Day Traders Diary
Investors took some additional profits on Wednesday as concerns surrounding the continued breakdown of U.S.-North Korea relations weighed on investor sentiment for the second day in a row. However, the cautious tone largely subsided by the day's end, making way for a late-afternoon rally that left the major averages at their best marks of the day. The S&P 500 finished just a tick below its flat line while the Dow and the Nasdaq settled lower by 0.2% and 0.3%, respectively. Small caps underperformed, sending the Russell 2000 lower by 0.9%.
On Tuesday, President Donald Trump warned that North Korea will be "met with fire and fury" if it continues to threaten nuclear action against the United States. Undeterred, North Korea responded just a few hours later by saying it's "carefully examining" a plan to strike the U.S. territory of Guam.
Investors have largely shrugged off the ongoing feud between the U.S. and North Korea, but yesterday's comments held a little more weight following reports that Pyongyang now has the capability to load their missiles with miniaturized nuclear warheads. Still, given the stock market's very modest two-day decline, it's clear that investors don't truly believe conflict is on the horizon.
Rather, market participants have used the aforementioned headlines as a convenient excuse to take some money off the table following the stock market's most recent run to new record highs.
Sector movement was pretty modest with eight of the eleven groups settling within 0.2% of their unchanged marks. Six sectors finished in the green with health care (+0.2%) leading the advance. On the flip side, four sectors closed in negative territory with the consumer discretionary (-0.5%) and utilities (-0.5%) spaces pacing the retreat. The industrial group finished flat.
Walt Disney (DIS 102.83, -4.15) and Netflix (NFLX 175.78, -2.58) weighed on the consumer discretionary space, dropping 3.9% and 1.5%, respectively, after Disney announced that it will end its distribution agreement with Netflix in 2019 in favor of a new direct-to-consumer streaming strategy. In addition, Disney reported earnings, beating bottom-line estimates, but missing on revenues.
Elsewhere on the earnings front, Priceline (PCLN 1906.80, -142.20) plunged 6.9% after below-consensus guidance overshadowed the company's better than expected earnings and revenues.
In the bond market, U.S. Treasuries climbed higher as safe-haven assets benefited from the day's risk-off tone; the benchmark 10-yr yield, which moves inversely to the price of the 10-yr Treasury note, slipped four basis points to 2.24%. Meanwhile, gold jumped 1.3% to $1,279.20/ozt and the Japanese yen climbed 0.3% to 110.02 against the U.S. Dollar.
Crude oil advanced 1.0% to $49.59/bbl after the Department of Energy reported a larger than expected draw in U.S. crude inventories (-6.5 million barrels actual vs -2.2 million barrels consensus). The commodity trended sideways near its flat line for some time before moving decidedly higher in the afternoon.
Reviewing Wednesday's economic data, which included second quarter Productivity and Unit Labor Costs, June Wholesale Inventories, and the weekly MBA Mortgage Applications Index:
The preliminary unit labor costs increased 0.6% during the second quarter, which was lower than the 1.5% increase that had been anticipated by the Briefing.com consensus. The preliminary productivity reading came in at +0.9% while the Briefing.com consensus expected an increase of 0.5%.
The key takeaway from the report, which also included revisions for the first quarter 2014 through the first quarter 2017, is that productivity continues to be weak, which is an impediment for an increased standard of living. In fact, with the revisions, it was shown that productivity decreased 0.1% in 2016, which is the first annual decrease since a 1.0% decrease in 1982.
June Wholesale Inventories increased 0.7% (Briefing.com consensus +0.6%). The prior month's reading was revised to +0.6% from +0.4%.
The key takeaway from the report is that there wasn't any progress in reducing the inventory-to-sales ratio, which would be helpful for wholesalers looking to gain some more pricing power.
The weekly MBA Mortgage Applications Index increased 3.0% to follow last week's 2.8% decrease.
On Thursday, investors will receive two pieces of economic data--the July Producer Price Index (Briefing.com consensus +0.2%) and the weekly Initial Claims Report (Briefing.com consensus 240K). Both reports will be released at 8:30 ET.
Nasdaq Composite +18.0% YTD
Dow Jones Industrial Average +11.6% YTD
S&P 500 +10.5% YTD
Russell 2000 +2.9% YTD