Day Traders Diary

6/13/22

The major averages took a hit today with the S&P 500 tumbling to a fresh low for the year and closing in bear market territory as recession fears grew ahead of this week's key Federal Reserve meeting. The S&P 500 fell 151 points or 3.8% to its lowest level since March 2021, bringing its losses from its January record to more than 21%. The Dow Jones Industrial Average dropped 876 points, or 2.8% while the Nasdaq Composite tumbled 530 points or 4.6%.

Major averages hit their lows of the session in the final 30 minutes after a Wall Street Journal report suggested the Fed would consider raising rates by 0.75% on Wednesday, more than the half point increase currently expected.

There were few places to hide. Treasury bonds dropped, pushing the 10-year yield to its largest move since March 2020. Bitcoin was slammed by 15%. At one point during the trading day, every single stock in the S&P 500 was lower. At last count, only a handful were in the green.

Shares of Boeing, Salesforce and American Express fell more than 9%, 6% and 4%, respectively, dragging down the Dow as recession fears picked up. Beaten-up tech shares also took a hit with Netflix, Tesla and Nvidia down more than 6% as the Nasdaq touched a fresh 52-week low and its lowest level since November 2020.

Travel stocks also slipped on Monday as Carnival Corporation and Norwegian Cruise Line plummeted about 11% and 12%, respectively. Delta Air Lines dropped more than 7% while United tumbled about 10%.

All major S&P 500 sectors dipped into the red, with energy and consumer discretionary down more than 4%. Information technology, materials and communication services also slipped more than 3%.

The dramatic moves lower could indicate that many investors are profit-taking or repositioning their portfolios, and may signal that markets are in "a capitulation stage," said Jeff Kilburg, chief investment officer of Sanctuary Wealth.

As equities sold off short-term rates jumped on Monday. The 10-year Treasury rose 20 basis points higher to 3.35%, as investors continued to bet the Fed may have to get more aggressive to squash inflation. Prices move inversely to yields and 1 basis point equals 0.01%. The 2-year Treasury yield was last up 23 basis points to 3.28%.

Monday's moves came after the major averages last week posted their biggest weekly declines since late January as investors grew increasingly concerned rising inflation will tip the economy into a recession. The Bureau of Labor Statistics reported Friday that the U.S. consumer price index rose last month by 8.6% from a year ago, its fastest increase since December 1981. That gain topped economists' expectations.

Gasoline prices also hit above $5 a gallon over the weekend, further fanning fears over rising inflation and falling consumer confidence.

Crypto crushed

Meanwhile, Bitcoin tumbled below $24,000 on Monday and hit its lowest level since 2020 as risk-averse investors continued to dump crypto as rates rise. The news sent shared of crypto-related companies including Coinbase and Microstrategy down 13% and 29%, respectively.

Investors are looking ahead to Wednesday when the Fed is expected to announce at least a half-point rate hike. The central bank has already raised rates twice this year, including a 50-basis-point increase in May in an effort to stave off the recent inflation surge.

Some economists believe the Fed could even raise rates by 0.75% this week following Friday's CPI report.

If history is any guide, this sell-off may have further to go. Data from Bespoke Investment Group shows that since World War II there have been 14 bear markets on a closing basis and on average, the S&P 500 has pulled back a median of 30%, with the downturn lasting a median of 359 days.

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