “safe,” as Powell stated, bank shareholders could still take huge losses or be wiped out.

FRC stock and PacWest both rose modestly overnight.

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Market Rally Analysis

The stock market initially attempted to rally, responding well to the Fed rate hike and chief Powell’s comments, but sold off hard into the close.

The S&P 500 briefly got above its 50-day line, but reversed lower to just above its 200-day line. The Nasdaq composite touched 12,000 before pulling back.

The Dow Jones reversed back below the 200-day line. The Russell 2000 fell sharply, well below key moving averages.

Losers led winners by nearly 3-to-1 on both the NYSE and Nasdaq. Breadth has been a concern throughout the market rally attempt.

Nvidia stock rose slightly Wednesday while Apple, Google, Meta and Microsoft stock edged lower and Tesla fell modestly. But over the past several weeks, those six megacaps have fueled the S&P 500 and Nasdaq. But the Invesco S&P 500 Equal Weight ETF (RSP), which was only approaching its 200-day line this week, tumbled 2.25% Wednesday to its worst close in four months. Meanwhile, the big-cap Nasdaq 100 reversed lower, but after hitting its best levels in nearly seven months. The Directory NASDAQ-100 Equal Weighted Index (QQQE) shed 2.1%, back below its 50-day.

The market often has a second-day reaction to Fed meetings that reverses the initial move. But the Fed-led sell-off could continue. This is still just a market rally attempt. Look for a follow-through day to confirm the new uptrend.

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What To Do Now

The stock market rally attempt has shown some promising hints at times, but it remains divided, volatile and news driven. Until the bank crisis is firm in the background and the market shows a broad advance, investors should be cautious.

Investors could have modest exposure, assuming their positions are working. But don’t let losses mount.

There’s nothing wrong with waiting for a confirmed market uptrend to start getting off the sidelines.

Don’t try to force the issue. Prepare for the next sustained market rally by building up your watchlists.

Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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