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Leigh Baldwin & Co.

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Day Traders Diary

3/1/18

 
 

Stocks tumbled for the third day in a row on Thursday, with the major averages losing between 1.3% and 1.7%.

The market kept close to its flat line for the first half of Thursday's session as investors debated their next move following Wednesday's breaching of the S&P 500's 50-day simple moving average. Stocks started slipping in the early afternoon, but began a decisive retreat not long after President Trump announced new tariffs on steel and aluminum imports. The tariffs, which are 25% for steel imports and 10% for imported aluminum, prompted concerns about higher prices and a potential retaliation from China and other countries. 

Steel names U.S. Steel (X 46.01, +2.50), AK Steel (AKS 5.65, +0.49), Nucor (NUE 67.53, +2.13), and Steel Dynamics (STLD 48.10, +1.85) outperformed following the news, adding between 3.3% and 9.5%, while aluminum producer Century Aluminum (CENX 20.48, +1.43) spiked 7.5%.

However, automakers reacted negatively to the tariffs, which will likely weigh on their profit margins. General Motors (GM 37.79, -1.56), Ford Motor (F 10.29, -0.32), and Fiat Chrysler (FCAU 20.59, -0.60) dropped between 2.8% and 4.0%, while Toyota Motor (TM 130.39, -4.21) and Honda Motor (HMC 35.12, -0.97) lost 3.1% and 2.7%, respectively. Automakers also reported U.S. sales for February on Thursday, which, for the most part, declined year over year.

Looking at the broader market, 11 of 11 S&P 500 sectors finished Thursday in negative territory, with six settling with losses of at least 1.0%. The heavily-weighted financials (-1.9%), industrials (-1.9%), technology (-1.7%), and health care (-1.6%) sectors, which represent around 65.0% of the broader market combined, were the weakest performers. Conversely, the energy (-0.2%), utilities (-0.1%), and telecom services (-0.3%) sectors held up relatively well.

Stocks bounced back a bit in the final hour of trading, leaving the major averages a ways above their worst marks of the day; at their session lows, the S&P 500, the Nasdaq, and the Dow held losses between 2.0% and 2.3%. The small-cap Russell 2000 showed relative strength on Thursday, losing just 0.3%.

In Washington, Fed Chairman Jerome Powell wrapped up his first semiannual monetary policy testimony on Thursday with an appearance before the Senate Banking Committee, but he didn't really provide investors with any new information. The market still projects three rate hikes for 2018, but a fourth hike is certainly on the table; according to the CME FedWatch Tool, the chances of a fourth hike currently sit at 28.1%, down slightly from 31.9% on Wednesday.

The U.S. Treasury market recorded its second consecutive day of gains on Thursday, pushing yields lower across the curve. The yield on the benchmark 10-yr note dropped seven basis points to 2.80%, which puts it 15 basis points below the four-year high it touched last week. Meanwhile, the 2-yr yield dropped six basis points to 2.20%.

In currencies, the U.S. Dollar Index retreated from a six-week high, dropping 0.4% to 90.22.

Reviewing Thursday's economic data, which included Personal Income and Spending for January, the PCE Price Index and the core PCE Price Index for January, weekly Initial Claims, the ISM Index for February, and Construction Spending for January:

  • Personal income climbed 0.4% in January (Briefing.com consensus +0.3%) following an unrevised increase of 0.4% in December. Meanwhile, personal spending rose 0.2% in January (Briefing.com consensus +0.2%) following an unrevised increase of 0.4% in December.
  • The PCE Price Index increased 0.4% in January (Briefing.com consensus +0.4%), while the core PCE Price Index, which excludes food and energy, increased 0.3% (Briefing.com consensus +0.3%). Year-over-year, the core PCE Price Index is up 1.5%, unchanged from the last two readings.
    • The key takeaway from the report is that it won't shift the prevailing perspective that the Fed is expected to raise the fed funds rate at least three times this year.
  • The latest weekly initial jobless claims count totaled 210,000, while the Briefing.com consensus expected a reading of 227,000. Today's tally was below the revised prior week count of 220,000 (from 222,000). As for continuing claims, they rose to 1.931 million from a revised count of 1.874 million (from 1.875 million).
    • The trend in initial claims, which held below 300,000 for the 156th straight week, will support the Fed's thinking that tight labor markets should ultimately invite a pickup in wage inflation.
  • The ISM Index for February climbed to 60.8 from an unrevised reading of 59.1 in January, while the Briefing.com consensus expected a reading of 58.4.
    • The key takeaway is that the Prices Index hit its highest level since May 2011. That will feed into fears about manufacturers passing through higher input costs to their customers, which will buttress inflation expectations.
  • Construction Spending was flat in January (0.0%), while the Briefing.com consensus expected an increase of 0.3%. The prior month's increase was raised to 0.8% from 0.7%.
    • The key takeaway from the report is that construction spending growth continues to run at a relatively slow pace, which is an inhibitor of stronger overall growth.

On Friday, investors will receive the final reading of the University of Michigan Consumer Sentiment Index for February (Briefing.com consensus 99.5) at 10:00 AM ET.

  • Nasdaq Composite: +4.0% YTD
  • S&P 500: +0.2% YTD
  • Dow Jones Industrial Average: -0.5% YTD
  • Russell 2000: -1.8% YTD

Headlines provided by Briefing.com

 

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