Day Traders Diary

9/1/22

The major averages battled back with the Dow Jones Industrial Average rising into positive territory as traders weighed the potential for higher Federal Reserve rates. The blue-chip Dow rose 126 points after being down 290 points earlier in the session. The S&P 500 climbed 9 points while the Nasdaq Composite fell just 31 points.

The major averages are on track to finish the week lower. The Dow and S&P are set to post a roughly 2% decline, while the Nasdaq is on pace to end down more than 3.5%.

The moves came as the 2-year U.S. Treasury yield rose to 3.516%, the highest level since November 2007, at one point Thursday. That weighed on rate sensitive growth stocks, making their future profits less attractive.

Nvidia shares also contributed to the losses, falling more than 8% after the chipmaker said the U.S. government is restricting some sales in China.

The major averages are coming off four straight days of losses. Investors are debating whether stocks will again challenge the June lows in September, a historically poor month for markets, after weighing recent hawkish comments from Fed officials who show no signs of easing up on interest rate hikes.

"The June lows are in play in the coming weeks as equity investors finally recognize the intensity of the Fed's mission," said John Lynch, chief investment officer at Comerica Wealth Management. "Inflation and recession are typically accompanied by lower market multiples and markets need to reassess valuation as interest rates rise."

"A successful test of June lows may also prove important as the double-bottom formation could help alleviate fears of further volatility in the months ahead," Lynch added. "We believe consensus profit forecasts for next year are too high and technical support will be necessary as forecasts come down."

Expect further volatility and tilt exposure toward value, says UBS' Haefele

Investors have underestimated the willingness of central banks to keep tightening, as evidenced by the market sell-off that began Friday, according to UBS.

"We maintain our view that the Fed will raise rates by another 100bps by year-end, with risks for more if inflation does not slow in line with our forecasts, said Mark Haefele, chief investment officer at UBS Global Wealth Management.

 

"With rates likely to stay higher for longer, our base case is for further volatility, earnings downgrades, and higher-than-expected default rates over the course of next year. In equities, we recommend a selective approach and tilt exposure toward value, quality income, and defensives.

All comments contained herein are for informational purposes only, and should not be considered as a solicitation to buy or sell any security. The firm does not guarantee the accuracy or completeness of the information or make any warranties regarding results from it's usage.