Day Traders Diary

9/14/22

The major averages rebounded modestly in choppy trading on Wednesday as investors tried to find their footing after the biggest one-day drop in more than two years.

The Dow Jones Industrial Average inched up 30.12 points, or 0.10%, to 31,135.09 after being down more than 200 points at session lows. The Nasdaq rose 86 points or 0.74% to 11,719. The S&P 500 added 13 points or 0.34% to close at 3,946.

Moderna was one of the top performers in the Nasdaq, jumping more than 6%. Tesla rose 3.6%, and Apple tacked on 1%.

The modest gains followed a massive sell-off for stocks on Tuesday. The Dow sank more than 1,200 points, or nearly 4%, while the S&P 500 lost 4.3%. The Nasdaq Composite dropped 5.2%. It was the biggest one-day slide for all three averages since June 2020.

The drop was sparked by August's consumer price index report, which showed headline inflation rising 0.1% on a monthly basis despite a drop in gas prices.

The hot inflation report left questions over whether stocks could go back to their June lows or fall even further. It also spurred some fears that the Federal Reserve could hike interest rates even higher than the 75 basis points markets are pricing in.

Market breadth was mixed on Wednesday, with declining stocks slightly outnumbering gainers in the S&P 500. Materials stocks slid, led to the downside by an 11% drop for Nucor.

The Dow, which has spent most of the day swinging in a 300-point range, was last down about 100 points.

Stocks are now digesting the likelihood of a more rapid pace of tightening from the Federal Reserve, which is broadly expected to hike rates by 75 basis points next week, as well as weaker gross domestic product growth in 2022, according to a Wednesday note from CFRA.

Gross domestic product is currently expected to grow by 1.8% in the third quarter, down from 2% previously, read the note. It's expected to jump 1.4% in the fourth quarter, down from expectations of 1.6%.

That's going to add pressure to earnings per share growth in the S&P 500, which has already seen estimates trimmed to 6.9% in 2022, down from 8.9%, read the note.

Going in to Tuesday's August CPI report, the number of bullish investment newsletter editors surveyed by Investors Intelligence had risen to 32.4% from 29.7% the week before.

The reading two weeks ago was close to the mid-June number of 26.5% that accompanied the bear market low in the S&P 500, and the fewest since early 2016.

Bearish newsletter editors dropped to 28.2% last week from 29.7% the prior week, while the percentage who forecast a correction also retreated, falling to 39.4% from 40.6%.

The so-called "bull-bear spread" widened to +4.2 from 0.0 the week before. Higher bull-bear spreads can sometimes serve as a contrarian signal for more risk, while lower readings are associated with less risk.

Shares of Netflix jumped to session highs following a Wall Street Journal report that the streaming giant projects advertising-supported tier would reach 40 million viewers by the third quarter of 2023.

Netflix announced plans to create an ad-supported subscription plan earlier this year as subscriber growth slowed and even reversed. The company is partnering with Microsoft to build the product, which has not launched yet.

 

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.