Day Traders Diary

11/3/22

The major averages declined for a fourth consecutive day after the Federal Reserve delivered another three-quarter point interest rate hike and signaled that a pivot or rate cut won't come anytime soon. The Dow Jones Industrial Average finished down traded 70 points lower. The S&P 500 and Nasdaq Composite slid 0.7% and 1.3%, respectively.

Yields spiked as traders digested the latest rate decision, putting pressure on equities. The yield on the 2-year Treasury note hit its highest level since July 2007 while the benchmark 10-year Treasury yield popped 8 basis points to 4.141%.

"The post-Fed hangover continues to keep pressure on U.S. stocks as the impact from the first round of hikes is finally being felt," said Oanda senior market analyst Ed Moya. "Stocks aren't going to have a painful death here, but they will soften until markets price in a little more Fed hawkishness."

Traders had anticipated the central bank's 0.75 percentage point rate increase and initially read the Fed's statement as dovish, suggesting smaller hikes in the future.

That first sent stocks higher on Wednesday, but those gains reversed when Fed Chair Jerome Powell said it was "premature" to discuss a rate hike pause and that the so-called "terminal rate," or the level at which rates peak, would likely be higher than the Fed previously stated.

Many expect the market to continue to seesaw until it's clear that inflation has cooled and the Fed will stop hiking.

Investor attention Thursday also turned to October nonfarm payrolls, slated for release Friday. A strong jobs number and a low unemployment rate, while good for the economy, could signal more work ahead for the Fed.

Cracks are beginning to show in the resilient economy but the Fed needs to see more "duress" to support a pivot, said Adam Sarhan, CEO of 50 Park Investments.

"Unemployment needs to go up in order for inflation to come down," he said. "That's just the reality — boots on the ground. People are going to stop buying and consuming as much goods and services when they don't have jobs."

Another clue into inflation and the economy will come from next week's consumer price index report.

Elsewhere, corporate earnings season continued, with Qualcomm, Roku and Fortinet all falling on disappointing quarterly results and forward guidance. Kellogg's shares fell nearly 9% despite a strong quarter and lift to guidance.

For the week, all the major averages are on pace for losses, with the Dow down more than 2%. The S&P and Nasdaq have shed 3.9% and 5.8%, respectively, week to date.