Day Traders Diary

11/16/22

The major averages pulled back modestly as investors weighed a gloomy holiday quarter update from Target that pressured retail stocks. The S&P 500 ended the day down 32 points or 0.83% to 3,958. The Nasdaq Composite shed 174 points or 1.54% to 11,183. The Dow Jones Industrial Average wrestled with the flat line all day, but finished down 39 points, or 0.12% at 33,553.

Those moves came after Target reported a decline in sales as families deal with high inflation heading into the biggest shopping season of the year for retailers. The warning weighed on stocks, sending Target down more than 13% and on pace for its worst day since May. Macy's, Nordstrom, Kohl's and Gap were also down big.

"A volatile earnings season for retail is forcing investors to be picky and particular on their retail exposure as the gap between big box retail and specialty retail continues to widen," said founder and CEO of KKM Financial.

Brian Levitt, Global Market Strategist at Invesco, called it a mixed picture, noting that retail data released earlier in the day was at odds with the Target warning.

"Retail sales data suggested consumers are willing to spend, particularly on big topic items while the retail bellwether Target warned of a weaker holiday season," he said. "The latter is more in line with our expectations. Tighter monetary policy is designed to make people feel less wealthy. The idea is to slow consumption, allowing inflation to moderate. Ironically that will also set the stage for a recovery. "

Stocks have staged a solid run following last week's better-than-feared consumer price index report. The S&P 500 last week posted its best weekly stretch since June and all the major averages are on track to finish the month with gains.

Treasury yields slide, recession worries rise. The 10-year Treasury yield temporarily sank below 3.7%, and the spread between it and the 2-year yield continued to fall deeper into negative territory.

That so called yield inversion is a warning of recession. The 10-year was 3.73% in afternoon trading, after dipping to 3.69%. The 2-year Treasury was at 4.35%.

"I still think there's more downside risk for rates from here. The curve inversion 2s/10s is negative 67. That could get to negative 75 in the near term," said Ian Lyngen at BMO.

He said a next target for the 10-year yield would be 3.55%. Yields move lower as bond prices rise.

Goldman's Mericle raises fed funds terminal rate forecast a quarter point to 5-5.25%

Goldman Sachs chief U.S. economist David Mericle added another quarter point to his target end rate for fed funds, to 5-5.25% from 4.75%-5.0% previously, a note Wednesday said.

Goldman continues to forecast that the Federal Reserve will add another half point to the overnight fed funds rate at its December meeting, followed by quarter point each in both February and March.

What's new is that Goldman is now calling for a further quarter point increase at the May, 2023 Fed policy meeting.