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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Day Traders Diary

11/2/17

Equities ended Thursday little changed after a late-afternoon rally trimmed modest losses from earlier in the session. The S&P 500 ended a tick above its flat line, while the Nasdaq finished slightly lower and the Dow (+0.4%) outperformed, settling at a new record high. Small caps had a good showing, pushing the Russell 2000 higher by 0.3%.

Highlights of the House's tax reform bill include an immediate--and permanent--reduction in the corporate tax rate from 35.0% to 20.0%, a repeal of state and local tax deductions--with the exception of a $10,000 limit for property taxes, a limit for mortgage interest deductions on new home loans of less than $500,000 (adjusted from $1,000,000), and no major changes to 401(k) tax laws.

The bill also calls for reducing the number of tax brackets from seven to four--12%, 25%, 35%, and 39.6%--with the rate for top earners remaining unchanged.

Stocks initially sold off after the media leaked details of the bill in the morning, but the market bounced back soon thereafter. Financials helped fuel the turnaround and remained strong for the remainder of the session; the S&P 500's financial sector finished with a gain of 0.9%. The industrials (+0.5%), utilities (+0.4%), and real estate (+0.9%) groups also outperformed.

Meanwhile, the technology sector (+0.1%) manged to eke out a slim victory, but was weighed down by Facebook (FB 178.92, -3.74), which dropped 2.1% despite reporting better-than-expected earnings and revenues. Conversely, chipmaker Qualcomm (QCOM 54.84, +1.38) jumped 2.6% after beating both top and bottom line estimates.

In other earnings news, Tesla (TSLA 299.26, -21.82) plunged 6.8% after reporting worse-than-expected earnings and delaying its Model 3 production target of 5,000 per week by another quarter. Newell Brands (NWL 30.01, -10.99)--which owns names like Sharpie, Crock-Pot, and Yankee Candle--also tumbled, losing 26.8%, after missing earnings estimates and cutting its outlook.

Dow component DowDuPont (DWDP 72.04, -1.28) also declined, losing 1.8%, despite reporting above-consensus earnings. The materials sector (-0.8%), which houses DowDuPont, finished near the bottom of the sector standings, alongside the telecom services (-1.0%) and consumer discretionary (-0.8%) groups. 

Elsewhere, the Bank of England announced its first rate hike in a decade, increasing the Bank Rate by 25 basis points to 0.50% in a 7-2 vote. However, the British pound dropped 1.4% against the U.S. dollar to 1.3064, hitting a fresh one-month low.

In the bond market, U.S. Treasuries climbed in a curve-flattening trade; the yield on the benchmark 10-yr Treasury note dropped three basis points to 2.35%, while the 2-yr yield slipped one basis point to 1.62%. Yields move inversely to prices.

Also of note, President Trump nominated Fed Governor Jerome Powell to replace Fed Chair Janet Yellen when her term ends in February--as expected.

Reviewing Thursday's economic data, which included third quarter Productivity, third quarter Unit Labor Costs, and the weekly Initial Claims Report:

  • The preliminary unit labor costs ticked up 0.5% during the third quarter, while the Briefing.com consensus expected no change (0.0%). The preliminary productivity reading showed an increase of 3.0%, while the Briefing.com consensus expected an increase of 2.8%.
    • The key takeaway from the productivity report is that it was the highest quarterly increase since the third quarter of 2014, offering a hopeful sign that U.S. economic activity and workers' standard of living will be improving.
  • The latest weekly initial jobless claims count totaled 229,000, while the Briefing.com consensus expected a reading of 235,000. Today's tally was below the revised prior week count of 234,000 (from 233,000). As for continuing claims, they declined to 1.884 million from the revised count of 1.899 million (from 1.893 million).
    • The key takeaway is the initial claims are holding at historically low levels, underscoring the tightness in the labor market.

On Friday, investors will receive the Employment Situation Report for October (Briefing.com consensus 300K) at 8:30 ET, the September Trade Balance (Briefing.com consensus -$43.5 billion) also at 8:30 ET, and both the October ISM Services Index (Briefing.com consensus 58.5) and September Factory Orders at 10:00 ET.

  • Nasdaq Composite +24.7% YTD
  • Dow Jones Industrial Average +19.0% YTD
  • S&P 500 +15.2% YTD
  • Russell 2000 +10.3% YTD

 

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