Day Traders Diary


The S&P 500 lost 2.3% on Friday to close a losing week (-4.6%) on a sour note. The major averages fumbled an early morning rally effort and steadily retreated throughout the day to finish near session lows.

The Dow Jones Industrial Average lost 2.2%, the Nasdaq Composite lost 3.1%, and the Russell 2000 lost 2.0%. For the week, those indices lost 4.5%, 4.9%, and 5.6%, respectively.

The inability to sustain an early rally effort following Thursday's strong rebound, and a generally supportive employment report, raised some concern that the week's down leg had yet to run its course. Volatile price action also undercut investor sentiment and tempered confidence in buy-the-dip efforts.

Within the S&P 500, the information technology (-3.5%), consumer discretionary (-3.1%), and industrial (-2.6%) sectors underperformed the broader market.

Apple's (AAPL 168.49, -6.23, -3.6%) poor performance within the tech space was reflective of the ongoing effort to liquidate/reduce exposure to the market's most heavily-weighted group. The sector's non-response to Broadcom's (AVGO 228.56, +1.32, +0.6%) upbeat earnings report was also indicative of the negative sentiment hanging over the sector. The tech sector lost 5.1% this week and is now down 14.6% this quarter.

Chip stocks also struggled with the Philadelphia Semiconductor Index losing 3.7%. NVIDIA (NVDA 147.61, -10.68) underperformed with a notable loss of 6.8%.

Within the industrial sector, transport stocks were one of the most-heavily hit groups on Friday with the Dow Jones Transportation Average losing 3.9%, as growth concerns and an uptick in oil prices fed selling efforts. American Airlines (AAL 33.57, -3.37) and FedEx (FDX 201.39, -13.02) were notable laggards with steep losses of 9.1% and 6.1%, respectively.

On the other hand, the utilities (+0.4%) group was the only sector to finish in positive territory on Friday. The energy sector (-0.6%) also showed relative strength.

Looking at energy, OPEC+ producers agreed to a production cut of 1.2 million barrels per day to address weakening oil prices. Russia was a party to the proposed production cuts, yet Iran is reportedly exempt from the production cut requirements. WTI crude rose 2.0% to $52.60/bbl, although it gave up a good chunk of its gains.

In earnings, lululemon athletica (LULU 113.87, -17.57) and Ulta Beauty (ULTA 254.47, -38.45) fell 13.4% and 13.1%, respectively, after releasing their earnings reports. Lululemon sold-off despite beating top and bottom line estimates.  Ulta tumbled after the company issued Q4 guidance below consensus.

U.S. Treasuries extended their recent climb, pushing yields lower, amid the equity sell-off. Friday's gains were led by the front end, which responded favorably to the November employment report and a contention from St. Louis Fed President Bullard (a 2019 FOMC voter) that the Fed could consider delaying a rate hike at the December FOMC meeting due to the narrowed yield curve.

Specifically, the 2-yr yield fell seven basis points to 2.70%, and the 10-yr yield fell two basis points to 2.85%. For the week, the 2-yr yield dropped 11 basis points, and the 10-yr yield dropped 16 basis points. Meanwhile, the U.S. Dollar Index decreased 0.2% to 96.92 on Friday.

Separately, the CBOE Volatility Index (VIX), which is often referred to as Wall Street's "fear gauge," rose 11.2% to 23.57. For the week, the VIX climbed over 30.0%.

Reviewing Friday's economic data, which included the Employment Situation Report for November, the Preliminary Reading for the University of Michigan Index of Consumer Sentiment for December, Wholesale Inventories for October, and Consumer Credit for October:

  • November nonfarm payroll growth was a little light of expectations, but key for the market was the recognition that average hourly earnings were up 0.2% month-over-month. The latter resulted in a year-over-year increase of 3.1%, which was unchanged for the 12-month period ending in October.
    • The key takeaway from the report is that the wage acceleration the Federal Reserve has been bracing for was missing. That won't likely keep the Federal Reserve from raising the target range for the fed funds rate at its December FOMC meeting, yet it's the type of data point that could lead the Federal Reserve to be more cautious-minded about raising rates after that.
  • The preliminary University of Michigan Index of Consumer Sentiment for December checked in at 97.5 ( consensus 96.8), unchanged from the final reading for November and in-line with the two-year average from January 2017 to December 2018.
    • The key takeaway from the report is the observation that consumer attitudes around job and wage prospects are key to the consumer spending outlook and that some caution on that front may now be warranted as consumers recognize the goal of raising interest rates is to slow the pace of economic growth.
  • Wholesale inventories increased 0.8% in October ( consensus 0.7%) on top of an upwardly revised 0.7% increase (from 0.4%) in September. Wholesale sales were down 0.2% following a downwardly revised 0.1% increase (from 0.2%) in September.
    • The key takeaway from the report is that inventory growth exceeded sales growth, which is a dynamic that could give way to lower pricing.
  • Total outstanding consumer credit increased by $25.4 billion in October after increasing an upwardly revised $11.6 billion (from $11.0 billion) in September.
    • The key takeaway from the report is that the healthy expansion in consumer credit is a good portent for consumer spending activity.

Looking ahead, investors will receive the JOLTS - Job Openings and Labor Turnover Survey on Monday.

  • Nasdaq Composite +1.0% YTD
  • Dow Jones Industrial Average -1.3% YTD
  • S&P 500 -1.5% YTD
  • Russell 2000 -5.7% YTD
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