Day Traders Diary



Stocks broke a two-session losing streak on Wednesday, but just barely, finishing just a tick above their unchanged marks.

The S&P 500 opened with a gain of 0.5%, but settled higher by just 0.1%. The Nasdaq Composite and the Dow Jones Industrial Average had similar outings; the Nasdaq opened higher by 0.7%, but finished with a gain of just 0.1%, while the Dow retained 0.3% of its opening gain of 0.9%. All three indices spent some time in negative territory, but a late uptick brought them back into the green. Small caps were relatively weak throughout the session, with the Russell 2000 ending lower by 0.5%.

As expected, the Federal Open Market Committee unanimously voted to keep the fed funds target range at 1.25%-1.50%, allowing Fed Chair Janet Yellen to step down in the most hospitable way. Jerome Powell, President Trump's chosen replacement for Ms. Yellen, will officially become the next Fed Chair on February 3.

In the Fed's official statement, policymakers said near-term risks to the economic outlook appear roughly balanced, but added that officials are keeping an eye on inflation, which has been slow to pick up despite a tightening of the labor market. Fed officials expect that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will remain strong.

The market dialed up its expectations for a rate hike in March following the FOMC release, with the CME FedWatch Tool now placing the chances at 83.5%, up from 74.7% on Tuesday. Investors are still calling for a total of three rate hikes in 2018.

Eight of eleven sectors finished Wednesday in the green. The lightly-weighted real estate (+2.1%) and utilities (+1.1%) sectors were the top-performing groups, but the technology (+0.7%) and industrials (+0.4%) sectors also had relatively positive outings. Boeing (BA 354.37, +16.66) set the pace in the industrial space, jumping 4.9% to a new all-time high, after reporting above-consensus earnings and revenues for the fourth quarter and issuing much better-than-expected guidance for fiscal year 2018.

Within the tech space, Advanced Micro (AMD 13.74, +0.87) climbed 6.8% after reporting upbeat earnings and revenues for the fourth quarter and raising its sales guidance for Q1, and Electronic Arts (EA 126.96, +8.26) jumped 7.0% after reporting better-than-expected revenue guidance for the current quarter.

On the downside, the heavily-weighted health care sector (-1.5%) was the weakest group, tumbling for the second day in a row. Investors were still concerned about Tuesday's news that Amazon (AMZN 1450.89, +13.07), Berkshire Hathaway (BRK.A 323375, +375), and JPMorgan Chase (JPM 115.67, +0.56) are partnering to form a company to reduce health care cost for their employees, but a renewed promise from President Trump to reduce prescription drug prices also weighed on the sector.

President Trump made that promise during his State of the Union address on Tuesday evening. The president stayed on script throughout the speech, calling for a $1.5 trillion infrastructure plan and a compromise on immigration that would allow a path to citizenship for "Dreamers" in exchange for his promised barrier along the Mexico border and added border security.

In the bond market, U.S. Treasuries finished Wednesday mixed; the 10-yr yield slipped one basis point to 2.72%, while the 2-yr yield climbed two basis points to 2.14%.

Reviewing Wednesday's economic data, which included the ADP Employment Change report for January, the Chicago PMI for January, the Employment Cost Index for the fourth quarter, Pending Home Sales for December, and the weekly MBA Mortgage Applications Index:

  • The ADP National Employment Report showed an increase of 234,000 in January ( consensus 190,000). The December reading was revised to 242,000 from 250,000.
  • The Chicago PMI for January hit 65.7 ( consensus 61.0), down from 67.6 in December.
    • The key takeaway from the report is that manufacturing activity in the Chicago Fed region is still humming along near multi-year high levels. The January 2018 reading was the best January reading in seven years.
  • The fourth quarter Employment Cost Index rose 0.6%, while the consensus expected an increase of 0.5%.
    • The key takeaway is that compensation costs, led by wages and salaries, are rising slowly, but steadily, which will keep market participants focused on the prospect of inflation picking up with wage and salary growth.
  • Pending Home Sales increased 0.5% in December ( consensus +0.6%). Today's reading follows a revised 0.3% increase in November (from 0.2%).
  • The weekly MBA Mortgage Applications Index decreased 2.6% to follow last week's 4.5% rise.

On Thursday, investors will receive a number of economic reports, including weekly Initial Claims ( consensus 238K), the preliminary readings for fourth quarter Productivity ( consensus +1.0%) and Unit Labor Costs ( consensus +1.0%), the ISM Manufacturing Index for January ( consensus 58.5), and Construction Spending for December ( consensus +0.3%).

In addition, auto and truck sales for January will be released throughout the day.

  • Nasdaq Composite: +7.4% YTD
  • Dow Jones Industrial Average: +5.8% YTD
  • S&P 500: +5.6% YTD
  • Russell 2000: +2.6% YTD

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