Day Traders Diary

11/2/22

The major averages went on a wild ride today after Federal Reserve Chair Jerome Powell said inflation was still too high and therefore the central bank has further to go in raising interest rates. The Dow Jones Industrial Average fell 505 points, or 1.3%, after rising nearly 400 points in the afternoon. The S&P 500 dropped 96 points or 2.5% while the Nasdaq Composite dropped 366 points or 3.36%.

The Fed implemented another 0.75 percentage point rate increase Wednesday afternoon and Powell said in a press conference that its inflation fight was far from done.

"We still have some ways to go and incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected," he said.

Powell added that it was "premature" to talk about pausing hikes.

"We have a ways to go," said the central bank chair.

Stocks initially rallied following the rate hike when the Fed's accompanying statement hinted at a possible policy change in the future. "In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments," the statement read.

But traders' hopes were dashed by Powell's still tough talk on inflation.

"The tone of Fed Chair Jay Powell's comments was quite hawkish, which means the Fed still has a way to go to fight inflation, and the level of interest rates will be higher than previously expected," said Jack McIntyre, portfolio manager at Brandywine Global. "There were no hints of dovishness to indicate the Fed may be poised to pause."

The Fed's rate decision came after the release of strong jobs data, with better-than-expected private payrolls data for October painting a resilient labor market. The JOLTS report Tuesday also conveyed a tight jobs market despite the Fed's aggressive tightening clip.

Stocks are coming off of a record month that saw the Dow surge nearly 14% for its best month since 1976. The S&P and Nasdaq gained about 8% and 3.9%, respectively, to snap a two-month losing streak. With Wednesday's losses, the 30-stock index is down more than 11% for the year.