Day Traders Diary

9/15/22

The major averages dropped once again in choppy trading on Thursday as investors mulled over several economic reports that showed a muddy picture of the U.S. economy. The Nasdaq Composite shed 1.7%, while the S&P 500 fell 1.3%. The Dow Jones Industrial Average outperformed but still dropped 200 points, or 0.6%.

Shares of Adobe weighed on the Nasdaq and S&P 500. The software stock fell 15% after the company announced a $20 billion deal to buy Figma.

Financial stocks outperformed, with Goldman Sachs and JPMorgan rising more than 2% apiece. UnitedHealth Group rose more than 3%. Energy stocks were under pressure, however, with Chevron falling 1.5%.

On Thursday, initial jobless claims came in better than expected, but import prices saw a smaller drop than estimates suggested. Retail sales beat expectations, but were negative when excluding autos. Manufacturing data also showed a slowing economy. While those reports suggest that the U.S. consumer sector is holding its ground for now, they will do little to alleviate concerns about persistent inflation.

Wall Street is coming off a choppy session in which the major averages posted modest gains, but made little dent in Tuesday's massive sell-off. Wall Street is still trying to find its footing after a surprise increase in August's consumer price index report sparked a decline of more than 1,200 points for the Dow on Tuesday.

The stubbornly high inflation has led investors to fear that the Federal Reserve will be more aggressive with its rate hikes, raising the odds of a recession in the U.S.

Third quarter earnings growth estimates have more than halved since July 1

Analysts' third quarter earnings growth estimates for the S&P 500 have more than halved since July 1, to 5.1% from 11.1%, according to Refinitiv.

The rate of decline has slowed, however. A bit more than a month ago, on August 12, the expected Q3 growth rate was 5.8%.

Six of the 11 sectors inside the S&P 500 are expected to see lower earnings than a year ago. At the start of second quarter earnings season, only three sectors were forecast to see smaller profits.

What happened? Consumer staples (-3.1% now vs +2.1% on July 1), health care (-4% vs +2.1%) and technology (-3.3% vs +5.8%) joined financials (-8.9% now vs -4.4% then), communication services (-15.9% vs -3.2%) and utilities (-7.1% vs -6.8%) as groups where profits are expected to decline.

Energy estimates are higher than they were (120.5% now vs 102.6% on July 1).

Third quarter revenue estimates are little changed lately, currently standing at 9.8% versus 9.9% a month ago. That's down from the first and second quarters' 14% but higher than fourth quarter's 7.2% estimate.

1-year Treasury yield briefly tops 4%

Treasury yields continued their march higher on Thursday, with the short end of the curve leading the way.

The 1-year Treasury yield briefly crossed 4% on Thursday and currently trades near 3.992%. The 2-year Treasury yield is not far behind at 3.86%.

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