Day Traders Diary


The first trading day of March was a good day for the stock market and a lousy day for the Treasury market. The former rallied, featuring a return above 5,000 for the Nasdaq Composite and new record closes for both the Dow Jones Industrial Average and S&P 500. The latter, meanwhile, languished and perhaps breathed some added life into the stock market on rebalancing efforts.


To be fair, both the stock and bond markets had ample reason to advance today. The People's Bank of China cut its key lending rate by 25 basis points to 5.35% and each piece of economic data out of the U.S. today fell short of consensus estimates.


Personal income rose 0.3% in January ( consensus +0.4%) while personal spending declined 0.2% ( consensus -0.1%).

Core PCE prices increased just 0.1% ( consensus +0.2%) and are up just 1.3% year-over-year (total PCE prices are up only 0.2% year-over-year, well below the Fed's 2.0% inflation target).

The February ISM Index slid to a 13-month low of 52.9 ( consensus 53.0) from 53.5

Construction spending declined 1.1% in January ( consensus +0.2%) after an upwardly revised 0.8% increase (from +0.4%) in December

The Treasury market basically turned a blind eye to the weakish data and sold off, having a fit that continued all day long and persisted after the cash settlement. The yield on the benchmark 10-yr note jumped eight basis points to 2.08%, which was its high yield for the cash session, but touched 2.09% in late trading.


While the rout in the Treasury market was unfolding, a rally in the stock market was playing out, suggesting perhaps that a rotational move out of Treasuries and into stocks was helping to support things. Whatever the case might have been, there was a seemingly equal and opposite reaction in stocks and Treasuries today.


The stock market didn't necessarily need that rotational trade to do well. It had identifiable catalysts in the rate cut out of China, the association that the first trading day of a new month often sees new inflows, and a spate of M&A activity that was highlighted by NXP Semiconductor's (NXPI 99.59, +14.69) $11.8 billion cash-and-stock offer to acquire Freescale Semiconductor (FSL 40.36, +4.25). Other notable deals included Hewlett-Packard (HPQ 34.92, +0.08) buying Aruba Networks (ARUN 24.61, -0.20) for $2.7 billion in cash, as previously rumored, and Cardinal Health (CAH 89.52, +1.53) acquiring Cordis from Johnson & Johnson (JNJ 103.22, +0.71) for $1.9 billion in cash.


Elsewhere, oil prices had a roller-coaster ride, trading below $49.00/bbl early, moving back above $51.00/bbl later, and then ultimately settling pit trading down $0.17 at $49.59/bbl.


The energy sector (-0.7%) was stuck in a rut all day, even when oil prices came storming back from early losses. The only other sector that fared worse on Monday was the utilities sector, which dropped 2.0%, clipped by the jump in long-term rates.


On the flip side, there was quality leadership in Monday's market from those sectors one would expect to see leading a charge to new highs. The consumer discretionary sector (+1.2%) led all gainers followed by the information technology (+1.0%), health care (+0.9%), financial (+0.8%), and industrials (+0.8%) sectors.


The CBOE Volatility Index ("the VIX") fell 3.2% to 12.92, ending at its lowest level since early December. The VIX Index has plunged 34% over the last month as the broader market has rallied to higher highs.


NYSE volume totaled 740 mln shares versus the 50-day average of 813 mln shares.

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