Day Traders Diary

9/22/21

The major averages rebounded Wednesday after the Federal Reserve indicated it doesn't see an imminent rollback of the monetary stimulus that has been supporting the economy throughout the pandemic. The Dow Jones Industrial Average advanced 338 points, or 1%, on track to snap a four-day losing streak. The blue-chip Dow jumped 520 points at its session high. The S&P 500 added 41 points or 0.95% amid a 3.3% jump in the energy sector. The Nasdaq Composite gained 150 points or 1%.

The central bank has been buying $120 billion a month of Treasuries and mortgage-backed securities since the start of the Covid crisis. The Federal Open Market Committee voted unanimously to keep short-term rates anchored near zero on Wednesday.

Stocks came off their highs after Fed Chair Powell said the central bank's further progress test has been met on its inflation mandate and "many" members believe that test has been met on the employment mandate as well. This indicates the Fed is just about ready to begin removing stimulus.

The Fed is still split on the timing of the first interest rate hike. Wednesday's so-called dot plot of projections showed nine of the 18 FOMC members expect a rate increase in 2022. That's up from seven in June's Fed projections.

Major averages have registered losses for September, a historically choppy month for stocks. The S&P 500 is down 2.8% so far in September, including a 1.7% drop on Monday for its worst day since May. Major averages attempted to rebound on Tuesday but failed with the Dow and S&P 500 finishing in the red for the fourth day in a row. The Dow is down about 3% in September.

At the center of investor concerns is embattled Chinese property developer Evergrande, which is facing a possible default if it can't make millions of dollars in debt payments on U.S. dollar-denominated bonds this week. Evergrande's shares in Hong Kong are down nearly 90% since July 2020 as China cracks down on real estate speculation. Investors worry about a step down in global economic growth if China slows its property market too much or lets Evergrande fail.

Helping sentiment overnight was word from Evergrande that its real estate group would pay the interest on time on a mainland-traded bond denominated in yuan.

Commodity-related stocks led the comeback Wednesday as fears eased about ripple effects from Evergrande. Devon Energy surged more than 7%, while APA, Diamondback Energy and Marathon Oil all jumped about 5%. China exposed Wynn Resorts bounced more than 2%.

FedEx shares tumbled 8% after profit fell at the shipper last quarter because of rising labor costs. FedEx also cut its forecast for the full year.

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