Day Traders Diary

10/18/22

The major averages rose for a second straight session on Tuesday as strong corporate earnings reports helped extend a rally to start the week. The Dow Jones Industrial Average gained 337 points, or about 1.1%. The S&P 500 rose 42 points or 1.1% while the Nasdaq Composite gained 1.2% or 96 points.  Those gains built on a bigger upside move from Monday, which saw the Nasdaq rise more than 3% for its best day since July.

Goldman Sachs rose more than 2% to boost the Dow after strong trading results helped the investment bank beat expectations for earnings and revenue. That report continued a strong stretch of bank earnings, including beats from Bank of America and Bank of New York Mellon on Monday, and the financial sector as a whole outperformed on Tuesday.

Lockheed Martin also rose more than 8% after its earnings per share topped estimates.

Fears of a recession and overly aggressive central banks have helped push the U.S. markets to their lows of the year in recent weeks, but the solid start to earnings season may signal that the economy is currently in better shape than feared.

Trading was choppy on Tuesday, as many investors seem to lack confidence in the rally.

The averages were higher in early trading, with the Dow gaining more than 600 points, but came off their highs as U.S. Treasury yields moved up. The Nasdaq briefly turned negative for the session before the market bounced off its lows, and it dipped into the red again in the afternoon on a report from The Information that Apple was cutting iPhone production.

Elsewhere, Salesforce rose more than 4% after activist Starboard Value LP revealed a stake in the software giant, making the stock the top performer in the Dow.

After the bell, Netflix and United Airlines will report their latest results.

The major averages closed near the middle of their trading range for the day, with the Dow up more than 300 points. The Nasdaq closed up nearly 1% after fading twice during the day.

The Dow is on track to gain roughly 1,000 points for the first two days of this week, but many investment professionals are skeptical that this rally has staying power.

The Fed is widely expected to hike by another three-quarters of a percentage point next month, but the central bank may be reaching its limit for dictating long-term interest rates, according to The Leuthold Group's Jim Paulsen.

The 10-year Treasury yield has traded above 4% in recent days, reaching its highest levels in more than a decade. With growing concern about a recession in 2023, it may be close to a ceiling, Paulsen said.

"Each time the Fed further tightens monetary policy, recession fears are elevated relative to inflation fears. Ultimately, as the Fed becomes more and more aggressive, recession becomes a bigger worry than inflation, and bond buyers begin outnumbering bond sellers—that is, the bond market blinks," Paulsen added.

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