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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

5/15/18

The Dow's eight-session winning streak came to an abrupt end on Tuesday as Treasury yields spiked, returning to multi-year highs. The Dow and the Nasdaq finished with losses of 0.8% apiece, while the S&P 500 ended lower by 0.7%. The small-cap Russell 2000 held up relatively well though, settling near its unchanged mark.

Treasury yields, which move inversely to Treasury prices, shot higher in pre-market action on Tuesday following the release of the Retail Sales report for April, which came in as expected, showing a month-over-month increase of 0.3%. In addition, the March increase was upwardly revised to 0.8% from 0.6%, and core retail sales -- which exclude auto, gas station, building materials, and food and drinking services sales -- jumped 0.4%.

The yield on the benchmark 10-yr Treasury note blew past the more than four-year high it hit three weeks ago, ending nine basis points above its Monday close at 3.08% -- its highest close since July 2011. Meanwhile, the yield on the 2-yr Treasury note climbed four basis points to 2.58% -- its highest close since July 2008.

Higher "risk free" interest rates enticed investors to dial back their equity holdings, especially within the rate-sensitive real estate space -- which finished at the bottom of the sector standings with a loss of 1.7% -- and within the homebuilding subsector -- evidenced by a 3.8% decline in the iShares U.S. Home Construction ETF (ITB 37.27, -1.47). The financial sector benefited from the rise in rates, settling near the top of sector leaderboard, but still ended with a loss of 0.2%.

Meanwhile, the heavily-weighted health care sector lost 1.3%, led lower by medical device company Agilent (A 62.50, -6.71), which tumbled 9.7% to a nine-month low after slashing its guidance for the July quarter and for the fiscal year. The top-weighted technology sector also underperformed, losing 1.0%, and energy was the only group to close in the green, finishing just a tick higher.

Dow component Home Depot (HD 187.98, -3.10) declined 1.6% after missing same-store sales estimates for the first quarter -- the first time it's missed on that metric in seven quarters. The home improvement retailer did beat earnings estimates though and did reaffirm its guidance for the fiscal year.

The U.S. and China kicked off a second round of trade talks in Washington on Tuesday. Round one, which took place in Beijing earlier this month, failed to move the needle, but there is some optimism about this round after U.S. President Donald Trump said he's working on getting Chinese phone company ZTE, which is suffering from U.S. sanctions, "back into business."

Reviewing Tuesday's economic data, which included Retail Sales for April, the Empire State Manufacturing Index for May, the NAHB Housing Market Index for May, and Business Inventories for March:

Headlines provided by Briefing.com

 

  • April retail sales rose 0.3% (Briefing.com consensus +0.3%), while the March increase was revised to 0.8% from 0.6%. Excluding autos, retail sales increased 0.3% in April (Briefing.com consensus +0.5%), and last month's increase was revised to 0.4% from 0.2%.
    • The key takeaway from the report is that consumer spending on goods was decent in April. Core retail sales, which exclude auto, gas station, building materials, and food and drinking services sales, jumped 0.4%.
  • The Empire Manufacturing Survey for May climbed to 20.1 (Briefing.com consensus 15.0) from the prior month's unrevised reading of 15.8.
  • The NAHB Housing Market Index for May ticked up to 70 (Briefing.com consensus 69) from a revised reading of 68 in April (from 69).
  • Business Inventories were flat in March (Briefing.com consensus +0.1%). The February reading was left unrevised at +0.6%.
    • The key takeaway from the report is that sales growth outpaced inventories growth, which is what businesses need to see to claim some pricing power.

 

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