Day Traders Diary


The S&P 500 added 1.1% for a third straight day of gains on Thursday, as a favorable trade-related tweet by U.S. President Trump lifted stocks from their early downtrend. The benchmark index briefly turned negative in the early going before comfortably trading in positive territory for most of the session.

The Dow Jones Industrial Average gained 1.1%, the Nasdaq Composite gained 1.8%, and the Russell 2000 outperformed with a gain of 2.2%.

U.S. President Trump tweeted that he had a "long and very good conversation" with China's President Xi, adding that discussions have been moving along nicely with meetings being scheduled at the upcoming G-20 summit in Argentina. According to a Reuters report, China President Xi confirmed he spoke with President Trump over the phone, expressing his willingness to meet with Mr. Trump at the G-20 summit, hopeful for a stable relationship with the U.S.

Cyclical sectors took the news in stride, as the materials (+3.0%), consumer discretionary (+2.2%), and industrial (+1.7%) groups finished atop the sector standings. The lightly-weighted materials sector was also largely helped by its top-weighted component, DowDuPont (DWDP 58.27, +4.35, +8.1%), beating earnings estimates.

Similarly, chipmakers had a noteworthy performance with the Philadelphia Semiconductor Index jumping 4.6%. The index was pummeled in last month's sell-off, though it has leaped over 10% since its Monday close. Outperformers within the group were Advanced Micro (AMD 20.22, +2.01, +11.0%), On Semiconductor (ON 18.40, +1.40, +8.2%), and Micron (MU 40.12, +2.40, +6.4%). 

On the other hand, the utilities (-0.5%) and communication services (+0.1%) sectors greatly underperformed the broader market. The communication services sector was weighed down by underwhelming performances from Alphabet (GOOG 1070.00, -6.77, -0.6%), AT&T (T 30.49, -0.19, -0.6%), and Verizon (VZ 56.05, -1.04, -1.8%). On a related note, employees at Google staged an office-wide walkout to protest the company's handling of sexual misconduct.

In other earnings, music streaming platform Spotify (SPOT 141.16, -8.53) lost 5.7% after it reported a Q3 operating loss above guidance. The company also slightly lowered its fourth quarter monthly active user (MAU) and premium subscriber guidance, which did not bode well for a stock trading in a very competitive space.

Also, e-commerce home decor store Wayfair (W 96.16, -14.15) disappointed investors with a loss of 12.8% after it reported significantly lower-than-expected revenue. The good news for investors, however, is that demand remained strong, and Wayfair upheld Q4 revenue to be in-line with consensus.

Separately, U.S. Treasuries ticked higher on Thursday, pushing the 2-yr yield down four basis points to 2.84% and the 10-yr yield down two basis points to 3.14%. The slight flattening of the yield curve kept gains in check for the rate-sensitive financials sector (+0.5%), as lenders depend on the difference between what they pay for deposits and what they earn on loans. 

Overseas, the Bank of England unanimously voted to leave rates unchanged at 0.75% as expected on Thursday. Additionally, the central bank lowered its growth forecasts for 2018 and 2019 by 0.1% in each year to 1.3% and 1.7%, respectively. In Asia, major indices finished mostly higher, with Hong Kong's Hang Seng outperforming with a gain of 1.8%. China's Shanghai Composite ticked 0.1% higher.

Reviewing Thursday's batch of economic data, which included the October ISM Manufacturing Index, the preliminary Q3 Nonfarm Productivity and Unit Labor Costs report, the weekly Initial and Continuing Claims report, and the September Construction Spending report:

  • The ISM Manufacturing Index for October checked in at 57.7% ( consensus 59.0%) versus 59.8% in September. It is important to note that the September reading was close to an 18-year high.
    • The key takeaway from the report is that the pullback is most likely a natural slowing of activity following what has been an impressive acceleration in manufacturing activity on a national level. That point notwithstanding, the deceleration in what has been one of the hottest sectors will feed into the peak-growth narrative that has been prominent of late.
  • Third quarter productivity increased 2.2% ( consensus 2.1%) on the heels of an upwardly revised 3.0% (from 2.9%) in the second quarter. Unit labor costs rose 1.2% ( consensus 1.1%) following a downwardly revised 1.1% decline (from -1.0%) in the second quarter.
    • The key takeaway from the report is that productivity is picking up. The third quarter increase was double the prior 10-quarter average increase of 1.1%. Faster productivity is a springboard for a better standard of living.
  • Initial claims for the week ending October 27 decreased by 2,000 to 214,000 ( consensus 213,000). Continuing claims for the week ending October 20 decreased by 7,000 to 1.631 million, which is the lowest level since July 28, 1973.
    • The key takeaway from the report is that the low level of initial and continuing claims remains indicative of a tight labor market.
  • Total construction spending in September was little changed from August ( consensus +0.2%) following an upwardly revised 0.8% increase (from +0.1%) in August.
    • The key takeaway from the report is the recognition that there was no growth in public construction spending in September.

Looking ahead, investors will receive the Employment Situation report for October, the Trade Balance for September, and Factory Orders for September.

  • Nasdaq Composite +7.7% YTD
  • Dow Jones Industrial Average +2.7% YTD
  • S&P 500 +2.5% YTD
  • Russell 2000 +0.6% YTD
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