Day Traders Diary


The stock market began the new trading week on the defensive note with small-cap stocks pacing the retreat. The Russell 2000 (-1.4%) and Nasdaq Composite (-1.1%) displayed relative weakness, while the S&P 500 lost 0.8% with all ten sectors ending in the red.
Global equities began showing some cracks overnight after China's Finance Minister Lou Jiwei poured cold water on hopes for new stimulus measures. Specifically, Mr. Lou said the government has no plans to change policies despite the recent string of disappointing data. A somewhat similar hawkish tone was conveyed by comments from Japan's Economy Minister Akira Amari, who said his country's government remains on track to implement another consumption tax hike.
The macroeconomic concerns have led to weakness in equities, while also weighing on growth-sensitive commodities like copper (-1.6% to $3.04/lb) and crude oil (-0.9% to $90.80/bbl). Unlike last week, the losses were not driven by a stronger dollar as the Dollar Index ended flat after wiping out its overnight decline.
Meanwhile, the weakness in crude prices spilled over to the energy sector (-1.4%), which slumped out of the gate and spent the entire day among the laggards. The sector widened its September loss to 5.6% and is now down 7.2% during the third quarter.
Similar to energy, the consumer discretionary sector (-1.5%) lagged from the start with high-beta names like (AMZN 324.50, -6.82), Netflix (NFLX 442.78, -14.74), (PCLN 1165.79, -20.33) exerting notable pressure. The three lost between 1.7% and 3.2%. Homebuilders also weighed on the sector following today's disappointing Existing Home Sales report. The iShares Dow Jones US Home Construction ETF (ITB 23.24, -0.50) lost 2.1%.
Elsewhere among cyclical groups, the financial sector (-0.7%) displayed relative strength in the morning, but settled just ahead of the broader market. The technology sector (-0.8%) also finished near the broader market, while industrials (-1.1%) were pressured by transports. The Dow Jones Transportation Average fell 1.4%.
Also of note, the materials sector (-0.1%) spent the bulk of the session in the green, but was pressured into negative territory by the close. The relative strength stemmed from a 33.2% surge in Sigma-Aldrich (SIAL 136.40, +34.03) after the company agreed to be acquired by Merck KGaA (MKGAF 93.70, +4.20) for $140.00/share, which represents a 37.0% premium to Friday's closing price.
On the countercyclical side, consumer staples (-0.2%) and telecom services (-0.1%) displayed relative strength, while utilities (-0.7%) ended near the S&P 500. For its part, the health care sector (-0.6%) outperformed even as biotechnology struggled. The iShares Nasdaq Biotechnology ETF (IBB 272.55, -2.68) lost 1.0%.
Treasuries ended near their highs after spending the day in the green. The 10-yr yield slipped one basis point to 2.56%.
Participation was in line with recent averages as more than 680 million shares changed hands at the NYSE.
Economic data was limited to the Existing Home Sales for August, which fell 1.8% to 5.05 million SAAR from a slightly downwardly revised 5.14 million SAAR (from 5.15 million SAAR) in July, while the consensus expected an increase to 5.20 million. The report revealed the first monthly drop in sales since March and overall sales are still down 5.3% year-over-year.

Tomorrow, the July FHFA Housing Price Index will be released at 9:00 ET.

Nasdaq Composite +8.4% YTD
S&P 500 +7.9% YTD
Dow Jones Industrial Average +3.6% YTD
Russell 2000 -2.8% YTD

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