Day Traders Diary


The S&P 500 tumbled again on Tuesday with a loss of 1.8%, as economic growth concerns weighed, especially on energy, retail, and technology stocks. Tuesday's losses wiped out yearly gains for the benchmark index, which is now down 1.2% in 2018.

The Dow Jones Industrial Average lost 2.2%, the Nasdaq Composite lost 1.7%, and the Russell 2000 lost 1.8%. 

There is a palpable sense of real angst about the market's prospects as market commentary is beginning to emphasize the growing risk of a bear market. Commentary has included rising recession risk; widening corporate credit spreads; forecasting message of the sharp losses in cyclical sectors and former leadership stocks/sectors; lack of both gains and buy-the-dip success in November, which call into question the prospects of a seasonal rally; and burgeoning calls to bolster defensive positioning in investment portfolios.

S&P sectors that underperformed the broader market on Tuesday were the cyclical energy (-3.3%), consumer discretionary (-2.2%), information technology (-2.2%), industrials (-2.1%), and financial (-2.1%) sectors.

WTI crude, which has been pressured by ongoing supply concerns, dropped 6.9% to $53.44/bbl and extended its decline to 30.5% from its October 3 high. Furthermore, oil prices were pressured on Tuesday after some speculation that Saudi Arabia might not force an oil production cut now after U.S. President Donald Trump defended the U.S.'s relationship with Saudi Arabia amid the killing of Jamal Khashoggi. President Trump stated, in regards to Saudi Arabia, "They have worked closely with us and have been very responsive to my requests to keeping oil prices at reasonable levels -- so important for the world."

Prices for oil and its derivative products factor prominently in the operating budgets of transportation companies, so the sharp drop should presumably be a positive development for the stocks. However, the weakness in transport stocks, evidenced by the Dow Jones Transportation Average losing 3.1%, resonates as a vote of weakening confidence in the economic outlook.

In the retail space, earnings reports from Lowe's (LOW 86.15, -5.20, -5.7%), Kohl's (KSS 64.45, -6.55, -9.2%), Target (TGT 69.03, -8.12, -10.5%), L Brands (LB 28.43, -6.12, -17.7%), and Ross Stores (ROST 82.64, -8.55, -9.4%) reflected ongoing concerns over gross margin pressures, elevated inventory levels, disappointing same-store sales, and included some cautious guidance. On the other hand, Best Buy (BBY 63.63, +1.33, +2.1%) and Urban Outfitters (URBN 36.58, +0.97, +2.7%) reported upbeat reports. Nevertheless, the SPDR S&P Retail ETF (XRT 44.00, -1.51) lost 3.3%.

The widely-held FANG group finished off their session lows, with the exception of Apple (AAPL 176.98, -8.88), which tumbled 4.8% to enter bear market territory. Apple has now fallen 23.7% from its October 3 record close. Netflix (NFLX 266.98, -3.62, -1.3%) and Amazon (AMZN 1495.46, -16.83, -1.1%) also closed on a lower note. Conversely, Facebook (FB 132.43, +0.88, +0.7%) and Alphabet (GOOG 1025.76, +5.76, +0.6%) added modest gains to help pare the communication service sector's (-1.3%) losses.

The Philadelphia Semiconductor Index ticked higher after plunging 3.9% on Monday, finishing higher by 0.2%. Notable chipmaker NVIDIA (NVDA 149.08, +4.38) gained 3.0%% amid a positive tweet from Citron Research that said, "This is the first time in 2 years [NVIDIA] offers an appealing risk-reward to investors."

On the other hand, the defensive-oriented utilities (-0.5%) and health care (-1.0%) sectors outperformed the broader market, though still finished in the red.

In other corporate news, a Wall Street Journal report indicated that Walgreens Boots Alliance (WBA 79.79, -2.13, -2.6%) and Humana (HUM 307.22, -3.18, -1.0%) are in preliminary talks to take stakes in each other.

Separately, U.S. Treasuries were quiet for most of the day, with the benchmark 10-yr yield decreasing one basis point to 3.05%, and the U.S. Dollar Index rose 0.7% to 96.85 to reverse a recent trend that knocked the index from its yearly high.

Overseas, equity markets showed little reprieve, mirroring the negative trading disposition on Wall Street. China's Shanghai Composite led the Asia-Pacific region lower with a loss of 2.1%, and Germany's DAX led European markets lower with a loss 1.6%.

Reviewing Tuesday's economic data, which included Housing Starts and Building Permits for October:

  • Housing starts increased 1.5% month-over-month in October to a seasonally adjusted annual rate of 1.228 million units ( consensus 1.230 million) from an upwardly revised 1.210 million (from 1.201 million) in September. Building permits slipped 0.6% to a seasonally adjusted annual rate of 1.263 million ( consensus 1.260 million) from an upwardly revised 1.270 million (from 1.241 million) in September.
    • The key takeaway from the report, however, is that there wasn't any strength in single-unit permits or starts, which were down 0.6% and 1.8%, respectively, month-over-month and down 0.6% and 2.6%, respectively, year-over-year.
    • The Housing Starts and Building Permits report might have passed the consensus estimate headline test, certainly when taking revisions into account, yet it isn't a report that should be seen as assuaging concerns about the softness in housing market activity. If anything, it plays right into those concerns with the year-over-year declines for total permits (-6.0%) and total starts (-2.9%).

Looking ahead, investors will receive a big batch of economic data on Wednesday: Durable Orders for October, Existing Home Sales for October, weekly Initial Claims and Continuing Claims, the Conference Board's Leading Economic Index for October, the final reading of the University of Michigan Index of Consumer Sentiment for November, and the weekly MBA Mortgage Applications Index.

  • Nasdaq Composite +0.1% YTD
  • Dow Jones Industrial Average -1.0% YTD
  • S&P 500 -1.2% YTD
  • Russell 2000 -4.3% YTD
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