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Leigh Baldwin & Co.

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Day Traders Diary

8/3/18

Stocks added to their weekly gains on Friday as investors took the July Employment Situation report in stride, pushing the S&P 500 higher by 0.5%. The Dow Jones Industrial Average advanced 0.5% as well, and the tech-heavy Nasdaq ticked up 0.1%. Small caps struggled though, sending the Russell 2000 lower by 0.5%.

The monthly jobs report showed the economy added 157K nonfarm payrolls last month, less than the 190K that the Briefing.com consensus was expecting. However, the June increase was upwardly revised to 248K from 213K, helping to offset the disappointing headline number for July. Meanwhile, average hourly earnings increase 0.3% as expected, and the unemployment rate ticked down to 3.9%.

In short, the July Employment Situation report was essentially the same 'Goldilocks' report that the market cheered in June when accounting for the revisions and the fact that the year-over-year increase in average hourly earnings held steady at 2.7%. Equity futures slipped following the release, but the reaction was pretty mild overall.

The S&P 500 opened the session a tick higher and trended sideways for much of the morning before climbing to new highs in the afternoon. Countercyclical sectors, which are generally seen as less risky, led the charge, with consumer staples (+1.2%) closing near the top of the sector standings, helped by Kraft Heinz (KHC 64.48, +5.08, +8.6%), which rallied after beating both top and bottom line estimates.

In other earnings news, CBS (CBS 53.16, +0.44, +0.8%), Take-Two (TTWO 123.41, +10.17), DISH Network (DISH 34.20, +4.34, +14.5%), and GoPro (GPRO 7.05, +1.06, +17.7%) rallied after their releases, while Activision Blizzard (ATVI 71.32, -2.74, -3.7%) and Shake Shack (SHAK 56.34, -7.60, -11.9%) sold off.

The top-weighted technology sector held the broader market back in early action but eventually picked up the pace, closing higher by 0.3%. Energy was the only sector to finish Friday in negative territory, losing 0.5% and extending its weekly loss to 1.8% -- the worst among the 11 sectors.

Looking at other markets, U.S. Treasuries climbed on Friday, sending yields lower across the curve; the benchmark 10-yr yield dropped three basis points to 2.95%. Meanwhile, West Texas Intermediate crude futures slid 0.8% to $68.48 per barrel, and the U.S. Dollar Index finished flat at 95.00, just below a 13-month high.

Reviewing Friday's economic data, which included the Employment Situation report for July, the June Trade Balance, and the July ISM Services Index:

  • July nonfarm payrolls increased by 157,000 while the Briefing.com consensus expected an increase of 190,000. The prior month's increase was revised to 248,000 from 213,000. Nonfarm private payrolls rose by 170,000 while the Briefing.com consensus expected an increase of 187,000. The previous month's increase was revised to 234,000 from 202,000. Average hourly earnings increased 0.3% (Briefing.com consensus +0.3%), while the previous month's increase was left unrevised at 0.2%. The average workweek was reported at 34.5 (Briefing.com consensus 34.5), and the unemployment rate slipped to 3.9% from 4.0% (Briefing.com consensus 3.9%).
    • The key takeaway from the Employment Situation Report for July is that it is essentially the same Goldilocks report the market cheered in June when accounting for the upward revisions to nonfarm payrolls in May and June and the fact that the year-over-year increase in average hourly earnings held steady at 2.7%.
  • The June trade balance report showed a deficit of $46.3 billion (Briefing.com consensus -$45.6 billion). The May deficit was revised to $43.2 billion from $43.1 billion.
    • The key takeaway from the report comes in the recognition that the year-to-date goods and services deficit is up $19.6 billion, or 7.2%, from the same period in 2017 when the trigger on tariffs had yet to be pulled.
  • The ISM Services Index for July ticked down to 55.7 (Briefing.com consensus 58.5) from an unrevised reading of 59.1 in June.
    • The key takeaway from the report is that it is a July number, and considering the size of the non-manufacturing sector, a cooling off there could feed expectations for a cooling off in third quarter real GDP growth.

Looking ahead, investors will not receive any notable economic data on Monday.

  • Nasdaq Composite +13.2% YTD
  • Russell 2000 +9.0% YTD
  • S&P 500 +6.2% YTD
  • Dow Jones Industrial Average +3.0% YTD

Week In Review: Apple Becomes First $1 Trillion Company

Stocks climbed this week as investors digested the Fed's latest policy directive and Apple's (AAPL) quarterly earnings report, which helped boost the company's market cap above the unprecedented $1 trillion mark. The S&P 500 advanced 0.8%, and the tech-heavy Nasdaq rose 1.0%. The Dow lagged though, adding just 0.1%.

The Fed left interest rates unchanged as expected on Wednesday, keeping its target range at 1.75% to 2.00%, and characterized the economy as strong, signaling that the central bank is still on track to raise rates two more times this year. The next rate hike will likely come in September, with the CME FedWatch Tool placing the chances at 93.6%.

Overseas, the Bank of Japan and the Bank of England also held policy meetings this week. The BoJ decided to leave its ultra-loose monetary policy intact, but the BoE voted to raise rates for just the second time in a decade and surprised some by saying it anticipates raising rates further despite the looming uncertainty over Brexit.

In Washington, President Trump ordered his top trade representative to consider increasing proposed tariffs on $200 billion worth of Chinese goods to 25% from 10%. Beijing threatened to retaliate with tariffs on about $60 billion worth of American goods. The news didn't have much impact on U.S. markets, but China's Shanghai Composite lost 4.6% for the week, retesting a nearly two-and-a-half year low.

On the earnings front, Apple gobbled up all the attention after releasing its fiscal Q3 results on Tuesday evening. The world's largest tech company beat earnings and revenue estimates and issued positive guidance for Q4, helping to restore faith in FAANG names after a disappointing report from Facebook (FB) last week.

In response, Apple shares rallied 5.9% on Wednesday and then another 2.9% on Thursday, making Apple the first ever company with a market cap of $1 trillion.

Tesla (TSLA) shares also soared, spiking 16.2% on Thursday, after above-consensus revenues, reaffirmed guidance, and an apology from CEO Elon Musk for last quarter's abrasive earnings call helped the electric automaker overcome a larger-than-expected earnings per share loss of $3.06.

As for economic data, the July Employment Situation report was released on Friday, showing a below-consensus increase in nonfarm payrolls (157K actual vs 190K Briefing.com consensus). However, the June increase was upwardly revised to 248K from 213K, helping to offset the disappointing headline figure. Average hourly earnings increased 0.3%, as expected, and the unemployment rate ticked down to 3.9%.

The key takeaway from the report is, when accounting for the revisions and the fact that the year-over-year increase in average hourly earnings held steady at 2.7%, it's essentially the same 'Goldilocks' report that the market cheered last month.

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      • Headlines provided by Briefing.com
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