Day Traders Diary


The S&P 500 settled flat after being unable to clear the 1,700 level, which has presented stern resistance over the past few sessions.

Stocks held slim gains into the afternoon when the latest policy directive from the Federal Open Market Committee sent the Nasdaq and S&P 500 to fresh highs. The two indices were unable to maintain those levels into the close as broad-based weakness pressured the major averages to their lows.

The FOMC policy statement did not offer many surprises. As expected, the Committee decided to maintain its current policy stance in order to continue supporting the economic recovery. The Committee also said it expects a pick-up in growth from the recent pace, and that inflation below the Fed's 2.0% target could present a risk to economic performance.

On a related note, the advance second quarter GDP report surpassed expectations with a reading of 1.7% against a downwardly revised first quarter growth rate of 1.1%. The consensus expected the second quarter reading to come in at 1.1%. Personal consumption expenditures fueled most of the gain, contributing 1.22 percentage points to the overall growth rate. Nonresidential investment added 0.55 percentage points, residential investment added 0.38 percentage points, and the change in private inventories contributed 0.41 percentage points. Net exports subtracted 0.81 percentage points while government spending subtracted 0.08 percentage points. Real final sales, which exclude the change in inventories, increased 1.3%.

In addition, the Committee took note of the recent rise in mortgage rates, suggesting the Fed is unlikely to engage in policy that would cause a further rise in rates. Home builders traded in mixed fashion before spiking in reaction to the policy directive. The iShares Dow Jones US Home Construction ETF (ITB 22.28, +0.47) rose 2.2%.

The relative strength of home builders helped the discretionary sector settle in the lead. Retailers also outperformed with the SPDR S&P Retail ETF (XRT 81.68, +0.24) climbing 0.3%.

Elsewhere, energy and industrials also displayed strength. The energy sector advanced 0.3% as crude oil rose 2.0% to $105.13 per barrel. Meanwhile, the industrial sector was supported by transportation companies as the Dow Jones Transportation Average added 0.6%.

The final-hour selloff pressured cyclical sectors but only materials and technology ended in negative territory. With regard to defensive groups, telecom services and utilities ended with respective losses of 1.0% and 0.7% while consumer staples shed 0.2%, and health care ended little changed.

Treasuries ended the session on their highs after starting the day in the red. The benchmark 10-yr yield slipped three basis points to 2.59%.

Reviewing today's remaining economic data, the ADP National Employment Report revealed that employment in the nonfarm private business sector rose by 200K in July. This was above the increase of 175K expected by the consensus.

The Chicago PMI improved in July as the index increased from 51.6 in June to 52.3. Manufacturing in the Chicago region has now expanded for three consecutive months after contracting in April. The consensus expected the index to fall slightly to 51.5. Even after the gain, the PMI is still well below the May reading when the index reached 58.7.

Also of note, the weekly MBA Mortgage Index fell 3.7% to follow last week's 1.2% decline. This marks the seventh negative reading in a row and the eleventh decline out of the past twelve weeks.

Tomorrow, July Challenger Job Cuts will be reported at 7:30 ET and weekly initial claims will cross the wires at 8:30 ET. At 10:00 ET June construction spending and the July ISM index will be released while auto and truck makers will be reporting their July sales throughout the day.
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