Day Traders Diary

10/6/22

The major averages fell Thursday, as traders weighed sharp swings in stocks and rates to start the month. The S&P 500 fell 1%, while the Nasdaq Composite dropped 0.6%. The Dow Jones Industrial Average lost 342 points, or 1.1%. The three stock benchmarks opened the session lower. All of the major averages are on pace to end the week more than 4% higher.

Energy was the best-performing sector, gaining 1.3%. Utilities lagged, falling more than 2%.

The benchmark 10-year rate climbed 5 basis points to 3.809%. The 2-year yield, which is more sensitive to monetary policy changes, rose 6 basis points to 4.216%.

Investors are anxiously awaiting the Friday jobs report, which will show how the labor market fared in September, giving central banks another piece of information about its rate hike campaign.

On Wednesday, data from ADP showed that the labor market remained strong among private companies in September, when businesses added 208,000 jobs, beating Wall Street estimates. But on Thursday, jobless claims were higher than expected, signaling there may be some labor market weakness.

Wall Street started the week on a high note, with the S&P 500 staging its biggest two-day rally since 2020. Stocks fought to keep the winning streak going Wednesday but ultimately fell short. The Dow closed about 42 points lower, or 0.14%. The S&P 500 and the Nasdaq Composite slid 0.20% and 0.25%, respectively.

Cannabis stocks surged in afternoon trading after the White House announced that President Joe Biden will pardon all federal offenses of simple marijuana possession.

Shares of Tilray Brands gained 21%, while Canopy Growth jumped more than 11%. Both stocks still trade under $4 per share, so the moves are still small in dollar terms. Stocks with low prices can be more volatile than larger and more established equities.

Biden's move by itself does not change the business outlook for corporatized marijuana in the United States, but it could be a signal that the federal government is moving closer to some form of legalization. The President instructed the HHS Secretary and Attorney General to begin reviewing marijuana's legal status.

Goldman Sachs views Meta Platforms as a key digital advertising stock heading into earnings season and seen a promising opportunity for the stock at its current price.

With a $200 price target on the stock, Goldman expects shares to rally as much as 44% from Monday's close price.

Big U.S. banks are likely to report good third-quarter results next week, setting up the group for a potential stock rebound, according to a trio of new analyst reports out Thursday.

Bank earnings season is scheduled to start Oct. 14, with four of the six biggest U.S. banks reporting results that morning. The analyst community expects good core results from the group, thanks in part to higher interest rates via the Federal Reserve's inflation-fighting campaign.

Banks have gotten a boost from rising rates, but that hasn't been enough to outweigh concerns that the Fed's actions will inadvertently trigger an economic slowdown, ultimately leading to greater loan losses for the industry. That has helped keep bank shares down this year; the KBW Bank Index has lost more than 25% so far.

While Credit Suisse analysts say that they were "confident in the strength of banking fundamentals" at the cusp of earnings season, there is still the "macro and market-related" risks weighing on the stocks.

Investors can take advantage of the fear embedded in these stocks if bank management gives assurances on their ability to navigate choppy markets, with around 30% total return potential in shares of JPMorgan Chase, Goldman Sachs, Bank of America and Wells Fargo.

Still, analysts led by David Long also struck a note of caution, saying that if a recession does materialize, earnings estimates could be near peak levels.