Daily Market Notes: 9-23-2022

Well, at least the Dow tried to get positive for a change, but that attempt flamed out in the final ten minutes of the session yesterday.

After all of the major indices were lower for the entire session, the Dow had a little positive momentum namely on strength in its health care components such as AMGN, JNJ, MRK and UNH. This was probably due to a large gain in the shares of LLY on their introduction of a weight-loss drug.

In any event, late in the session they were joined on the upside by sad-sack components MSFT and META, of all things, in an attempt to go higher and this produced a nice gain in the Dow of 119 points by 3:50pm as it felt that the negative streak for this index was finally over.

But sure enough, the bear market took control once again and in the last 10 minutes, the Dow made a sickening downside reversal which turned that 119 point gain into a final 107 point loss down to 30,076. This was induced by further awful showings from AXP, BA, GS and MCD.

The S&P, which had been trading in a boring range of between 25 to 35 points lower for most of the session, got caught in the late upside frenzy and had the nerve to actually get to a nominal 1 point gain at 3:30pm before it was viciously turned back to the downside in the final 10 minutes to end with a closing decline of 32 down to 3758, sort of where it was all day. It is now down by 22% for the year and in its own bear market.

The Nasdaq never had a chance as it was hurt by weakness in chip stocks all day and ended with a closing decline of 153 down to 11,066 while the Russell 2000 Index of small stocks was really weak and ended 39 points lower at 1722.

And how about the VIX, which actually had the nerve to end lower on a down day with a decline to 27.35 and as I have said many times lately, this is the problem for the market as with equities lower for the fifth week out of the past six, the VIX has refused to get up into the 30’s area which would indicate an oversold condition from which stocks could hopefully rally.

Bonds did not help as the yield on the 2-year Note rose up to 4.11% from 4.02% late Wednesday and is trading at its highest level since 2007. The yield on the 10-year jumped to 3.70% from 3.51% from late Wednesday.

The latest wave of selling reflects concerns among investors that the Fed might have to get more aggressive than it has been in order to ultimately get inflation under control. And in addition to this country, central banks in Europe and Asia also raised rates as Britain’s central bank increased its key interest rate by another half-percentage point. Switzerland’s central bank raised its benchmark lending rate by its biggest margin to date, 0.75 percentage points, and said it couldn’t rule out more hikes. Central banks in Norway and the Philippines also raised interest rates.

The Fed and other central banks are raising interest rates in order to make borrowing more expensive. The goal is to slow economic growth enough to tame inflation, but not so much that economies slip into a recession. Investors are concerned that the Fed may be too aggressive in an already slowing economy, which makes  a recession more likely.

On Wednesday, Fed Chair Powell stressed his resolve to raise rates high enough to drive inflation back toward the central bank’s 2% goal and said that the Fed has just started to get to that level with this most recent increase. They raised the federal funds rate up to a range of 3% to 3.25% which is the fifth hike this year and up from zero at the start of 2022.

They also released the “dot plot” that showed it expects its benchmark rate to be 4.4% by year’s end, a full point higher than envisioned in June and this means that further rate hikes are coming in the final two meetings of the year in November and December.

Earnings reports this week will see the following: yesterday – LEN, FDX higher and KBH, DRI, FDS lower; today – COST lower.

Economic reports will have: yesterday – weekly jobless claims rose by 5K to 213K,  August L.E.I. slipped by .03% for the sixth straight monthly loss in a row.

Donald M. Selkin

Chief Market Strategist

 

 Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our current or potential customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analysis concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, and Associated Press}. It is possible that at any given point in time, the author, Newbridge Securities, or one or more of its employees or registered individuals associated with Newbridge Securities, may hold a position, either long, or short, as well as options, bonds or other instruments in the companies mentioned in this report.