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Leigh Baldwin & Co.

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Day Traders Diary

10/17/16

 

 The major averages began the week on a modestly lower note as participants preferred a risk-off approach ahead of key economic data and a barrage of corporate earnings reports. The Dow Jones Industrial Average (-0.3%) settled in-line with the S&P 500 (-0.3%) and the Nasdaq Composite (-0.3%).

Equity indices and U.S. Treasury yields ticked lower at the beginning of the week as below-consensus economic data and a mixed set of corporate earnings came into focus. Treasuries were in demand following worse than expected readings of the Empire Manufacturing Survey for October and the Industrial Production/Capacity Utilization Report for September.

Treasuries continued inching higher throughout the session, leading to a flattening in the yield curve. The yield on the 2-yr note settled lower by two basis points (0.82%) while the yield on the benchmark 10-yr note finished lower by four basis points (1.77%). The yield spread between the 2-yr and 10-yr narrowed to 95 basis points after finishing last week at 97 basis points.

The downturn in yields offered support to beleaguered "yield play" sectors -- utilities (+0.6%), telecom services (+0.2%), and real estate (+0.1%) -- but also weighed on the heavily-weighted financial group (-0.4%). 

Headwinds from a flattening yield curve and weaker-than-expected economic data masked above-consensus results from Charles Schwab (SCHW 31.69, -0.28) and Bank of America (BAC 16.05, +0.05). Meanwhile, Dow component Goldman Sachs (GS 169.00, -1.52) finished behind the price-weighted average ahead of tomorrow morning's quarterly report.

Seven sectors ended in the red with consumer discretionary (-0.8%), energy (-0.4%), consumer staples (-0.4%), and financials (-0.4%) acting as the largest laggards.

In the consumer discretionary space (-0.8%), restaurant names underperformed as Chipotle Mexican Grill (CMG 394.35, -9.79) declined by 2.4%. The stock was under pressure after having its price target lowered to $372 from $405 at Nomura. Meanwhile, Netflix (NFLX 99.80, -1.67) fell 1.7% ahead of this evening's quarterly report. Fellow F.A.N.G. member Amazon (AMZN 812.97, -9.99) also weighed despite receiving a price target increase at Credit Suisse.

The Dow Jones Transportation Average (-0.4%) finished behind the broader market as J.B. Hunt Transport Services (JBHT 78.45, -1.57) displayed relative weakness. The stock fell 2.0% after missing bottom-line estimates for the quarter. Meanwhile, United Continental (UAL 53.03, -0.17) ended lower by 0.3% ahead of this evening's quarterly report.

Health care plan providers underperformed in the health care space (-0.2%) as Anthem (ANTM 118.28, -2.81) fell 2.3%. The stock was downgraded to "Neutral" from "Overweight" at JP Morgan. Biotechnology finished ahead of the broader market, but the iShares Nasdaq Biotechnology ETF (IBB 265.72, -0.36) extended its monthly loss to 8.1%

Today's trading volume fell below the recent average of 859 million as 693 million shares changed hands at the NYSE floor.

Today's economic data included October Empire Manufacturing and the Industrial Production and Capacity Utilization Report for September:

Industrial production increased just 0.1% in September (Briefing.com consensus +0.2%) after declining a downwardly revised 0.5% (from -0.4%) in August.

The capacity utilization rate increased to 75.4% (Briefing.com consensus 75.6%) from a downwardly revised 75.3% (from 75.5%).

The Empire State Manufacturing Survey fell to -6.8 in October (Briefing.com consensus +2.0) from -2.0 in September.

Tomorrow's economic data will include CPI for September (Briefing.com consensus 0.3%) and the NAHB Housing Market Index for October (Briefing.com consensus 59.0), which will cross the wires at 8:30 ET and 10:00 ET, respectively. The day's data will be capped off with the 16:00 ET release of Net Long-Term TIC Flows for August.

 

Russell 2000: +6.6% YTD

S&P 500: +4.0% YTD

Nasdaq Composite : +3.8% YTD

Dow Jones: +3.8% YTD

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