Stocks Recover From Session’s Low
3:07 pm Thursday, November 17th, 2022
The stock market started the day on a downbeat note, driven by a feeling that the post-CPI rally has run its course and worries about the Fed overtightening and forcing a recession for the U.S. economy. However, by mid-day stocks recovered and turned green.
The latter point was stoked by comments from Fed officials. St. Louis Fed President Bullard (2022 FOMC voter) acknowledged that the fed funds rate is not yet at a sufficiently restrictive level and then showed in a Taylor Rule exercise that it may need to go to 5-7% in the battle to get inflation under control. Kansas City Fed President George (2022 FOMC voter) for her part said a real slowing in labor markets and a contraction in the economy may be needed to reduce inflation, according to CNBC.
Pertaining to stocks specifically, these remarks raised concerns about higher rates ultimately leading to a further deterioration in the economic environment, which would lead to a deterioration in earnings growth prospects.
The Treasury market responded strongly to the aforementioned remarks. The 10-yr note yield, which hit 3.68% overnight, sits at 3.77% now. The 2-yr note yield, which hit 4.34% overnight, sits at 4.47% now.
Things have improved considerably since the downbeat open. The market took a sharp turn higher around 12:00 p.m. ET without a specific news catalyst to account for the move. However, it was seen at the time that the mega cap stocks and semiconductor shares saw a nice uptick in buying interest. The PHLX Semiconductor Index is up 0.9%.
This upside move led to a nice reversal in the major indices. The Dow Jones Industrial Average, down more than 300 points earlier, is now positive for the day. The same goes for the Nasdaq Composite, which had been down 177 points.
The Vanguard Mega Cap Growth ETF (MGK) was down 1.7% earlier, but now trades down 0.2%. Apple (AAPL) is a notable standout for the group.
There is some strength of note in other individual stocks like Macy’s (M), Cisco (CSCO), and Bath & Body Works (BBWI), which are logging big-earnings driven gains.
Nine of the 11 S&P 500 sectors trade in negative territory. The utilities (-1.5%) and consumer discretionary (-1.1%) sectors show the steepest losses while information technology (+0.3%) and health care (+0.3%) sit alone in the green.
