Day Traders Diary

12/15/21

Turnaround Wednesday. The major averages reversed this afternoon after the Federal Reserve signaled a more aggressive unwinding of its monthly bond buying, as expected by the market, and forecast multiple rate hikes on the way next year. The S&P 500 ended the day up 1.6% or 75 points. The Nasdaq jumped 1.7% or 382 points while the Dow Jones Industrial Average added 382 points. All three were in negative territory for the day before the central bank's decision.

The Fed announced on Wednesday that it would wind down its asset purchases, a process known as tapering, at a faster pace amid a continued rise in inflation. The Fed will be buying $60 billion per month of bonds starting in January, down from December's rate of $90 million, and said that it will likely continue that trajectory in the months ahead.

The move comes as the central bank is grappling with the highest inflation level in nearly four decades. The Fed was widely expect to accelerate its taper this month.

This sets the stage for a dramatic policy shift that will clear the way for a first interest rate hike next year. The central bank signaled on Wednesday that its members see three hikes in 2022.

Shares of Apple rose more than 2%, lifting the market averages and continuing the stock's recent momentum. Other Big Tech stocks like Microsoft and Netflix rose after sliding on Tuesday.

Defensive plays also performed well, with health care stocks such as UnitedHealth and Amgen also rose more than 2%.

Big banks, however, were lower even after the Fed signaled multiple rate hikes are on the way. The yields for the 2-year and 10-year Treasuries rose by a similar amount, keeping a narrow yield spread in place. Banks typically do better when the so-called yield curve is widening, with long rates moving faster, as that is how they make money borrowing at short-term rates and lending out at long-term rates.

JPMorgan and Bank of America shares were lower. Some regional bank stocks, including Comerica, saw modest gains.

Fed Chairman Jerome Powell said at a new conference on Wednesday afternoon that the labor market is not fully recovered, pointed to a sluggish rebound in labor force participation, but said it was still appropriate to roll back some of the Fed's pandemic-era policies.

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