Day Traders Diary
Stocks rebounded on Friday, recouping a good chunk of their weekly losses in a volatile day of trading. The S&P 500 added as much as 1.7% at the start of the session, but nearly wiped it all out intraday before rallying to finish higher by 1.4%.
The Dow Jones Industrial Average advanced 1.2%, and the tech-heavy Nasdaq Composite outperformed, finishing higher by 2.3%. Small caps underperformed, though, leaving the Russell 2000 with a slim gain of 0.1%. For the week, the four indices lost between 3.7% and 5.2%.
This week's sharp sell-off propagated a belief that the major indices had gotten oversold on a short-term basis and were due for a rebound. Friday's upward movement also found some technical support from the S&P 500's 200-day moving average (2766.17), which the index closed just slightly below at 2765.62.
The third quarter earnings season began on a mixed note on Friday morning when big banks JPMorgan Chase (JPM 106.95, -1.18, -1.1%), Citigroup (C 69.84, +1.46, +2.1%), and Wells Fargo (WFC 52.11, +0.67, +1.3%) reported before the opening bell. JPMorgan and Citigroup both beat earnings estimates, but Wells Fargo came up short. In the company's conference call, JPMorgan CEO Jamie Dimon expressed optimism in the global economy, although he did note that trade tensions present some risks going forward.
On a related note, PNC (PNC 124.26, -7.35) tumbled 5.6% despite beating bottom-line estimates.
The financials sector added as much as 1.6% following bank earnings, but eventually rolled over, bringing the broader market with it. The group did rebound in the final stretch though, closing higher by 0.1%. 10 of 11 sectors finished in the green, and information technology was the top performer with a gain of 3.2%.
Within the tech sector, giants Apple (AAPL 222.11, +7.66, +3.6%) and Microsoft (MSFT 109.57, +3.66, +3.5%) outperformed, as did chipmakers, evidenced by a 2.0% jump in the Philadelphia Semiconductor Index. Meanwhile, in the communication services sector (+2.1%), Netflix (NFLX 339.56, +18.46) rallied 5.8% after Citigroup said its recent tumble represents a buying opportunity.
Away from equities, U.S. Treasuries finished roughly flat on Friday, with the benchmark 10-yr yield ticking up one basis point to 2.14%. Meanwhile, the U.S. Dollar Index rebounded from a more than two-week low, climbing 0.3% to 94.96, and WTI crude climbed 0.6% to $71.41/bbl. Crude finished solidly lower for the week though, dropping 3.9%.
Also of note, the CBOE Volatility Index (VIX) fell 14.3% on Friday, retreating from its highest level since February.
Reviewing Friday's economic data, which included September Import/Export Prices and the preliminary reading of the University of Michigan Consumer Sentiment Index for October:
- Export prices were flat in September after declining 0.2% in August and import prices were up 0.5% after being down 0.4% in August. Excluding agricultural exports, export prices increased 0.2% after declining 0.2% in August. Excluding fuel, import prices were unchanged after declining 0.2% in August.
- The key takeaway from the report is rooted in the understanding that nonfuel import prices are being held in check, which is helpful in terms of easing some of the market's inflation angst.
- The preliminary University of Michigan Index of Consumer Sentiment for October checked in at 99.0 (Briefing.com consensus 100.0) versus the final reading of 100.1 for September.
- The key takeaway from the report is that it revealed some budding concerns about inflation crimping real income expectations, which is something to be watched closely considering spending is driven more by income growth than consumer confidence.
Looking ahead, investors will receive September Retail Sales on Monday.
- Nasdaq Composite +8.6% YTD
- S&P 500 +3.5% YTD
- Dow Jones Industrial Average +2.5% YTD
- Russell 2000 +0.7% YTD
Week In Review: An Ugly Week on Wall Street
Stocks sold off sharply this week, sending the S&P 500 lower by 4.1%. Fears over potentially weakening economic and earnings growth helped fuel the selling, which left stocks at three-month lows going into the third quarter earnings season. The Dow Jones Industrial Average lost 4.2% this week, and the tech-heavy Nasdaq Composite fell 3.7%.
The International Monetary Fund (IMF) cut its 2018 and 2019 global growth outlook to 3.7% from 3.9% on Tuesday, citing trade uncertainties that include tariffs between the U.S. and China, a pending Brexit deal, and the new trilateral agreement between the U.S., Canada, and Mexico that's supposed to replace NAFTA.
On a related note, President Trump and Chinese leader Xi Jinping have reportedly agreed to meet at next month's G-20 summit with hopes of resolving their trade conflict.
A third quarter earnings warning from specialty chemicals company PPG Industries (PPG) weighed on sentiment this week, dampening hopes of another strong quarter. Financial giants JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) kicked off the Q3 earnings season on Friday with mixed results; JPM and C beat bottom-line estimates, but WFC missed. The financial sector initially had a positive reaction to the earnings results on Friday, but later rolled over to close the week with a total loss of 5.6%. A curve-flattening trade in the bond market didn't bode well for lenders, which depend on the interest-rate differential between what they pay for deposits and what they make on loans.
The yield on the benchmark 10-yr Treasury note, which spiked to a seven-year high last week, hovered between 3.12% and 3.26% before eventually settling Friday at 3.14% -- nine basis points below last Friday's close. Meanwhile, the yield on the more Fed-sensitive 2-yr Treasury note fell four basis points to 2.84%, leaving the 2-10 spread with a five bps point loss for the week.
President Trump blamed this week's selling on the Federal Reserve, which he says has "gone crazy" with its rate hikes. The Fed has raised rates three times this year with the most recent hike coming in September, and it appears to be on track to raise rates again at its December meeting. The CME FedWatch Tool places the chances of a December rate hike at 79.7%; that's down slightly from 80.0% last Friday.
The S&P 500 got into technical trouble this week, breaching its 50-day moving average on Wednesday and then its 200-day moving average on Thursday. The benchmark index tried to reclaim its 200-day moving average on Friday, but closed right at the key technical mark. The Dow Jones Industrial Average and the Nasdaq Composite breached their 200-day moving averages as well; the Dow eventually reclaimed the key technical level, but the Nasdaq did not.
Also of note, the CBOE Volatility Index (VIX), often referred to as the "investor fear gauge," touched its highest level since late March (28.64) before pulling back a bit on Friday. Still, the VIX finished the week roughly 40% higher.
In other news, Hurricane Michael made landfall in the Florida Panhandle on Thursday as a Category 4 storm. The storm has devastated the region, causing billions of dollars in damages and killing at least 13 people. Many oil producers in the Gulf of Mexico halted operations in anticipation of the storm, but WTI crude fell this week nonetheless, dropping 3.9% to $71.41/bbl, and the S&P 500's energy sector lost 5.4%.
Looking ahead, earnings season will ramp up next week with Bank of America (BAC), Charles Schwab (SCHW), UnitedHealth (UNH), Johnson & Johnson (JNJ), Morgan Stanley (MS), Goldman Sachs (GS), IBM (IBM), Netflix (NFLX), Travelers (TRV), American Express (AXP), PayPal (PYPL), Procter & Gamble (PG), and a host of others scheduled to report their quarterly results.
In addition, investors will receive September Retail Sales, Industrial Production and Capacity Utilization, Housing Starts and Building Permits, Existing Home Sales, and the minutes from the September FOMC meeting.
- Headlines provided by Briefing.com