Day Traders Diary

12/7/22

The major averages closed mixed with the S&P 500 finishing lower for a fifth day as traders weighed the possibility of a recession, and the likelihood of a longer-than-expected hiking cycle from the Federal Reserve.  The S&P 500 declined just 7 points. The Dow Jones Industrial Average closed up a point lifted by gains in 3M and Home Depot. The Nasdaq Composite shed 56 points or 0.5%.

Stocks wavered between gains and losses tin choppy trading, with the S&P rising as much as 0.41%. At its lows, the benchmark index fell 0.47%.

Bond yields also fell, with the yield on the 10-year Treasury note last trading 10 basis points lower at 3.413%.

"The market's kind of bobbing and weaving and finding its breath after the big rally off the October lows," said Ryan Detrick, chief market strategist at the Carson Group. He expects markets to continue this trend until investors receive more clarity from the Fed's December policy meeting and November's CPI report.

Next week, the central bank is widely expected to deliver a 50 basis point rate hike. While the move would mark a step down from the previous four rate hikes, concerns are swirling over whether the Fed can engineer a so-called soft landing while successfully tamping down inflation.

Worries about a recession in 2023 have spooked some investors in recent days, with JPMorgan Chase's CEO Jamie Dimon telling CNBC's "Squawk Box" on Tuesday that inflation could force the economy into a recession.

Combined with the inverted yield curve, markets are undoubtedly anticipating a recession next year, wrote Wells Fargo's Azhar Iqbal in a note to clients Wednesday.

"All told, financial indicators point to a recession on the horizon," Iqbal said. "The S&P 500 has peaked ahead of recessions with an average lead time of four months over the past few business cycles.

Investors await more economic data this week for clues on what to expect from the Fed, with jobless claims data due out Thursday. November's producer price index and preliminary consumer sentiment data for December are slated for Friday.

Stocks are on pace for weekly losses, with the Dow down 2.42%. The S&P and Nasdaq are off by 3.38% and 4.39%, respectively