Day Traders Diary


Stocks tumbled on Wednesday as bond yields held steady at multi-year highs and amid continued concerns about economic and earnings growth prospects. The S&P 500 lost 3.3%, extending its losing streak to five sessions in a row, which is its longest losing streak since 2016. The Dow Jones Industrial Average and the Nasdaq Composite also fell sharply, losing 3.2% and 4.1%, respectively.

At the opening bell, the S&P 500 fell below its 50-day moving average (2879), which has been an area of support for the market this week. Selling continued from there, with the S&P 500 extending its opening loss of 0.5% more than six times over. However, the selling didn't feel fast and panicky; rather, it was somewhat orderly in nature, which underscores the idea that it was largely a risk-reduction effort, whereby market participants are cutting their exposure to stocks, cognizant that earnings growth estimates are at risk with rising interest rates, tariff actions, and higher costs.

Other key technical breaches included the Dow falling below its 50-day moving average, the Nasdaq falling below its 200-day moving average, and the Russell 2000 falling below its 200-day moving average.

High-growth FANG names, which have been key leadership stocks for this bull market, struggled mightily on Wednesday; Netflix (NFLX 325.89, -29.82) lost 8.4%, Amazon (AMZN 1755.25, -115.07) lost 6.2%, Facebook (FB 151.38, -6.52) lost 4.1%, Apple (AAPL 216.36, -10.51) lost 4.6%, and Alphabet (GOOG 1081.22, -57.60) lost 5.1%.

Information technology was the worst-performing S&P sector on Wednesday, tumbling 4.8%, but growth-sensitive, cyclical groups underperformed on the whole, with financials, consumer discretionary, industrials, energy, and communications services all losing between 3.0% and 3.9% apiece. None of the 11 S&P sectors were able to advance on Wednesday, but the defensive-oriented utilities (-0.5%) group did manage to keep its loss in check.

Interestingly, the equity sell off did not lead to higher demand for "risk-free" U.S. Treasuries. In fact, bonds declined with stocks on Wednesday, with investors presumably opting to go to cash instead. The benchmark 10-yr yield, which moves inversely to the price of the 10-yr Treasury note, advanced two basis points to 3.23%, closing near a seven-year high.

Meanwhile, the CBOE Volatility Index, often referred to as the "investor fear gauge" spiked 36.2% to 21.73, its highest level since late March.

Away from Wall Street, Hurricane Michael made landfall in the Florida panhandle as a Category 4 storm. The storm has disrupted crude production in the Gulf of Mexico, but oil prices fell notably on Wednesday nonetheless, retreating from the four-year high hit earlier this month. WTI crude dropped 2.5% to $73.09/bbl.

Reviewing Wednesday's economic data, which included the September Producer Price Index, August Wholesale Inventories, and the weekly MBA Mortgage Applications Index:

  • Producer prices rose 0.2% in September ( consensus +0.2%), and core producer prices increased 0.2% ( consensus +0.2%). Year-over-year, producer prices are up 2.6% (vs +2.8% in August) and core producer prices have risen 2.5% (vs +2.3% in August).
    • The key takeaway from the report is that producer prices climbed in September without a contribution from prices for final demand energy, which fell 0.8%. Furthermore, there is nothing in the report to suggest the Fed is likely to deviate from another rate hike at its December FOMC meeting.
  • August Wholesale Inventories increased 1.0% ( consensus +0.8%). The July reading was left unrevised at +0.6%.
    • The key takeaway from the report is that the build in wholesale inventories will be accounted for as a positive input for Q3 GDP forecasts.
  • The weekly MBA Mortgage Applications Index showed a decrease of 1.7%.

Looking ahead, investors will receive the Consumer Price Index for September, weekly Initial Claims, and the September Treasury Budget on Thursday.

  • Nasdaq Composite +7.5% YTD
  • S&P 500 +4.2% YTD
  • Dow Jones Industrial Average +3.6% YTD
  • Russell 2000 +2.6% YTD
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