Day Traders Diary


The stock market endured another rough session, but the major averages managed to climb off their worst levels of the day ahead of the close. The S&P 500 lost 0.8% while the Russell 2000 rose 1.0% after showing relative strength throughout the session.

Equity indices stumbled out of the gate to continue the weakness that started in the futures market overnight. Also weighing on sentiment was a trio of disappointing economic reports with retail sales, PPI, and the Empire Manufacturing Index all missing expectations. The data was met with dollar weakness while Treasuries soared.

The dollar retreated against other major currencies with the euro (+170 pips), yen (+120 pips) and Swiss franc (+130 pips) benefitting from the greenback weakness. For its part, the Dollar Index (84.97, -0.85) lost 1.0%.

Meanwhile, the 10-yr note was up more than two points at its best level of the day with the benchmark yield down 34 basis points. That represented the sharpest move since the $1 trillion QE program was unveiled in March 2009. The benchmark yield recovered the bulk of its decline into the close, ending lower by five basis points at 2.15%.

Treasuries may have also received a boost from comments made by The Wall Street Journal's Jon Hilsenrath, who said the recent drop in commodity prices gives the fed more room to delay its first rate hike. To that point, the fed funds futures market has pushed out the probability of the first hike from July 2015 to the end of 2015.

Interestingly, the stock market all but ignored the report, leading to speculation that equity investors may be starting to question the power of the Fed and other central banks after years of asset purchases and rate cuts that have been followed by subpar growth and disinflationary pressures.

Eight sectors ended in the red with financials (-2.0%) posting the largest loss. Bank of America (BAC 15.76, -0.76) reported better than expected earnings, but the report could not stop the major sector component from settling lower by 4.6%.

Elsewhere among cyclical sectors, the top-weighted grouptechnologyended just ahead of the S&P 500. Chipmakers displayed relative strength with the PHLX Semiconductor Index climbing 0.5%. That advance took place despite a 2.7% decline in the shares of Intel (INTC 31.28, -0.87) after the industry giant reported a one-cent beat that was greeted with a Morgan Stanley downgrade to 'Underweight' from 'Equal-Weight.'

Also of note, the energy sector (+0.4%) was able to stage an intraday rebound while crude oil remained volatile. The energy component was down near 2.0% this morning, but ended the pit session with a ten-cent loss at $81.74/bbl. It is worth mentioning that the sector's outperformance followed heavy selling earlier in the month. The energy sector narrowed its October loss to 10.5%.

Similarly, the Dow Jones Transportation Average (+0.2%) rebounded to push this week's gain to 0.6%. The strength helped the industrial sector (-0.2%) end little changed.

Also of note, the utilities sector (-1.3%), which had shown relative strength earlier in the week, finished today's session among the laggards. Meanwhile, another countercyclical groupconsumer staples (-1.2%)was pressured by Wal-Mart (WMT 75.20, -2.78), which fell 3.6% after lowering its fiscal-year 2015 guidance to reflect expected sales growth of 2-3% (3-5% previous).

Today's wild ride invited above average participation with more than 1.1 billion shares changing hands at the NYSE floor.

Investors showed strong demand for volatility protection with the CBOE Volatility Index (VIX 25.35, +2.56) spiking to its highest level since November 2011 before pulling back.

Economic data included Retail Sales, PPI, Empire Manufacturing, Business Inventories, and the MBA Mortgage Index:

Retail sales declined 0.3% in September following an unrevised 0.6% gain in August, while the consensus expected a downtick of 0.2%.
Motor vehicle sales declined 0.8% after increasing 1.9% in July, which was in-line with the decline in per unit sales reported by the motor vehicle manufacturers
Excluding autos, retail sales declined 0.2% in September after increasing an unrevised 0.3% in August, while the consensus expected an increase of 0.3%
Producer prices fell 0.1% in September after reporting no change in August, while the consensus expected an increase of 0.1%
As expected, energy prices fell 0.7% in September, which was the third consecutive monthly decline
Food prices fell for the second consecutive month and the fourth time in the last five months, dropping 0.7% after falling 0.5% in August
Excluding food and energy, core PPI was flat after increasing 0.1% in August, while the consensus expected an increase of 0.1%
The Empire Manufacturing Survey for October fell to 6.2 from 27.5, while the consensus expected a downtick to 20.4
Business inventories increased 0.2% in August after increasing an unrevised 0.4% in July, while the consensus expected an increase of 0.4%
The weekly MBA Mortgage Index rose 5.6% to follow last week's 3.8% increase
Tomorrow, weekly Initial Claims ( consensus 290K) will be released at 8:30 ET, while September Industrial Production (consensus 0.4%) and Capacity Utilization (expected 79.0%) will both be reported at 9:15 ET. Also of note, the Philadelphia Fed Survey for October (consensus 19.8) and the October NAHB Housing Market Index (expected 59) will both be reported at 10:00 ET.

Nasdaq Composite +0.9% YTD
S&P 500 +0.8% YTD
Dow Jones Industrial Average -2.6% YTD
Russell 2000 -7.8% YTD

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