Day Traders Diary



Stocks retreated from record highs on Monday as investors took some profits following four weeks of nearly nonstop gains and ahead of a busy week that will feature President Trump's first State of the Union address (Tuesday), the Fed's latest policy directive (Wednesday), the Employment Situation Report for January (Friday), and a host of tech earnings.

The S&P 500 dropped 0.7% to 2853.53, the Dow Jones Industrial Average tumbled 0.7% to 26439.48, and the Nasdaq Composite declined 0.5% to 7466.51. All three major indices opened the session modestly lower and kept within a pretty narrow range for much of the day. However, a wave of selling in the final hour of action pushed the averages to new lows, approximately doubling their earlier losses. All three indices finished near their worst marks of the day.

11 of 11 sectors declined on Monday, with the top-weighted technology group (-0.9%) showing relative weakness. Apple (AAPL 167.96, -3.55) lost 2.1% after the Nikkei Asian Review reported over the weekend that the tech giant plans to slash its iPhone X production for the first quarter by 50% following a disappointing holiday season. Conversely, Twitter (TWTR 25.18, +0.91) jumped 3.8% after Fox Business reporter Charlie Gasparino tweeted that the company is trying to sell itself.

The telecom services space (-1.3%) struggled early following reports that the Trump administration wants a federal takeover of the nation's 5G wireless network, but trimmed losses later in the day after the White House clarified that such a plan is not currently in place. Verizon (VZ 54.13, -0.59) and AT&T (T 37.26, -0.56) lost 1.1% and 1.5%, respectively.

The rate-sensitive utilities (-1.3%) and real estate (-1.2%) sectors finished with telecom services at the bottom of the sector standings as selling in the Treasury market pushed yields to multi-year highs; the yield on the benchmark 10-yr Treasury note climbed three basis points to 2.70%--its highest level since April 2014.

On a positive note, Amazon (AMZN 1417.68, +15.63) jumped 1.1% to a new all-time high after Citigroup raised its target price of AMZN shares to $1600 from $1400. The consumer discretionary sector, which houses Amazon, was among the top-performing groups, but still lost 0.3%.

In earnings news, Lockheed Martin (LMT 351.42, +6.52) and Seagate Tech (STX 55.11, +0.17) climbed 1.9% and 0.3%, respectively, after reporting better-than-expected earnings and revenues. Lockheed Martin also raised its profit guidance for fiscal year 2018.

On the M&A front, Dr Pepper Snapple (DPS 117.07, +21.42) spiked 22.4% after agreeing to merge with Keurig Green Mountain. Under the agreement, DPS shareholders will receive $103.75 per share in a special cash dividend and will retain 13% of the combined company. Meanwhile, VMware (VMW 125.05, -24.95), which Dell previously acquired, dropped 16.6% after CNBC reported that VMware could buy Dell in a reverse merger, potentially allowing Dell to be publicly traded without going through a formal listing.

As a reminder, VMW shares rallied 9.0% on Friday following a Wall Street Journal report that Dell was exploring options regarding VMware.

Elsewhere, equity indices in the Asia-Pacific region opened the week on a mostly lower note, with China's Shanghai Composite (-1.0%) leading the retreat, while the Euro Stoxx 50 slipped 0.2%. The U.S. dollar climbed 0.4% against the euro (1.2380), 0.6% against the pound (1.4073), and 0.4% against the yen (108.98).

Reviewing Monday's economic data, which included Personal Income, Personal Spending, and the PCE Price Index for December:

  • Personal income climbed 0.4% in December ( consensus +0.4%) following an unrevised increase of 0.3% in November.
  • Personal spending rose 0.4% in December ( consensus +0.5%), down from a revised increase of 0.8% in November (from 0.6%).
  • The PCE Price Index increased 0.1% in December ( consensus +0.2%), while the core PCE Price Index, which excludes food and energy, increased 0.2% ( consensus +0.2%). Year-over-year, the core PCE Price Index is up 1.5%, which is still a ways below the Fed's target of 2.0%.
    • The inflation data isn't going to alter the market's expectation that the Federal Reserve is likely to raise the fed funds rate again at its March meeting. That's one key takeaway from the report. The other key takeaway is that the personal savings rate dropped from 2.5% to 2.4%, which is its lowest level since 2005, underscoring the notion that consumers might be saving less because they are feeling better about their job/income prospects.

On Tuesday, the S&P Case-Shiller Home Price Index ( consensus 6.4%) and the Consumer Confidence Index for January ( consensus 124.0) will be released at 9:00 AM ET and 10:00 AM ET, respectively.

  • Nasdaq Composite: +8.2% YTD
  • Dow Jones Industrial Average: +7.0% YTD
  • S&P 500: +6.7% YTD
  • Russell 2000: +4.1% YTD

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