Day Traders Diary

5/2/23

The major averages took a hit as the regional bank index dropped 6% ahead of the Federal Reserve's meeting tomorrow to raise interest rates once again. The Dow Jones Industrial Average fell 367 points, or 1.1%. The S&P 500 also slid 48 points or 1.1% while the Nasdaq Composite dropped 132 points or 1.08%. The three major averages fell for a second consecutive session.

Bank shares slid, with the SPDR S&P Regional Banking ETF dropping more than 6%. Traders questioned the stability of smaller regional financial institutions after the crisis that engulfed Wall Street in March and brought about the end of Silicon Valley Bank and First Republic Bank. Regional banks PacWest and Western Alliance declined 27% and 15%, respectively.

Meanwhile, JPMorgan Chase's shares shed 1%, giving back some of its gains from the previous session. A day earlier, JPMorgan shares rose after the takeover of embattled regional First Republic Bank. Other large banks including Goldman Sachs and Citigroup also dropped more than 2%. Bank of America fell 3%.

The Fed's two-day policy meeting, which kicked off Tuesday, is expected to conclude with the central bank announcing another quarter-point rate hike. Per the CME Group's FedWatch tool, traders are pricing in an 85% chance of a rate hike. Investors will be looking for clues on whether the Fed will keep rates steady after this meeting, or if it will further tighten monetary policy to fight inflation.

Weighing on sentiment Tuesday was word from the U.S. Treasury that the country may hit the debt ceiling sooner than expected. Treasury Secretary Janet Yellen warned on Monday that the U.S. may run out of measures to pay its debts as early as June 1, earlier than the late July deadline Goldman was estimating.