Day Traders Diary



U.S. stocks oscillated around the S&P 500's flat line on Monday before whipping noticeably lower in the final hour of trading. Renewed weaknesses in the information technology (-1.6%) and financials (0.5%) sectors coupled with ongoing concerns about the global economic growth outlook kept follow-through buying interest from Friday's rally in check. 

The S&P 500 lost 0.6% and closed below its 200-day moving average (2766.54), which is considered to be a key technical level.  The tech-heavy Nasdaq Composite lost 0.9% and the Dow Jones Industrial Average lost 0.4%. Meanwhile, the small-cap Russell 2000 outperformed, climbing 0.6%.

The struggling tech sector, which has been a bull market leader, has been a primary laggard during the market's recent setback.  Investors who dumped their riskier tech assets last week have yet to come back with conviction.  There were a few attempts in today's session, yet the buying interest waned each time as investors continued to trade out of some of the largest and most widely-held stocks. The heavily-weighted S&P 500 sector is down 7.5% for the month.

Notable information technology components that were down on Monday included Apple (APPL 217.36, -4.75, -2.1%), Microsoft (MFST 107.60, -1.97, -1.8%), Visa (V 137.23, -2.83, -2.0%), and MasterCard (MA 200.32, -3.90, -1.9%).

Additionally, the financials sector was unable to impress investors again after an underwhelming response to Bank of America's (BAC 27.92, -0.54, -1.9%) better-than expected earnings report. Charles Schwab (SCHW 47.64, -1.37, -2.8%) also fell after reporting earnings that were in-line with top and bottom estimates.

Bank of America reportedly fell because of some disappointment over the performance of its investment banking business, yet there were general concerns hanging over the sector that banks might be close to, or at, peak earnings growth. The rate-sensitive sector is now down 4.6% this month and 5.8% this year, despite interest rates nearing multi-year highs.

Treasury yields remained near their starting levels.  The 2-yr note yield ticked one basis point higher to 2.85%, and the 10-yr note yield rose two basis points to 3.16%.

Separately, United States-Saudi Arabia tensions brewed over the weekend following the disappearance and alleged murder of Washington Post columnist Jamal Khashoggi. In response, President Trump threatened to impose sanctions on the world's largest oil producer if it was found to be guilty; however, President Trump said today that Saudi King Salman strongly denied to him any involvement in Mr. Khashoggi's disappearance.

Despite some underlying angst that the Saudi Arabian situation could boil over and potentially impact oil supplies, WTI crude prices were relatively subdued on Monday, settling 0.6% higher at $71.83/bbl.

In other corporate news, L3 Technologies (LLL 220.91, +25.13) rose 12.8% after announcing an all-stock merger of equals with Harris Corp. (HRS 173.25, +18.38, +11.9%). The combined company, L3 Harris Technologies, will be the 6th largest defense company in the U.S. and a top 10 defense company globally.

That merger news contributed to the relative strength of the industrials sector (+0.2%), which joined with the defensive-oriented consumer staples (+0.6%), real estate (+0.5%), and utilities (+0.4%) sectors to buck Monday's weakness in the broader market.

Separately, retailer Sears Holding (SHLD 0.31, -0.10, -23.8%) filed for Chapter 11 bankruptcy.  That was not a surprise to the market, as it had been widely speculated, yet the news itself generated a sentimental story line given the retailer's storied operating history.

Reviewing Monday's flurry of economic data, which included Retail Sales for September, the Empire State Manufacturing Survey for October, total business inventories for August, and the Treasury Budget for September:

  • Retail sales were up just 0.1% in September ( consensus +0.6%) after increasing 0.1% in August. Excluding autos, sales declined 0.1% ( consensus +0.4%).
    • The key takeaway from the report is that core retail sales, which factor into GDP growth models, were up a solid 0.5%. Hence, the headline numbers were disappointing, yet this report will still factor favorably for Q3 real GDP growth prospects.
  • The Empire State Manufacturing Survey for October checked in at 21.1 ( consensus 18.0), up from 19.0 in September.
    • The key takeaway from the report is that the strength was led by upticks in the indexes for new orders and shipments, which reflects good demand.
  • Total business inventories increased 0.5% in August, in-line with the consensus estimate, after increasing an upwardly revised 0.7% (from 0.6%) in July. Total business sales also increased 0.5% after increasing 0.2% in July.
    • The key takeaway from the report is that business sales continued to outpace inventory growth year-over-year, which is a favorable trend that carries the potential to lead to a better pricing environment for businesses.
  • The Treasury Budget for September showed a surplus of $119.1 billion versus a surplus of $7.9 billion for the same period a year ago. The Treasury Budget data is not seasonally adjusted, so the September surplus cannot be compared to the $214.1 billion deficit for August.
    • The budget deficit for fiscal 2018 totaled $779.0 billion versus $665.8 billion in fiscal 2017.

On Tuesday, investors will receive the Industrial Production report for September, the JOLTS - Job openings survey for August, the NAHB Housing Market Index for October, and Net Long-Term TIC Flows for July.

  • Nasdaq Composite +7.6% YTD
  • S&P 500 +2.9% YTD
  • Dow Jones Industrial Average +2.2% YTD
  • Russell 2000 +1.1% YTD
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