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Need to Know: In a tough, post-Fed market, strategist finds opportunity knocking in a couple of this year’s hottest sectors

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Blink and you missed a post-Federal Reserve bounce, as stock futures signal a reboot for Wall Street selling on Thursday.

“Whatever reaction we see today is likely to be a one-day thing (just like last FOMC). The Fed has no idea where inflation is going, and neither do we. The economic data is what matters, not Fed dots or forecasts or guidance,” said Brent Donnelly, president of Spectra Markets, in a Wednesday tweet that seems to have aged well.

Sifting through the market rubble is our call of the day from Fundstrat’s Mark Newton, who offered up a few investing ideas. For starters, he said no one should expect a material rally or markets to start trending soon, hence a short-term mind-set is required.

For the S&P 500
SPX,
+1.46%
,
he sees important resistance above 3,837 at 3,900, while a move to under 3,875 opens the door to test 3,705 in the short run.

Fundstrat’s head of technical strategy zeroes in on crude prices, where he sees half of May gains erased, which could bring prices down to the lower $100s — first $111, then $108. “Given the ongoing positive intermediate-term momentum, a pullback like this would be a chance to buy energy,” he told clients in a note.

Newton is also looking at “real deterioration” for utilities and REITS, even if markets are pretty volatile. A robust rally in Treasury yields has coincided with declines in those defensive groups along with precious metals.

In year-to-date terms, utilities remain an outperformer to broader U.S. benchmarks, and any near-term weakness is likely a buying opportunity, he said.

“Reasons to buy dips are threefold. First, defensive sectors like utilities are likely to outperform as equity markets enter a volatile stretch into end of Q2. Second, U.S. Treasury yields are showing evidence that a cyclical peak could be near (and should be in place by the end of June),” Newton said.

The third, as shown on the chart below, prices on utility ETFs such as Invesco S&P 500 Equal Weight Utilities
RYU,
+0.53%

or Utilities Select Sector SPDR
XLU,
+0.65%

are nearing trend-line support that has held since last summer, he said.

“This held already twice since the initial trough was formed last July, and points to a decline to $64.42 as providing an excellent entry for longs,” Newton said.

Fundstrat

On this weakness, he likes utilities such as Consolidated Edison
ED,
-0.60%
,
Duke Energy
DUK,
-0.75%
,
Southern Co.
SO,
-0.31%
,
Atmos Energy
ATO,
+0.52%
,
Xcel Energy
XEL,
-0.05%

and Eversource Energy
ES,
-0.20%
.
They have outperformed XLU this year and are anywhere from 13% to 16% off 52-week highs, he said.

He said steer clear of laggards such as American Water Works
AWK,
+1.16%
,
AES
AES,
+3.38%
,
NextEra Energy
NEE,
+3.79%
,
Pinnacle West
PNW,
+0.25%
,
FirstEnergy
FE,
-3.00%
,
all having broken to at least fresh six-month lows and new annual lows for some and likely to lose more.

Newton is also keeping a close watch on the Cboe Volatility Index, or the VIX
VIX,
+7.39%
,
noting a giant triangle pattern forming as shown in this chart, which is likely to resolve in massive upside breakout. The VIX tends to decline during market rallies and rise during times of stress:

Fundstrat

He said “any move back above this week’s highs of 35.05 will be hugely significant technically, and likely coincide with a possible final equity market washout into late June.” A break below 23.75 would be a positive for markets, but a solid drop below 20 is needed to “truly believe equity markets are in the clear.”

“Given the uncertainty ahead of the end of quarter, buying implied volatility on the recent pullback seems prudent and, technically, looking to sell on an upside breakout,” he said.

The buzz

Shock and awe from the world’s central banks continues, with the Fed hike followed by a surprise 50 basis-point Swiss National Bank rate rise that is sending the franc
USDCHF,
-1.45%

sharply higher. The Bank of England raised rates 25 basis points to a 13-year high.

Tesla
TSLA,
+5.48%

has raised auto prices. Stocks are dropping in premarket along with the sector as techs look set to get particularly hit hard today. Elsewhere, CEO Elon Musk will meet Twitter
TWTR,
+2.07%

employees, and he is expected to confirm his desire to get that $44 billion takeover deal done.

Elsewhere, U.S. weekly jobless claims, building permits and housing starts and a Philadelphia Federal Reserve survey are all hitting at 8:30 a.m. ET.

Boeing
BA,
+9.46%

was upgraded to buy/high risk from neutral at Citi, which trimmed its price target to $209 from $219. But it prefers Airbus
AIR,
-2.81%
.

Revlon has filed for bankruptcy.

European gas prices are surging a second day after Russia’s Gazprom cut supplies through the continent’s biggest pipeline. German, French and Italian leaders have headed to Kyiv to show support for Ukraine as Russia’s war approaches four months.

The markets

Stock futures
ES00,
-2.31%

YM00,
-1.89%

NQ00,
-2.74%

are tumbling, bond yields
TMUBMUSD10Y,
3.438%

are climbing, and the dollar
DXY,
-0.05%

has turned lower. Gold
GC00,
+0.11%

is up some, while oil
CL00,
-1.28%

has turned lower. Bitcoin
BTCUSD,
-2.65%

and other cryptos have also come off a post-Fed bounce.

The tickers

These were the top-searched tickers on MarketWatch as of 6 a.m. Eastern:

Ticker

Security name

TSLA,
+5.48%

Tesla

GME,
+2.47%

GameStop

AMC,
+7.13%

AMC Entertainment

NIO,
+7.77%

NIO

RDBX,
+8.62%

Redbox

AAPL,
+2.01%

Apple

AMZN,
+5.24%

Amazon

MULN,
+8.41%

Mullen Automotive

NVDA,
+4.36%

Nvidia

BA,
+9.46%

Boeing

Random reads

A wealthy American may be in trouble in Spain, after claiming thieves allegedly stole a nearly $1 million watch that may be worth far less.

A Manhattan landlord sees the value of his office building drop $12 million after listing it as an nonfungible token in Ether.

Stuck for a holiday plan? $110,000 will get you an around-the-world Disney
DIS,
+1.76%

theme-park tour, via private jet.

The internet can’t get enough of Chewy’s
CHWY,
+8.10%

kindness toward a bereaved dog owner:

Twitter

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

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