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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Day Traders Diary

7/30/14

The stock market ended the Wednesday session on a mixed note with small caps displaying relative strength. The Nasdaq Composite (+0.5%) and Russell 2000 (+0.4%) registered modest gains, while the Dow Jones Industrial Average (-0.2%) and S&P 500 (+0.01%) underperformed.

Despite the mixed finish, the key indices traded higher across the board at the start of the session after the advance reading of second quarter GDP surpassed estimates (4.0% versus Briefing.com consensus 3.2%). However, the early strength was short-lived with the S&P 500 sliding into red during the opening 90 minutes of action.

One could argue that the inability to rally on a strong data point and better than expected earnings resulted from concerns about a potential fed funds rate hike taking place sooner than expected. To that point, Treasuries spent the session in a steady retreat and finished near their lows. The 10-yr note fell 26 ticks, sending its yield higher by nine basis points to 2.55%.

However, the jitters about a swift rate hike should have been partially calmed by today's policy statement from the FOMC, which was very similar to the June directive. The Fed lowered the size of monthly asset purchases to $25 billion and reiterated that participants saw continued "significant underutilization" of labor resources. Household spending was described as "rising moderately," while the housing sector continued recovering at a slow pace.

Despite the familiar undertone, there was a slight change in the portion of the statement dealing with inflation. Specifically, the directive acknowledged that "the likelihood of inflation running persistently below two percent has diminished somewhat," while the prior statements focused on the potential risks stemming from inflation running below the two-percent target.

The statement did not receive unanimous support with Philadelphia Fed President Charles Plosser dissenting due to his view that the guidance is time dependent and does not reflect the considerable economic progress that has been made already.

When the dust settled, five sectors posted gains, while the other five finished in the red. Cyclical groups displayed broad strength at the open, but finished the trading day on a mixed note.

Heavily-weighted consumer discretionary (+0.6%) and financial (+0.4%) sectors hovered near their flat lines into the afternoon, but surged to the top of the leaderboard shortly after the release of the FOMC statement. In the financial sector, American Express (AXP 90.91, -0.80) lost 0.9% despite reporting better than expected earnings.

Meanwhile, the discretionary space was supported by retailers, while homebuilders slumped. The SPDR S&P Retail ETF (XRT 85.07, +0.83) added 1.0%, narrowing its July loss to 2.0%. For its part, the iShares Dow Jones US Home Construction ETF (ITB 22.59, -0.17) lost 0.8% as higher interest rates weighed.

Elsewhere, the industrial sector (+0.1%) was a notable laggard during the early portion of the session, but sprung to life in the afternoon. Transport stocks fueled the move with the Dow Jones Transportation Average climbing 0.7%. CH Robinson (CHRW 68.53, +4.12) paced the rally with a 6.4% gain after beating bottom-line estimates.

Also of note, the top-weighted sector-technology (+0.3%)-received support from chipmakers as the PHLX Semiconductor Index advanced 1.0%, which gave a boost to the Nasdaq Composite.

The tech-heavy Nasdaq also benefitted from a rally among biotech names. Amgen (AMGN 130.01, +6.70) surged 5.4% following its strong earnings and guidance, while the iShares Nasdaq Biotechnology ETF (IBB 257.25, +2.47) rose 1.0%.

The outperformance of biotech helped keep the health care sector (+0.4%) in the green even as some large cap components displayed relative weakness. WellPoint (WLP 112.47, -0.08) shed 0.1% despite beating estimates, while Humana (HUM 120.34, -7.18) lost 5.6% in reaction to an in-line report.

Another countercyclical sector-utilities-ended at the bottom of the leaderboard with a loss of 1.7% that was likely due in part to the increase in Treasury yields.

Today's participation was an improvement when compared to recent sessions, but remained below average with less than 670 million shares changing hands at the NYSE.

Economic data included the weekly MBA Mortgage Index, ADP Employment Change, and the Q2 GDP report:
Second quarter GDP increased 4.0% in the advance release after declining an upwardly revised 2.1% (from -2.9%) in Q1 2014. The Briefing.com consensus expected GDP to increase 3.2%
Real final sales, which fell 1.0% in the first quarter, rebounded and increased 2.3%. That is still well off the pace from the second half of 2013 when real final sales increased 3.0% and 3.9%, respectively, in the third and fourth quarters

Simply put, all the predictions for 2014 economic growth that were based on the second half 2013 rebound proved to be faulty. Last year's gains were not sustainable
Inventories added 1.66 percentage points to GDP growth in second quarter after subtracting 1.16 percentage points in Q1 2014
According to the ADP National Employment Report, employment in the nonfarm private business sector rose 218K in July, while the Briefing.com consensus expected an increase of 215K

The June reading was left unrevised at 281,000
The weekly MBA Mortgage Index fell 2.2% to follow last week's increase of 2.4%
Tomorrow, the July Challenger Job Cuts will be announced at 7:30 ET, while weekly initial claims (Briefing.com consensus 310K) and the Q2 Employment Cost Index (consensus 0.4%) will be released at 8:30 ET. The day's data will be topped off with the 9:45 ET release of the Chicago PMI for July (expected 61.8).

S&P 500 +6.6% YTD
Nasdaq Composite +6.9% YTD
Dow Jones Industrial Average +1.8% YTD
Russell 2000 -1.5% YTD 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.