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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

7/11/18

 

Stocks snapped a four-session winning streak on Wednesday as U.S.-China trade tensions retook center stage and as crude oil prices tumbled, weighing on energy shares. The S&P 500 dropped 0.7% to 2774, the Dow Jones Industrial Average declined 0.9% to 24700, and the Nasdaq Composite slid 0.6% to 7717.

The White House further escalated its ongoing trade dispute with Beijing on Tuesday evening, publishing a new list of tariffs. This round of duties is the largest yet, calling for a 10% tariff on $200 billion worth of Chinese goods, but it won't be official for at least two months. As it did with earlier tariffs, China promised to retaliate.

Meanwhile, in Brussels, a two-day NATO summit got off to a contentious start after President Trump criticized Germany for approving a major gas deal with Russia. NATO leaders later recommitted to a military spending target of 2% of GDP by 2024 at the urging of Mr. Trump, who was pushing for doubling the target to 4%.

Back on the home front, energy stocks tumbled as crude prices retreated from a three-and-a-half year high. Several factors contributed to the crude sell off, including a muted/negative response to a bullish inventory report, which showed a huge drop of 12.6 million barrels -- the biggest weekly drop since September 2016. WTI crude futures tumbled 5.0% to $70.38 per barrel, and the S&P 500's energy sector declined by 2.2%, closing at the bottom of the sector standings.

The industrials (-1.6%) and materials (-1.7%) spaces, both of which are sensitive to trade issues, were the next-worst performing groups, while most other spaces lost no more than 0.8%. Out of 11 groups, the utilities space (+0.9%) was the only one to finish in the green, continuing to rebound from Monday's 3.1% drop.

On the corporate front, shares of 21st Century Fox (FOXA 47.79, -1.98) lost 4.0% following reports that Comcast (CMCSA 33.77, +0.43) may forego countering Disney's (DIS 108.04, +2.01) offer for Fox's entertainment assets and focus on upping its bid for British media company Sky instead. Meanwhile, airlines tumbled after American Airlines (AAL 35.96, -3.16) issued a revenue growth warning; AAL shares ended lower by 8.1%.

Elsewhere, U.S. Treasuries finished mostly higher, pushing yields lower; the benchmark 10-yr yield dropped three basis points to 2.84%. The U.S. Dollar Index rallied 0.7% to 94.48, and the CBOE Volatility Index jumped 7.8% to 13.63 after hitting a three-month low on Tuesday.

Reviewing Wednesday's economic data, which included the June Producer Price Index, May Wholesale Inventories, and the weekly MBA Mortgage Applications Index:

  • Producer prices rose 0.3% in June (Briefing.com consensus +0.2%), and core producer prices increased 0.3% (Briefing.com consensus +0.2%). Year-over-year, producer prices are up 3.4% (vs +3.1% in May) and core producer prices have risen 2.8% (vs +2.4% in May).
    • The key takeaway from the report is that producers are facing increased cost pressures throughout all stages of production, which will fuel concerns about profit margin pressures if they don't pass those costs onto customers and concerns about consumer inflation pressures if they do.
  • May Wholesale Inventories rose 0.6% (Briefing.com consensus +0.5%). The April reading was left at +0.1%.
    • The key takeaway from the report is that sales growth outpaced inventories growth, which is a positive dynamic that can eventually help wholesalers regain pricing power if it persists.
  • The weekly MBA Mortgage Applications Index increased 2.5% after declining 0.5% last week.

Looking ahead, investors will receive the June Consumer Price Index, the weekly Initial Claims report, and the June Treasury Budget on Thursday.

  • Nasdaq Composite +11.8% YTD
  • Russell 2000 +9.7% YTD
  • S&P 500 +3.8% YTD
  • Dow Jones Industrial Average -0.1% YTD
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Headlines provided by Briefing.com

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