Day Traders Diary
An afternoon rally left the U.S. equity market little changed on Wednesday as investors contemplated the resignation of White House Chief Economic Advisor Gary Cohn. The S&P 500 finished a tick below its flat line (-0.1%), breaking a three-session winning streak, while the Nasdaq did a little better (+0.3%) and the Dow did a little worse (-0.3%).
President Trump's proposed tariffs, which include a 25% duty on steel imports and a 10% duty on imports of aluminum, were reportedly the rift that caused Mr. Cohn's departure, which, in turn, underlined the seriousness of the White House on the matter. Mr. Trump indeed looks poised to push the tariffs forward, despite fears that they could lead to a trade war, with reports indicating that he would like to sign a presidential proclamation as early as Thursday.
It's worth noting, however, that White House Press Secretary Sarah Huckabee Sanders said there could be carve outs for NAFTA partners Mexico and Canada. The suggestion that the tariffs may not be applied in a universal fashion helped dial back the bearish sentiment on Wall Street.
The equity market looked as if it might give back all of its weekly gain immediately following news of Mr. Cohn's resignation, with the S&P 500 futures losing as much as 1.7% overnight. However, stocks quickly made a rebound attempt after opening lower. That attempt failed, but a second attempt in the afternoon proved successful, bringing the S&P 500 all the way back from a loss of 1.0%. The benchmark index touched positive territory for the first time with less than 30 minutes left in the session, but ticked back into the red in the final minutes.
Only three of eleven S&P 500 sectors finished in the green, but two of those three--technology (+0.6%) and health care (+0.5%)--are heavily-weighted, comprising around 40% of the broader market combined. Autodesk (ADSK 137.70, +17.83) was the tech sector's top-performing component, rallying 14.9%, after reporting better-than-expected earnings and revenues for the fourth quarter.
In other earnings news, Dollar Tree (DLTR 89.25, -15.11) and Ross Stores (ROST 75.40, -5.11) dropped sharply after both companies issued disappointing profit guidance; Dollar Tree also missed earnings estimates for the fourth quarter. The two retailers lost 14.5% and 6.4%, respectively.
Small caps outperformed in the midweek session, pushing the Russell 2000 higher by 0.8%, likely due to the fact that a trade war wouldn't have as harsh of an impact on smaller companies, which rely more on domestic consumers. Likewise, the S&P Mid Cap 400 added 0.2%.
Overseas, Asian equities sold off on Wednesday, but European shares advanced, with Germany's DAX (+1.1%) setting the pace. All eyes will be on the ECB's Governing Council meeting on Thursday, especially ECB President Mario Draghi's post-decision press conference. Any sense that the central bank might dial back its ultra-accommodative policy measures could lead to a knee-jerk reaction in the financial markets.
Investors received a big batch of economic data on Wednesday, highlighted by a higher-than-expected trade deficit for January (-$56.6 billion actual vs -$55.0 billion Briefing.com consensus), which marked the biggest deficit since October 2008. The key takeaway from the report is that trade will again be a drag on first quarter GDP growth.
The ADP National Employment Report for February, which is a prelude to Friday's Employment Situation Report, was also released, showing a larger-than-expected increase in nonfarm payrolls (235K actual vs 193K Briefing.com consensus). However, the ADP reading has proven unreliable in predicting the BLS nonfarm payrolls figure.
Elsewhere, U.S. Treasuries alternated between gains and losses on Wednesday, finishing little changed; the benchmark 10-yr yield climbed one basis point to 2.88%. Meanwhile, West Texas Intermediate crude futures dove 2.2% to $61.63 per barrel after the EIA reported U.S. crude inventories increased 2.4 million barrels last week. Estimates called for a build of around 2.7 million barrels.
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