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Leigh Baldwin & Co.

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Day Traders Diary

6/29/18

 

Stocks got off to a good start on Friday, but gave back nearly everything during the final hour of trading. The S&P 500 was up 1.0% at its best mark of the day, but ended with a gain of just 0.1%, closing a tick above its 50-day moving average. The Nasdaq also added 0.1%. The Dow climbed 0.2%.

Financials led the market higher out of the gate after the Fed cleared most big banks to increase their dividends and share buybacks. However, the heavily-weighted sector faded as the day went along, entirely retracing a gain of 1.8%, and ended lower by 0.1%.

Despite the disappointing finish, eight of eleven sectors closed Friday in the green. Energy (+0.7%) was the top-performing space as crude prices climbed for a fourth straight session. WTI crude futures advanced 1.0% to $74.12 per barrel, hitting a new three-and-a-half year high and locking in a weekly gain of 8.1%.

In corporate news, Nike (NKE 79.68, +7.98) spiked 11.1%, hitting a new all-time high, after reporting better-than-expected earnings and revenues and announcing a $15 billion share repurchase program. Conversely, General Motors (GM 39.40, -1.12) struggled, losing 2.8%, after warning President Trump that the proposed tariffs on imported vehicles could lead to "a smaller GM". It's worth noting that selling in the broader market started picking up around the same time that GM made the announcement, although it's unlikely that it was the sole cause as financials led the reversal.

In politics, Fox News correspondent Maria Bartiromo reported that President Trump is working on a phase two of his tax plan and is considering cutting the corporate tax rate to 20% from 21%. Separately, European Union leaders reached a deal on a migration, which has been an especially contentious issue since the Syrian refugee crisis.

Reviewing Friday's economic data, which included Personal Income, Personal Spending, and PCE Prices for May, the Chicago PMI for June, and the final reading of the University of Michigan Consumer Sentiment Index for June:

  • Personal income climbed 0.4% in May (Briefing.com consensus +0.4%) following a revised increase of 0.2% in April (from 0.3%). Meanwhile, personal spending rose 0.2% in May (Briefing.com consensus +0.4%) following a revised increase of 0.5% in April (from 0.6%). The PCE Price Index rose 0.2% in May (Briefing.com consensus +0.2%), and the core PCE Price Index, which excludes food and energy, increased 0.2% (Briefing.com consensus +0.2%). Year-over-year, the core PCE Price Index is up 2.0%, up from 1.8% in the last reading.
    • The key takeaway from the report is twofold: (1) Real PCE was flat, which is likely to prompt some downward revisions to Q2 GDP forecasts and (2) the price indexes are moving in the direction anticipated by the Fed, which means the Fed is also likely to keep moving the fed funds rate higher as anticipated.
  • The Chicago PMI for June hit 64.1 (Briefing.com consensus 61.0), up from an unrevised 62.7 in May.
    • The key takeaway from the report is that manufacturers are experiencing a slowdown in production activity on account of longer supplier lead times that have been impacted by elevated input prices.
  • The final reading of the University of Michigan Consumer Sentiment Index for June slipped to 98.2 (Briefing.com consensus 99.0) from 99.3 in the preliminary reading.
    • The key takeaway from the report is that the downshift from the preliminary reading was driven primarily by tariff concerns, yet favorable assessments of jobs and incomes were a mitigating influence that left the overall index little changed from the prior month.

Looking ahead to Monday, investors will receive the June ISM Manufacturing Index and the May Construction Spending report.

  • Nasdaq Composite +8.8% YTD
  • Russell 2000 +7.0% YTD
  • S&P 500 +1.7% YTD
  • Dow Jones Industrial Average -1.8% YTD

Week In Review: Trade Tensions Strike Again

U.S. equities declined for the second week in a row as investors continued to focus on U.S.-China trade tensions. The S&P 500 and the Dow Jones Industrial Average dropped 1.3% apiece, while the tech-heavy Nasdaq Composite slid 2.4%. Small caps were hit especially hard, sending the Russell 2000 lower by 2.5%.

Trade war fears weighed at the start of the week due to reports that the White House is looking to bar Chinese companies from investing in U.S. tech firms. The Trump administration first responded to the reports with a mixed message; Treasury Secretary Steven Mnuchin said the White House is targeting all countries, not just China, while President Trump's top trade adviser, Peter Navarro, said the administration doesn't have any plans to impose investment restrictions, regardless of country.

However, the administration eventually cleared things up, deciding to defer foreign investment regulation to the Committee on Foreign Investment in the United States (CFIUS). That decision was seen as a positive alternative to direct White House intervention and helped the equity market rebound in the second half of the week.

Separately, the U.S. State Department threatened to impose powerful sanctions on countries that don't cut oil imports from Iran to "zero" by November 4. That headline, paired with a larger-than-expected draw in U.S. crude inventories (9.9 million barrels), pushed crude prices back to a three-and-a-half year high. WTI crude futures added 8.1% for the week, closing at $74.12 per barrel.

Also out of Washington, Supreme Court Justice Anthony Kennedy announced his retirement, effective July 31. Although he identifies as a conservative, Mr. Kennedy has often sided with his liberal colleagues. His retirement gives President Trump the chance to strengthen the court's conservative majority.

In corporate news, Amazon (AMZN) made headlines after announcing a deal to acquire online pharmacy start-up PillPack. That news sent shares of drug distributors like CVS Health (CVS) and Walgreens Boots Alliance (WBA) solidly lower. Amazon also announced it is inviting entrepreneurs to form small companies to carry packages over the last leg of the delivery journey.

Elsewhere, General Electric (GE) announced plans to spin off its health care business and to sell its 62.5% stake in oil and gas company Baker Hughes (BHGE); Walt Disney (DIS) won DOJ approval to buy most of Fox's assets for $71.3 billion, subject to the condition that Disney sells 22 regional sports networks; and Nike (NKE) spiked to a new record on Friday after beating both top and bottom line estimates and announcing a new $15 billion share repurchase program.

As for this week's S&P sector standings, utilities (+2.3%), telecom services (+1.2%), real estate (+1.1%), and energy (+1.0%) were the top-performing groups, while the heavily-weighted technology (-2.2%), financials (-1.9%), consumer discretionary (-1.9%), and health care (-1.8%) sectors finished at the back of the pack.

Headlines provided by Briefing.com

All comments contained herein are for informational purposes only, and should not be considered as a solicitation to buy or sell any security. The firm does not guarantee the accuracy or completeness of the information or make any warranties regarding results from it's usage.