Day Traders Diary
Bulls achieved global dominance on Monday as investors cheered yesterday's first round of the French presidential election. The major U.S. averages opened the week solidly higher with the benchmark S&P 500 adding 1.1% while the Nasdaq and the Dow settled with respective gains of 1.2% and 1.1%.
The French people narrowed their presidential race to two candidates yesterday--Emmanuel Macron and Marine Le Pen--with the run-off scheduled for May 7. Mr. Macron is described as a centrist while Ms. Le Pen's policies are seen as more radical, often deviating to the far-right of the political spectrum. For investors, the main difference between the two candidates is their stance on France's membership in the European Union; Mr. Macron defends the single market while Ms. Le Pen would like to conduct a referendum on eurozone membership. Current polls give Emmanuel Macron a 20 point lead over Ms. Le Pen, leading investors to believe that the EU has dodged a populist bullet.
Equities finished higher around the globe following the French vote with France's CAC (+4.1%) leading the charge, settling at its highest mark in nearly a decade. Likewise, U.S. equities jolted higher at the start of Monday's session, however, they had a difficult time adding much to the early gain. Several factors can be attributed to capping the bullish sentiment, but the leading culprit was the possibility of a U.S. government shutdown.
Congress will return from its spring recess tomorrow, giving legislators just four days to pass a new spending bill and keep the government afloat. The deadline was expected to be a non-event as it's in no party's interest to force a closure, however, reports indicate that President Trump may attempt to leverage the situation to fund his promised barrier along the U.S./Mexico border. The aggressive tactic could definitely complicate matters.
Furthermore, a failure to pass a fairly routine spending bill will likely send a jolt of fear throughout the market as faith in the new administration's ability to push through more difficult promises, like tax reform, is already dwindling. It is worth noting that President Trump is aiming to lower the corporate tax rate to 15.0%, according to today's report from The Wall Street Journal.
This cautious sentiment was most obviously exhibited in the bond market. Treasuries finished lower across the board, as would be expected amid today's risk-on sentiment. However, they reclaimed much of their early losses to finish at the upper end of the day's trading range. Most notably, benchmark 10-yr yield (2.27%) dipped below the technically important 2.30% mark after hovering above it for the first time in nearly two weeks.
For sector standings, the financial group (2.2%) went unchallenged from start to finish at the top of the day's leaderboard. As one would expect, cyclical sectors generally outperformed their countercyclical peers with the technology (+1.3%), industrials (+1.3%), and materials (1.2%) groups showing relative strength. The technology sector received some help from chipmakers, evidenced by the 1.5% increase in the PHLX Semiconductor Index.
On the flip side, the lightly-weighted real estate (-0.9%) and telecom services (unch) groups where the only sectors to finish in negative territory. The energy sector also underperformed amid crude oil's poor performance. The energy component settled 0.8% lower at $49.23/bbl.
Investors did not receive any economic data on Monday. However, on Tuesday, participants will receive several economic reports, including the February Case-Shiller Home Price Index (Briefing.com consensus 5.8%) at 9:00 ET, February FHFA Housing Price Index at 9:00 ET, March New Home Sales (Briefing.com consensus 590,000) at 10:00 ET, and April Consumer Confidence (Briefing.com consensus 122.3) at 10:00 ET.
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