Day Traders Diary



Investors played it safe on Thursday as they continued to digest Wednesday's rate-hike announcement and some potentially concerning reports from Washington. The S&P 500 (-0.2%) and the Dow (-0.1%) settled a step below their unchanged marks while the Nasdaq (-0.5%) underperformed, extending its week-to-date loss to 0.7%. For comparison, the benchmark index is flat for the week.

Equity indices opened Thursday's session solidly lower as investors continued to chew on Wednesday's policy announcement from the Federal Open Market Committee (FOMC), which was replete with a rate hike of 25 basis points, projections for an additional rate hike this year, and a specific plan for how the Fed will start to normalize its balance sheet.

The policy prescription left some market participants skeptical as it comes in the face of inflation readings that still remain below the Fed's longer-run target of 2.0%. Specifically, the fear is that the economic recovery effort could come to a halt if the U.S. central bank tightens policy too much and/or too soon.

In addition, investor sentiment was dampened by a Washington Post report that claimed Special Counsel Mueller's investigation of Russia's interference in the U.S. election is broadening in scope to examine whether President Trump tried to obstruct justice. It's worth clarifying that Mr. Trump hasn't been charged with obstruction of justice, rather, Mr. Mueller is examining the issue.

However, despite the lingering uncertainty, the major averages began retracing their opening losses in mid-morning action. The upward trend continued into the afternoon session, leaving the major averages near the top of the day's trading range. The tech-heavy Nasdaq showed relative weakness throughout the session as technology and biotechnology stocks underperformed.

The top-weighed technology sector (-0.5%) hovered with the consumer discretionary sector (-0.5%) at the bottom of the leaderboard for much of the day, but the two groups were able to reclaim a good portion of their early losses in the final stretch, eventually finishing just a step below the broader market.

Meanwhile, in the health care sector (-0.1%), biotechnology names underperformed, dragging the iShares Nasdaq Biotechnology ETF (IBB 293.80, -2.29) lower by 0.8%. The IBB dipped to a fresh session low around midday on reports that the White House is preparing an executive order aimed at lowering drug prices. However, the IBB retraced that dip by the day's close.

The energy sector (-0.7%) slipped to a new session low in the afternoon, eventually settling with the lightly-weighted materials group (-0.9%) at the bottom of the sector standings. Crude oil weighed on the energy group, dropping 0.8% to $44.45/bbl, as the commodity continued to face selling pressure following yesterday's bearish EIA inventory report. A strengthening dollar also worked against the energy component.

The U.S. Dollar Index (97.48, +0.57) rose 0.6% with the greenback adding 0.7% and 1.2%, respectively, on the euro (1.1145) and the yen (110.86). However, the British pound (1.2757) showed relative strength, adding 0.1% against the U.S. dollar, after the Bank of England decided to maintain its key rate and purchasing program in a split, 5-3 vote.

Back on Wall Street, four of the eleven sectors--industrials (+0.6%), utilities (+0.6%), real estate (+0.5%), and telecom services (unch)--settled in positive territory. The industrial sector benefited from broad strength with Dow components Caterpillar (CAT 106.40, +1.69), General Electric (GE 28.94, +0.49), and Boeing (BA 195.45, +3.07) leading the charge. The three added around 1.6% apiece.

Of the remaining sectors, the heavily-weighted financial group (-0.4%) settled a tick below the benchmark index while the consumer staples space (-0.2%) closed in line with the broader market.

In the bond market, U.S. Treasuries spent the day unwinding some of Wednesday's gains. The 10-yr yield climbed three basis points to 2.16% while the 2-yr yield (1.35%) moved higher by two basis points.

Reviewing Thursday's heavy dose of economic data, which included Initial Claims, June Philadelphia Fed, May Import/Export Prices, June Empire Manufacturing, May Industrial Production & Capacity Utilization, and June NAHB Housing Market Index:

  • The latest weekly initial jobless claims count totaled 237,000 while the consensus expected a reading of 240,000. Today's tally was below the unrevised prior week count of 245,000. As for continuing claims, they rose to 1.935 million from the revised count of 1.929 million (from 1.917 million).
    • The key takeaway from the report is that initial claims continue to hold steady at low levels that support the tight labor market claims advanced by the Federal Reserve.
  • The Philadelphia Fed Survey for June declined to 27.6 from an unrevised 38.8 in May while economists polled by had expected a reading of 26.0.
    • The key takeaway from the report is that it suggests continued growth for the region's manufacturing sector.
  • Import prices excluding oil were unchanged (0.0%) in May after adding 0.3% in April. Export prices excluding agriculture decreased 0.6% in May after rising 0.3% in April (revised from 0.1%).
    • The key takeaway from the report is that import and export prices are up year-over-year, yet inflation pressures overall remain modest for both import and export prices.
  • The Empire Manufacturing Survey for June rose to 19.8 from the prior month's reading of -1.0. The consensus estimate was pegged at 6.0.
  • Industrial Production was unchanged (0.0%) in May ( consensus 0.0%) while Capacity Utilization ticked down to 76.6% ( consensus 76.7%) from an unrevised reading of 76.7% in April. The Industrial Production reading for April was revised to 1.1% from 1.0%.
    • The key takeaway from the report is that it didn't include a contribution from manufacturing output, which declined 0.4%.
  • The NAHB Housing Market Index for June declined to 67 ( consensus 70) from a revised reading of 69 in May (from 70).

On Friday, investors will receive May Housing Starts ( consensus 1.227 million) and the preliminary reading of the University of Michigan Consumer Sentiment Index for June ( consensus 97.0). The two reports will cross the wires at 8:30 ET and 10:00 ET, respectively. 

  • Nasdaq Composite +14.5% YTD
  • S&P 500 +8.7% YTD
  • Dow Jones Industrial Average +8.1% YTD
  • Russell 2000 +3.9% YTD

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