Day Traders Diary

9/20/22

The major averages tumble on Tuesday as the sell-off on Wall Street mounted and investors braced for another large rate hike due out Wednesday from the Federal Reserve. The major averages moved off their lows as the final hour of trading kicked off, with the Dow Jones Industrial Average closing down 311 points or 1%. The S&P 500 shed 43 points or 0.87% while the Nasdaq Composite slid 109 points or 0.7%.

The Federal Open Markets Committee began its two-day policy meeting on Tuesday, where central bankers are expected to announce a 0.75 percentage point rate hike on Wednesday. Stocks have slumped in recent weeks as comments from Fed Chair Jerome Powell and an unexpectedly hot August consumer price index report caused traders to prepare for even higher rates until inflation cools.

Rates marched higher as equities fell, with the yield on the 2-year Treasury note notching a fresh high dating back to late 2007. The yield on the 10-year Treasury reached 3.593% — levels not seen since 2011.

Investors will keep an eye on the central bank's projections coming out of its meeting in an attempt to gauge how much further interest rates may rise and what that means for the economy.

Meanwhile, Ford shares slumped after announcing that supply chain issues would cost an extra $1 billion in the third quarter.

In other economic news, housing market data released Tuesday showed an unexpected jump in starts for August, although building permits saw the biggest decline since April 2020.

Tuesday's moves followed a choppy trading session that saw stocks rise in the afternoon and snap a two-day losing streak.

The high rate of inflation means that the Federal Reserve can't afford to be patient with its rate hikes, even if the full impact of its moves hasn't hit the economy yet, according to Timothy Horan, CIO for fixed income at Chilton Trust.

Though headline inflation has remained stubbornly high, commodities such as oil and steel have declined. Producer prices have softened faster than consumer prices. That has led some to say that inflation has peaked, even if it may take a long time to decline back to the Fed's 2% target level.

Horan also said that he would be listening to hear Fed Chair Jerome Powell's discussions around quantitative tightening in tomorrow's press conference.

Oxford Economics' Kathy Bostjancic anticipates further hawkishness ahead from the Federal Reserve and Chairman Jerome Powell.

Investors on Wednesday will be closely watching rhetoric from Powell when he speaks Wednesday following the central bank's next rate hike decision.

Current market conditions and August's hotter-than-expected CPI report, further underscore the central bank's need to remain aggressive in its fight to tame surging prices, she added.

While Powell is unexpected to explicitly lay out the next rate decision, Bostjancic expects the chairman to leave the door open to another potential sizeable hike come November.

As the major averages slump, some individual stocks are making outsized moves both up and down.

One of the biggest gainers of the day is Change Healthcare, which has surged more than 6% Tuesday after a federal judge said that UnitedHealth cannot take over the company.

Shares of vaccine makers BioNTech, Moderna and Novavax rebounded, gaining Tuesday after falling Monday when President Joe Biden made a comment that the pandemic was over.

Shares of health company Humana gained 1% Tuesday and touched a 52-week high a day after the company raised its earnings guidance for the fiscal year. The company was also upgraded by Morgan Stanley, who said it could be the top retail drug plan for Medicare Advantage.

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