Day Traders Diary


The S&P 500 settled higher by 0.3% despite enduring some early weakness.

Stocks slipped out of the gate after this morning's Treasury selloff in reaction to July retail sales suggested the market believes the report strengthened the case for the Fed to start scaling back its asset purchases at the September meeting.

July retail sales increased 0.2% after increasing an upwardly revised 0.6% in June. The consensus expected sales to increase 0.2%.Excluding motor vehicle sales, which fell 1.0%, spending rose a solid 0.5% in July. That was up from a 0.1% gain in June and above the consensus expectation that called for an increase of 0.3%.

The sales numbers were a pleasant surprise considering the disappointing July employment report, which showed aggregate wages falling 0.3%. Normally, that would be expected to put substantial downward pressure on sales growth. It seems that the recent gains in the stock market and the improvement in job security, which is implied from the downward trend in initial claims, offset the weakness in wage growth and allowed consumers to dip into savings in July to keep consumption trending higher.

Treasuries ended on their lows with the benchmark 10-yr yield higher by nine basis points at 2.71%. Elevated yields appeared to weigh on equities in early action, but the market was able to recover swiftly with a little help from Atlanta Fed President Dennis Lockhart who said the Fed will not have enough data to make a tapering decision in September. The S&P climbed to a fresh high following these comments while small caps could not get back into positive territory as indicated by the 0.2% slip in the Russell 2000.

The rebound in the S&P was aided by the relative strength of most cyclical groups. The tech sector spiked during afternoon action after activist investor Carl Icahn disclosed what he described as a "large" position in Apple (AAPL 489.57, +22.21). The largest tech stock advanced 4.8% while the broader sector added 0.8%.

Elsewhere, industrials (+0.4%) also outperformed, but the gains took place despite the Dow Jones Transportation Average, which shed 0.7% as airlines weighed after the Department of Justice filed a civil antitrust lawsuit challenging the proposed $11 billion merger between U.S. Airways (LCC 16.36, -2.46) and the parent corporation of American Airlines, AMR (AAMRQ 3.17, -2.64).

While most cyclical sectors posted solid gains, discretionary shares ended flat. Home builders registered losses across the board and the iShares Dow Jones US Home Construction ETF (ITB 21.27, -0.39) fell 1.8%.

Below-average volume has persisted through August, and today did not deviate from the recent norm as only 619 million shares changed hands on the floor of the New York Stock Exchange.

In today's remaining economic news, total business inventories were unchanged in June after falling a downwardly revised 0.1% (from +0.1%) in May. The consensus expected business inventories to increase 0.1%. Manufacturer (0.1%) and merchant wholesaler (-0.2%) inventories were known prior to the release. The only new information was that retailer inventories increased 0.1% in June after increasing 0.5% in May.

Tomorrow, the weekly MBA Mortgage Index will be reported at 7:00 ET while July PPI and core PPI will cross the wires at 8:30 ET.
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