Day Traders Diary


The stock market trades on a flat note at midday after an opening-hour rally stalled. The pullback was fueled by rising interest rates, strengthening in the U.S. Dollar Index (98.94, +0.31, 0.32%), and weakness in the heavily-weighted consumer discretionary (-0.7%) and industrial (-0.8%) sectors. The Nasdaq Composite (-0.4%) trades behind the S&P 500 (-0.1%) and the Dow Jones Industrial Average (+0.1%).


Sovereign bond prices lost ground overnight as positive economic data out of the UK and remarks from Bank of Japan Governor Haruhiko Kuroda called into question the future path of global monetary policy. The first post-Brexit vote GDP report from the UK showed growth of 0.5% quarter-over-quarter (consensus: +0.3%). Separately, BoJ Governor Kuroda tempered expectation of further easing by stating that the yield curve is moving in-line with the central bank's expectations.


U.S. Treasuries extended their losses shortly after the Wall Street open as participants assessed a largely in-line reading of the New Home Sales Report for September. The report showed that sales of new single-family homes rose 3.1% in September ( consensus 610,000), coming in at an annualized rate of 593,000. The August reading was revised down to 575,000 from 609,000. The data did little to upset U.S. rate hike expectations for the remainder of the year.


According to the CME's FedWatch Tool, the probability of a rate hike at the December meeting ticked higher to 78.5% from 78.3% yesterday.


Rising rates continue to cause some unwinding in "yield play" sectors -- real estate (-2.6%) and utilities (-0.8%) --, with the breadth of the move in the bond market forcing participants to adjust their positions.


The benchmark index trades off its session low, but seven sectors continue to sport losses. Real estate, utilities, and industrials (-0.8%) underperform while health care (+0.9%), telecom services (+0.7%), and financials (+0.6%) lead.


The health care sector (+0.9%) outperforms after the latest batch of earnings results came in above consensus. Alexion Pharmaceuticals (ALXN 132.63, +11.04, +9.1%), Bristol-Myers (BMY 52.81, +3.52, +7.2%), and Celgene (CELG 105.44, +7.03, +7.2%) are all on the rise after beating consensus estimates for the quarter. This has helped the iShares Nasdaq Biotechnology ETF (IBB 267.53, +2.22) narrow its October loss to 7.6%.


In the economically-sensitive financial sector (+0.6%), banking names outperform as steepening in the yield curve boosts the group's earnings prospects. The 2-yr/10-yr spread has increased to 97 basis points from September's 83 basis point differential. The SPDR S&P Bank ETF (KBE 35.02, +0.27) trades higher by 0.8%.


The industrial sector (-0.8%) displays relative weakness as defense contractors and aerospace names pull back. Boeing (BA 142.63, -2.91) has narrowed its weekly gain to 5.2%. Meanwhile, Raytheon (RTN 135.98, -5.29) has fallen 3.8% despite reporting upbeat bottom-line results and increasing its full-year earnings guidance.


Treasuries trade off their worst levels of the day, but yields remain higher across the curve. The yield on the 2-yr note has risen two basis points to 0.89% while the yield on the benchmark 10-yr note is up six basis points to 1.85%. The 10-yr yield notched a session high at 1.87% earlier in the day.


Today's economic data included weekly initial claims, Durable Goods Orders for September, and Pending Home Sales for September:


Initial claims for the week ending October 22 were 258,000 ( consensus 259,000), down 3,000 from the prior week's revised level of 261,000.

Continuing claims for the week ending October 15 decreased by 15,000 to 2.039 million.

Durable orders for September were down 0.1% ( consensus 0.0%), pulled lower by a 0.8% decline in transportation equipment orders.

However, new orders in August were revised up to 0.3% from 0.0%.

Excluding transportation, durable orders increased 0.2% in September ( consensus +0.3%) on top of an upwardly revised 0.1% increase (from -0.4%) in August.

Sales of new single-family houses jumped 3.1% in September to a seasonally adjusted annual rate of 593,000 from a revised August rate of 575,000 (prior 609,000).

The September reading was lower than the consensus estimate of 610,000. Absent the August revision, there would have not been any growth on a month-over-month basis.

For more on these economic releases, be sure to visit's Economic Calendar page.

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