Day Traders Diary


Equity indices spent some time on either side of their respective flat lines on Wednesday, but when the dust settled, they ended with modest gains. The Dow Jones Industrial Average, S&P 500, and Nasdaq all added 0.3%, with the Dow registering a new record closing high at 16,580.84, which represented its first green close for the year.
Today's session featured another heavy dose of earnings and a full slate of economic data. Prior to the open, index futures jumped in reaction to a better-than-expected ADP Employment report, but promptly surrendered those gains when it was reported that GDP increased a puny 0.1% in the first quarter ( consensus 1.0%).
The disappointing report ensured a lower start for the major averages, but they only took one more step down before forging a rebound on the back of the industrial sector (+0.5%), which drew strength from transports. The Dow Jones Transportation Average jumped 0.7%, bolstered by above-consensus earnings reported by C.H. Robinson (CHRW 58.90, +2.91).
The S&P 500 and Dow were able to reclaim their flat lines within the first hour of action, while the Nasdaq remained in the red a bit longer as biotechnology and high-beta tech names weighed.
After clawing back to unchanged, the key indices maintained narrow ranges until the Federal Open Market Committee released its latest policy statement, which called for another $10 billion reduction to monthly asset purchases, lowering the total to $45 billion.
There were few changes overall in the language the FOMC used to communicate its stance. One switch came in the opening sentence as the committee acknowledged that growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions. In March, the directive stated that "growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions."
What that opening sentence, and the decision to cut another $10 billion from its monthly asset purchases implied, was that the FOMC is clearly expecting pent-up demand to shine through in the second quarter and to overshadow the feeble 0.1% GDP growth rate for the first quarter.
In any event, equity indices gyrated a bit following the release, but climbed to new session highs into the close. The late-afternoon move allowed the Nasdaq to catch up to its peers, while also giving a boost to biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 230.25, +1.16) gained 0.5%, while the broader health care sector (+0.1%) underperformed amid weakness in Express Scripts (ESRX 66.58, -4.43) after the company reported disappointing quarterly results.
The post-FOMC move also lifted some of the high-beta tech names off their lows, but shares of Twitter (TWTR 38.97, -3.65) still finished at a new all-time low after reporting its quarterly results. The stock tumbled 8.6% after Twitter's disappointing user growth overshadowed its above-consensus earnings.
On the downside, the energy sector (-0.01%) ended just below its flat line, but still finished April ahead of the remaining nine groups with a gain of 5.1%.
Treasuries retreated overnight, but reversed course following this morning's GDP report. The 10-yr note advanced 12 ticks, pressuring its yield four basis points to 2.65%.
Boosted by month-end flows, trading volume was above average as 892 million shares changed hands at the NYSE floor.

Reviewing today's data:

The ADP Employment report indicated that employment in the nonfarm private business sector rose by 220K in April, which was above the increase of 215K expected by the consensus.
Q1 GDP increased 0.1% quarter-over-quarter, which represented the lowest quarterly increase since GDP rose by the same amount in Q4 2012. The consensus expected GDP to increase 1.0%. Many analysts over the last couple months have theorized that the softness in the first quarter is the result of extreme winter weather conditions. In our opinion, economic growth has tended to slow during the first half of the year for the past several years. The slowdown in Q1 2014 was not extraordinary and we do not expect a snap back from pent up demand to occur immediately in Q2 2014.
Manufacturing activities in the Chicago region rebounded in April as the Chicago PMI jumped to 63.0 from 55.9 that was reported in March. That was the strongest reading since the index reached 66.6 in October. The consensus expected the PMI to increase to 56.5. The increase in the Chicago PMI was predicated on a large boom in production. The production index jumped to 70.5 in April from 61.7 in March. More importantly, a solid increase in order backlogs (54.9 from 50.4) is likely to keep upward pressure on production growth over the next few months.
The weekly MBA Mortgage Index fell 5.9% to follow last week's decline of 3.2%.
Tomorrow, the Challenger Job Cuts report for April will be released at 7:30 ET, while weekly initial claims, March Personal Income, Personal Spending, and core PCE Prices will all be reported at 8:30 ET. March Construction Spending and the April ISM Index will both be released at 10:00 ET, while auto and truck makers will be reporting their April sales throughout the day.

S&P 500 +1.9% YTD
Dow Jones Industrial Average +0.03% YTD
Nasdaq Composite -1.5% YTD
Russell 2000 -2.9% YTD

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