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Leigh Baldwin & Co.

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Day Traders Diary

9/28/15

The new week got off to a very poor start for the major indices, which experienced steady selling pressure from the opening bell in a trend-down day.  Global growth concerns were at the heart of Monday's pullback along with another dastardly performance by the biotechnology sector.

The growth concerns were triggered anew by a caustic research note on the business prospects for commodity producer Glencore (GLCNF 1.07, -0.41), an 8.8% year-over-year decline in China's industrial profits, a disappointing 1.4% monthly decline in pending U.S. home sales for August, and a declaration from International Monetary Fund (IMF) head Christine Lagarde that the IMF's forecasts for global growth of 3.3% this year and 3.8% next year are no longer realistic due principally to the weakness in emerging markets.

These factors, and an allegation from famed investor Carl Icahn that there could be another financial catastrophe looming with the persistence of the Federal Reserve's policy rate near the zero bound, cast a pall on investor sentiment that hung over the capital markets all day.

To that end, oil (-2.7% to $44.47 per barrel) and other commodity prices got knocked back noticeably, high-yield bond prices continued to weaken, cyclical sectors like the energy (-3.6%), materials (-3.2%), and consumer discretionary (-2.9%) sectors were among the hardest hit areas, and Treasuries rallied in a flight-to-safety bid.

In turn, investors sought downside protection, evidenced by the 17% surge in the CBOE Volatility Index (VIX 27.58, +3.96), and generally shied away from buying much of anything in the equity market.

All ten sectors finished lower.  The health care sector (-3.8%) fared the worst as price control concerns continued to percolate on the back of reports that lawmakers in Washington are working to get a subpoena to obtain documents from Valeant Pharmaceuticals (VRX 166.50, -32.97) that discuss big price increases for two heart drugs.

That news compounded the recent selling pressure in the biotech group, which had to contend with the double whammy of valuation concerns.  The iShares Nasdaq Biotechnology ETF (IBB 290.61, -19.63) dropped 6.3% and is now down 27.5% from its July high.

The weakness in the biotech space took a heavy toll on the Nasdaq Composite (-3.0%) and Russell 2000 (-2.9%).  Separately, the weight of large losses in market darlings Facebook (FB 89.21, -3.56), Amazon.com (AMZN 504.06, -20.19), Netflix (NFLX 99.47, -2.77), and Google (GOOG 594.89, -17.08) -- the so-called "FANG" stocks -- took a big bite out of the Nasdaq and the broader market.

Today's negative disposition was cemented in the fact that Apple (AAPL 112.44, -2.27) couldn't escape the selling pressure even though it announced record sales of more than 13 million units of its iPhone 6s and iPhone 6s Plus just three days after launch.

The Personal Income and Spending report for August was decent, showing a 0.3% increase in income (Briefing.com consensus +0.4%) and a 0.4% jump in spending (Briefing.com +0.3%) on top of modest upward revisions to July's data for both series.  The report also revealed subdued inflation pressures, which were painted by a miniscule 0.3% year-over-year increase in the Personal Consumption Expenditures Price Index (PCE) and a modest 1.3% year-over-year increase excluding food and energy.

The latter news also helped underpin the Treasury market and particularly the back end of the curve.  The 10-yr note yield dropped seven basis points to 2.09%.

There were two Fed officials who gave speeches today during market hours -- New York Fed President Dudley and Chicago Fed President Evans.  Both men are voting members on the 2015 Federal Open Market Committee, yet their somewhat opposing views failed to alter today's downtrend.  To wit, stocks traded lower after both presentations in which Mr. Dudley said he thinks the Fed should be able to raise rates before the end of the year and Mr. Evans said a later liftoff would create better positioning for economic challenges.

The major indices closed just off their worst levels of the day on heavy volume.  Reflecting the entrenched negative bias, decliners led advancers by nearly a 9-to-1 margin at the NYSE and a nearly 6-to-1 margin at the Nasdaq.

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.