Day Traders Diary

10/4/21

The major averages sold off sharply to start the week as investors continued their rotation out of technology stocks amid rising bond yields. The Dow Jones Industrial Average fell 323 points to 34,002 despite large gains in Merck. The S&P 500 shed 1.3% to 4,300. The technology-focused Nasdaq Composite fell 311 points or 2.1% to 14,255.

Large tech shares like Apple, Nvidia, Amazon and Microsoft were lower as investors eyed bond yields. A surge in rates to end September knocked highly valued tech stocks. The 10-year Treasury yield was slightly higher Monday, trading around 1.48%. The 10-year U.S. Treasury yield hit 1.56% last week, its highest point since June, with investors concerned about inflationary pressures and tighter monetary policy.

Social media giant Facebook lost 4.9% after being accused of a "betrayal of democracy" by a whistleblower who revealed her identity on Sunday.

On the positive side, Tesla rose 0.8% after the company said this weekend that it delivered 241,300 electric vehicles during the third quarter, well above analysts estimates.

Merck shares gained 2.1%, following through on an 8% surge on Friday after the drug maker said its oral antiviral treatment developed with Ridgeback Biotherapeutics for Covid-19 reduced the risk of hospitalization or death by 50% for patients with mild or moderate cases.

Southwest rose 1.3% after an upgrade to overweight from equal weight from Barclays. The same analyst upgraded the North American Airlines sector to positive from neutral.

Energy stocks also rose amid an uptick in oil prices. Exxon Mobil gained 1.3% and ConocoPhillips rallied 2%.

Friday marked the first trading day of October and the final quarter of 2021. The major averages rose that day on promising data for Merck's oral treatment for Covid-19, which boosted stocks tied to the economic reopening.

The market rebound followed a rough September plagued by fears of inflation, Federal Reserve tapering and rising interest rates. The S&P 500 finished the month down 4.8%, breaking a seven-month winning streak. The Dow and the Nasdaq Composite fell 4.3% and 5.3%, respectively, suffering their worst months of the year.

The fourth quarter is typically a good period for stocks, but overhangs like central bank tightening, the debt ceiling, Chinese developer Evergrande and Covid-19 could keep investors cautious. Heading into the fourth quarter, more than half of all S&P stocks are off at least 10%.

The S&P 500 has averaged gains of 3.9% in the fourth quarter and was up four out of every five years since World War II, according to CFRA.

One of the first hurdles markets face in the new quarter is Friday's closely watched employment report, which could spur the Federal Reserve's decision on when to taper its bond-buying program.

Economists expect about 475,000 jobs were added in September, according to an early consensus figure from FactSet. Just 235,000 payrolls were added in August, about 500,000 less than expected.

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