Day Traders Diary

6/16/22

The major averages tumble once again with the Dow Jones Industrial Average falling over 700 points below the key 30,000 level on Thursday as investors worried the Federal Reserve's more aggressive approach toward inflation would bring the economy into a recession. Markets had rallied on Wednesday after the Fed announced its largest rate hike since 1994, but reversed those gains and then some on Thursday, as the Dow tumbled to the lowest level since January 2021.

The Dow dropped 2.5%, or 765 points. The S&P 500 slipped 3.4%, while the Nasdaq Composite slid 4.3% and touched its lowest level since September 2020.

The major averages have suffered steep losses this week. The S&P 500 is down 6.6%, while the blue-chip Dow is off by 5.2% this week and the Nasdaq has fallen 6.7%.

The S&P 500 and Nasdaq Composite are both in bear market territory, down roughly 24% and 34% from their all-time highs in January and November, respectively, as rampant inflation and fears of slowing economic growth weigh on investors. The Dow, meanwhile, is about 19% below its Jan. 5 all-time intraday high.

Thursday marked the first time the Dow has traded below 30,000 since January 2021. The average first breached above that level in November 2020 when massive monetary and fiscal stimulus fueled a broader market rally — led by tech shares — and took the major averages to then-record highs.

Breaking above the 30,000 mark put the Dow more than 60% above its pandemic closing low at the time. While 30,000 isn't necessarily a technical level for the Dow, these round 1,000-point thresholds are seen by many on Wall Street as key psychological levels for the market.

Data out Thursday further indicated a dramatic slowdown in economic activity. Housing starts dropped 14% in May, topping the 2.6% decline expected by economists polled by Dow Jones. The Philadelphia Fed Business Index for June came in with a negative 3.3 reading, its first contraction since May 2020.

Home Depot, Intel, Walgreens, JPMorgan, 3M, and American Express hit new 52-week lows amid growing recession fears while tech shares dropped after a bounce on Wednesday. Amazon, Apple and Netflix all slid more than 3%. Tesla and Nvidia dropped more than 8% and 6%, respectively.

Travel stocks also took a leg lower. United and Delta tumbled 7% each, while cruise line stocks Carnival, Norwegian Cruise Line and Royal Caribbean plummeted 10%. All major sectors declined on Thursday, led by consumer discretionary and energy, down 5% each. Healthcare, which is often seen as recession-proof, also dipped by about 2%.

Staples stocks, known for their steady cash flows that could hold up during recessions, traded into the green or near the flatline. Procter & Gamble gained 1.6%. Colgate-Palmolive and Walmart were slightly higher.

Allianz's chief investment advisor Mohamed El-Erian echoed a similar sentiment during an interview with "Squawk Box" on Thursday, where he said central banks globally are behind on fighting inflation and undergoing "a great awakening."

Markets on Wednesday initially liked the Fed's plan to hike interest rates by 75 basis points and the potential of additional hikes of a similar magnitude. The Dow and S&P 500 on Wednesday snapped a five-day losing streak and ended the session higher.

Market sentiment appeared to sour once again Thursday as central banks around the globe adopted more aggressive policy stances and investors questioned whether the Fed can pull off a soft landing.

The Swiss National Bank overnight raised rates for the first time in 15 years. The Bank of England was set on Thursday to raise rates for the fifth straight time.

As stocks fell, the 10-year Treasury yield slipped on Thursday and was last trading around 3.32%. The benchmark rate notched an 11-year high above 3.48% earlier in the week.

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