Day Traders Diary

9/7/22

The major averages shook off a three-week slide today as rates and oil prices eased, cooling investor concerns about continued high inflation. The Dow Jones Industrial Average gained 435 points, or 1.5%. The S&P 500 rose 7 1points or 1.83% while the Nasdaq Composite rose 246 points or 2.14%, attempting to break a seven-day losing streak.

U.S. Treasury yields dipped following a jump on Tuesday. Oil prices slumped, with West Texas Intermediate crude dipping below $85 a barrel. The British pound hit its lowest level against the dollar since 1985.

Stocks rallied as Fed Vice Chair Lael Brainard reaffirmed that the central bank would do what it takes to stifle inflation, while also noting the risks of going too far. Many traders decided to focus on this latter point from her speech.

The moves higher reversed an earlier dip into negative territory in futures trading. Stock futures slumped after a Wall Street Journal article suggested that Federal Reserve Chairman Jerome Powell's commitment to reduce inflation could mean that the central bank hikes rates by 0.75 percentage point in September, which would be the third consecutive increase of that size.

Markets have been hoping that the Fed would start to hand out smaller increases starting in September, but are now pricing in an 86% chance of a 0.75 percentage point hike.

On Wednesday, the Federal Reserve gave its summary on current economic conditions, known as the Beige Book. The report showed that economic activity was little changed in many regions across the U.S., and that growth outlooks remain weak.

Stocks have struggled recently as Treasury yields trade around their highest levels since June. On top of that, September has historically been the toughest month for the market. All eyes are on the 3,900 level on the S&P 500. Some see the index falling to even lower lows, while others are optimistic about a year-end rally.

Shares of many well-known airlines rose Wednesday after United Airlines raised its third-quarter sales forecast and reported strong demand, despite the end to the peak summer travel season, helping lift airline shares.

United Airlines stock jumped 5% after the report. Here's how much other airline stocks jumped today:

Almost every sector in the S&P 500 was positive Wednesday except for energy, which slumped with oil prices.

The makeup of Wednesday's market rally doesn't look like a true reversal after three weeks of selling, said Andrew Smith, chief investment strategist at Delos Capital Advisors.

"If the path was all clear ... utilities [sector] should not be where it's at — and it's up today — from a performance standpoint. And on an equal weighted basis, it's up 10% for the year," Smith said. "There's still a defensive tilt to the market."

The Utilities Select Sector SPDR Fund was up 2.9% on Wednesday afternoon, easily outpacing the broader market.

Federal Reserve Vice Chair Lael Brainard said in a speech Wednesday that the central bank is ready to fight inflation for as long as it takes to bring consumer price increases in check.

That means the pace of rate hikes needs to continue and that the central bank's benchmark rate will need to stay high for longer, she noted.

Brainard said that having rates higher for longer is necessary to make sure that inflation is truly coming down.

 

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