Day Traders Diary

10/24/22

The major averages continue their sharp gains from last week ahead of tech earnings in the coming days. The Dow Jones Industrial Average jumped 417 points higher, or 1.3%. The S&P 500 rose 44 points or 1.1% while the Nasdaq added 92 points or 0.8%.

Investors will watch for earnings from tech giants such as Apple, Alphabet, Amazon and Microsoft this week as earnings season continues. Wall Street will also be watching for more inflation data, with the October manufacturing and services purchasing managers indexes coming Monday.

The 10-year Treasury yield on Monday ticked higher, recovering from an earlier decline. It last traded up about 1 basis point at 4.225%. The 2-year yield also near flat at 4.494%.

The moves come after yet another volatile week for stocks as third-quarter earnings season heats up. The major averages had their biggest weekly gains since June, with the Dow advancing 4.9%. The S&P 500 and Nasdaq rose 4.7% and 5.2%, respectively.

A chunk of those gains came Friday, when the Dow rallied more than 700 points, while the S&P 500 and Nasdaq each popped around 2.3%. Investors reacted to corporate earnings and a Wall Street Journal report showing some Fed officials were concerned over interest rate hikes going too far.

As earnings season kicks into full gear, investors will be weighing companies' results and guidance in an attempt to predict future performance.

Earnings can move a company's stock in the short term. Meanwhile, guidance is used by investors to forecast performance in future quarters.

Third-quarter GDP is expected to show mild economic growth in the U.S., putting on hold some of the debates about whether there is currently a recession.

However, some industries like housing clearly are in major downturns, in a way that seems to have been predicted by the equity market, according to Liz Ann Sonders, chief investment strategist at Charles Schwab.

"The market to some degree last year in 2021 telegraphed what's happening in the economy this year," Sonders said, pointing to solid gains by the headline indexes even as many individual stocks saw big declines throughout the year.

The indexes have "caught down" this year, Sonders said, with all three major averages in bear market territory.

That could mean that the market has now priced in a full recession, but uncertainty around inflation and interest rates might break the pattern, Sonders said.

"In the short-term, the market has become very reactionary. And that has a lot to do with the Fed," Sonders said.

Inflation was top of mind among executives speaking during earnings call in the past two weeks.

About two-thirds of companies in the S&P 500 that reported during the period had discussed the topic during their calls, according to an analysis of FactSet transcripts.Wall Street's top strategist Marko Kolanovic believes the sell-off in Chinese stocks is disconnected from fundamentals, presenting a buying opportunity.

"We believe this is a good opportunity to add given an expected growth recovery, gradual COVID reopening, and monetary and fiscal stimulus. 3Q and 4Q earnings should confirm fundamentals remain anchored in resilient labor markets and COVID reopening," Kolanovic said.

The Invesco Golden Dragon China ETF, which tracks the Nasdaq Goldman Dragon China Index, plunged 20% at its lowest level Monday after Beijing tightened President Xi Jinping's grip on power, souring investor sentiment for non-state-driven companies.