Day Traders Diary

10/27/22

The major averages closed mixed following a plethora of earnings and better than expected economic data. The Dow Jones Industrial Average rose 198 points or 0.6% led by shares of McDonald's, Honeywell and Caterpillar after they reported better-than-expected earnings. It traded up as much as 549 points earlier in the day. The S&P 500 closed down 23 points, or 0.6% while the Nasdaq ended the day down 178 points or 1.6% as a rout in Facebook-parent Meta and other tech stocks weighed on those benchmarks.

The economy increased at a 2.6% annualized pace for the period, against the Dow Jones estimate for 2.3% growth, the Bureau of Economic Analysis report showed. The chain-weighted price index, a cost-of-living measure that is adjusted to reflect changing consumer behavior, rose 4.1% for the quarter, well below the 5.3% estimate. Headline inflation rose 4.2%, down sharply from 7.3%, according to a gauge the Federal Reserve uses.

That offered hope for market observers looking for data indicating inflation was coming down, which could lead the Federal Reserve to ease rate hikes after the November meeting, said Cliff Hodge, chief investment officer at Cornerstone Wealth. Bond yields also pulled back following the release of the data.

"The GDP release this morning was a goldilocks number for risk assets," said Hodge, who specifically noted the price index data. "This is another sign pointing to the likelihood that the worst of inflation may be behind us."

Still the technology sector continued its recent woes, holding the broader stock market back. Meta shares plummeted 29.7% on a weak fourth-quarter forecast and disappointing third-quarter earnings Wednesday. The company also said it would lose even more money next year building out the metaverse. The report led to several analysts downgrading the stock.

The Dow's intraday rally was likely not due to the better-than-expected GDP data, said Liz Young, head of investment strategy at SoFi.

Credit union association's economist says price index data in GDP report supports 50 basis point increase from Fed in December

Thursday's data on GDP and inflation supported the argument that the Federal Reserve should increase interest rates by 50 basis points at its December meeting, according to Curt Long, chief economist at the National Association of Federally-Insured Credit Unions.

Though he said it is still to early for the central bank to break from the recent trend of 75 basis point hikes at next week's meeting, a "mild" step down makes sense given what data shows.

AAII sentiment survey shows bullishness at a 9-week peak

Bullishness in the latest American Association of Individual Investors survey gained 4 percentage points to 26.6%, the highest since the August high of 27.7%. The poll measure sentiment among individual investors that stocks will rise over the next six months.

Bullishness has now been stuck below the historical average reading of 38.0% for 49 weeks, the AAII says.

Bearish sentiment dropped 10.6 points to 45.7% and has run above its long-term average (30.5%) for 48 out of the past 49 weeks. Neutral sentiment climbed 6.6 points to 27.7% in the latest survey, a 6-week high.

This week's weekly Investors Intelligence survey of financial newsletter editors showed bullishness rising to 36.9% from 31.3% a week ago and a 6-year low of 25% the week before that.