Day Traders Diary


The S&P 500 added 0.3% to extend its weekly gain to 2.0%. Today's session was very quiet as participants displayed tepid demand for equities ahead of next week's highly-anticipated FOMC meeting where a tapering announcement may occur.

Excluding a brief dip during the opening hour, the major averages were confined to narrow ranges. The early weakness took place after it was reported that the University of Michigan Consumer Sentiment Index dropped to its lowest reading since April (76.8) in the preliminary September reading. That was down from 82.1 in August and well below the consensus expectation of a drop to only 82.0. Typically, consumer sentiment follows trends in employment, equity prices, oil prices, and media reports.

Since the end of August, the Syria debate has caused oil prices to increase; and the most recent August employment gains were much weaker than expected. Equity prices, however, have been moving higher.

Despite the temporary slide into negative territory, the key indices were able to reclaim and hold their early highs into the close.

The Nasdaq (+0.2%) trailed behind the other indices as major tech names lagged. Apple (AAPL 464.90, -7.79), Google (GOOG 889.07, -4.00), and Oracle (ORCL 32.46, -0.33) lost between 0.5% and 1.7%. Intel (INTC 23.44, +0.81) outperformed, gaining 3.6% with a Jefferies upgrade to 'Buy' from 'Hold' contributing to the strength.

Other cyclical sectors ended mixed. Energy (+0.1%), financials (+0.2%), and industrials (+0.2%) lagged; discretionary shares (+0.3%) ended in-line; and materials (+0.7%) outperformed.

In the materials sector, fertilizer names like Mosaic (MOS 45.99, +1.61) and Potash (POT 32.49, +0.71) spiked to highs after reports indicated Russian investor Vladimir Kogan purchased Suleiman Kerimov's stake in Uralkali for $3.7 billion.

Similar to cyclical sectors, defensive groups were mixed. Telecom services (+0.2%) lagged while consumer staples (+0.8%) and utilities (+0.8%), outperformed. For its part, the health care sector (+0.3%) ended in-line with the S&P.

Like other asset classes, Treasuries were very quiet. The benchmark 10-yr note added five ticks and its yield slipped two basis points to 2.89%.

Trading volume was well below average as only 569 million shares changed hands on the floor of the NYSE.

As mentioned earlier, Tuesday and Wednesday of next week will bring the FOMC policy meeting where many expect the Fed to announce a reduction in the size of its asset purchases.

The taper talk began after Fed Chairman Ben Bernanke mentioned, during his June 19 press conference, that barring a downturn in the economy, the Fed could scale back the size of its purchases later in the year. Following the press conference, participants began looking to the September meeting as a possible start date for tapering.

Stocks slumped in the immediate reaction, sending the S&P lower by nearly 5.0% over the course of four days. The market has been quite resilient since then and the S&P notched fresh all-time highs on August 2. Although the S&P 500 has slipped from its record levels, it remains 2.2% above its level at the start of the June 19 session and only 1.3% below its all-time best.

Looking back at today's economic data, the retail sales and PPI reports conveyed a familiar message of modest growth and low inflation. August retail sales came in below expectations (0.2% v. 0.4% consensus), but the July reading was revised higher to reflect an increase of 0.4% (0.2% prior).

Separately, total PPI jumped 0.3% ( consensus 0.2%) while core PPI, which excludes food and energy, was flat ( consensus 0.1%).

Total business inventories rose 0.4% in July after increasing an upwardly revised 0.1% (from 0.0%) in June. The consensus expected business inventories to increase 0.3%. Manufacturer (0.2%) and merchant wholesaler (0.1%) inventories were known prior to the release. The only new information was that retailer inventories increased 0.8% in July after increasing 0.1% in June.

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