Day Traders Diary


The major averages finished the first full week of August on a strong note. The S&P 500 settled higher by 1.2% with all ten sectors posting gains. Thanks to the advance, the benchmark index added 0.3% for the week.

Although stocks ended higher, the futures market was pressured overnight after President Obama delivered a statement last evening, authorizing humanitarian air drops and air strikes in Iraq. The announcement weighed on futures, while giving a boost to Treasuries.

Despite the overnight weakness, equity futures began climbing once European markets opened for action. Furthermore, the overall sentiment improved in reaction to a report from RIA, indicating Russia is seeking to de-escalate the Ukraine crisis. However, it is worth noting that regional leaders have recently warned that Russia could invade Ukraine under the guise of 'peacekeeping.'

Once the opening bell rang, the key indices searched for direction through the first hour of action, but were able to rally to fresh highs with support from heavily-weighted sectors like consumer discretionary (+1.6%), industrials (+1.4%), and health care (+1.1%). The market received another push during the early afternoon after news reports cited Russia's defense ministry as saying Russia's exercises near the border with Ukraine are over.

The afternoon news lifted underperforming sectors into the green, while sending the day's leaders to new highs. On the fixed income side, Treasuries erased all of their overnight gains and ended flat with the 10-yr yield at 2.42%.

The utilities sector (+2.0%) finished in the lead, while other countercyclical groups were somewhat mixed. Consumer staples (+1.0%) and telecom services (+0.5%) lagged, while health care (+1.1%) ended just behind the S&P 500 thanks to strength in the biotechnology space. The iShares Nasdaq Biotechnology ETF (IBB 251.49, +3.34) rose 1.4%, but ended just short of its 50-day moving average (252.10).

Similar to biotechnology, other high-beta areas like chipmakers and homebuilders also rallied.

Microchip manufacturers rallied after NVIDIA (NVDA 19.00, +1.54) reported better than expected earnings and hiked its revenue guidance. The stock surged 8.8%, while the broader PHLX Semiconductor Index rose 1.2%. However, the technology sector (+0.6%) underperformed amid relative weakness in top-weighted components like Apple (AAPL 94.74, +0.26) and Microsoft (MSFT 43.20, -0.03).

Elsewhere, homebuilders provided a measure of support to the discretionary sector with the iShares Dow Jones US Home Construction ETF (ITB 22.71, +0.53) climbing 2.4%. Retailers and media names also played a part in the outperformance. The SPDR S&P Retail ETF (XRT 85.24, +1.30) added 1.6%, while media stocks were underpinned by CBS (CBS 59.23, +2.33) after the company reported above-consensus results.

Participation was on the light side with a bit more than 615 million shares changing hands at the NYSE.

Economic data was limited to second quarter productivity/unit labor costs data and the Wholesale Inventories report for June:
Nonfarm labor productivity increased 2.5% in Q2 2014 following a downwardly revised 4.5% (from -3.2%) decline in the first quarter
The consensus expected nonfarm productivity to increase 1.4%
An increase in wages led to a 3.1% increase in hourly compensation in the second quarter, down from a 6.8% increase in the first quarter
The larger increase in output, however, reduced unit labor costs growth from an 11.8% gain in the first quarter to only 0.6% growth in the second. The small increase in unit labor costs leaves a lot of room for future profit growth
Wholesale inventories increased 0.3% in June after increasing by a downwardly revised 0.3% (from 0.5%), while the consensus expected an increase of 0.4%
The BEA assumed wholesale inventories increased 0.7% in the second quarter GDP report. The lower-than-expected increase along with the downward revision to the May data will result in a smaller contribution to overall growth from the inventory sector when the second estimate is released at the end of the month
There is no economic data of note scheduled to be released on Monday.
S&P 500 +4.5% YTD
Nasdaq Composite +4.7% YTD
Dow Jones Industrial Average -0.1% YTD
Russell 2000 -2.9% YTD

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