Day Traders Diary


The major averages ended the final session of the week with modest gains. The day started on an upbeat note after February nonfarm payrolls were reported well ahead of expectations.

However, the opening strength did not hold and the S&P 500 promptly slid back to yesterday's closing level. After returning to its flat line, the benchmark average staged a daylong climb, which ended at fresh session highs.

While stocks spent the majority of the session in an upward climb, the dollar held strong throughout the day.

Dollar strength manifested itself after today's jobs report revealed a 20 basis point drop in the unemployment rate. With the Federal Reserve indicating accommodative policy will remain in place until the unemployment rate nears 6.5%, a downtick brings the economy closer to that target.

The dollar index climbed to 82.90 shortly after the release of the jobs data. The index then retraced a part of its gains, but spiked higher once again after Fitch Ratings downgraded Italy's sovereign debt rating to 'BBB+' from 'A-' and assigned a negative outlook.

As equity markets climbed off their morning lows, cyclical sectors paced the advance. The consumer discretionary space was the day's leader as retailers contributed to the outperformance. The SPDR S&P Retail ETF (XRT 69.51, +0.65) advanced 0.9%.

Industrials and materials also drove the broader market towards session highs. The industrial sector was buoyed in part by the Dow Jones Transportation Average. The 20-stock complex gained 1.0% after displaying notable weakness over the course of the past two sessions. Today, airlines paced the advance and United Continental (UAL 31.35, +1.74) jumped 5.9%.

The financial sector was also in focus today after the Federal Reserve released the first round of results of its CCAR report, better known as the bank stress test. According to the test results, Ally Financial was the only bank which did not meet the required capital ratio under the adverse scenario. Meanwhile, major financials ended the day on a mixed note. Citigroup (C 46.68, +1.68) gained 3.7% while Goldman Sachs (GS 152.98, -3.64) fell 2.3%.

Looking back at the final sector performance, consumer discretionary (+1.1%), industrials (+0.9%), materials (+0.9%), and telecom (+0.7%) outperformed the broader market. On the downside, technology (+0.1%), consumer staples (+0.2%), utilities (+0.2%), and health care (+0.3%) lagged.

Trading volume was well below its 50-day average as 691 million shares changed hands on the floor of the New York Stock Exchange.

Reviewing today's economic data, the employment situation improved in February as nonfarm payrolls added 236,000 to follow a downwardly revised 119,000 (from 157,000) in January. Today's reading was reported well above the consensus expectation of a 165,000 job gain.

The average weekly hours worked increased from 34.4 in January to 34.5 in February. Hourly earnings rose 0.2% after increasing only 0.1% in January. Impressively, the increase in hours, earnings, and payrolls caused aggregate wages to increase 0.7%.

That gain is more than enough to keep consumption growth steady and help replenish lost savings after the January tax increases.

Strangely, even though the labor sector has shown strong stability and gradual improvement over the past few months, the labor force fell by 130,000 and the participation rate declined from 63.6% in January to 63.5%.

If the labor force participation rate had remained at its previous level, the unemployment rate would have held steady at 7.9%.

Wholesale inventories increased 1.2% in January after rising an upwardly revised 0.1% (from -0.1%) in December. The consensus expected wholesale inventories to increase 0.2%. Unfortunately, most of the gain was the result of a sharp drop in wholesale sales which led to more goods being left on the shelves. Wholesale sales fell 0.8% after holding flat in December.

There is no economic news scheduled for a Monday release. On Tuesday, the United States Treasury will report its February budget at 14:00 ET.

All comments contained herein are for informational purposes only, and should not be considered as a solicitation to buy or sell any security. The firm does not guarantee the accuracy or completeness of the information or make any warranties regarding results from it's usage.