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Leigh Baldwin & Co.

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Day Traders Diary

12/12/18


 

The S&P 500 rose 0.5% on Wednesday, although it gave up a good chunk of its gains in the afternoon after trading as high as 1.9% intraday. Optimism that trade relations between the U.S. and China were progressing fueled the rally effort, but selling would accelerate into the close, leaving the benchmark index at its session low.

The Dow Jones Industrial Average (+0.6%) and the Nasdaq Composite (+1.0%) also experienced some selling to finish near their session lows. The Russell 2000 (+1.1%) led all the indices, but also finished off its highs for the day.

President Trump initiated the optimism when he told Reuters he would get involved in the Department of Justice case against Huawei CFO Meng Wanzhou if it would serve national security interests and help advance trade negotiations with China. U.S. Secretary of Commerce Wilbur Ross later softened the President's language, though, clarifying he hasn't actually decided if he would intervene.

Also, news that China is reportedly looking to tweak its "Made in China 2025" policy to allow more access and fairer competition for foreign companies helped lift sentiment.

These positive-sounding headlines fueled buying interest on the notion that a trade deal, if struck, would bode well for economic growth prospects. Stocks, however, would retreat from session highs on no specific news catalyst. The fading action was in keeping with a trend of selling into strength and likely reflected some nervousness about holding positions overnight given the headline-induced volatility of late.

The consumer discretionary (+1.1%), materials (+1.0%), health care (+0.9%), communication services (+0.8%), and information technology (+0.8%) sectors led today's gains.

Chip stocks, in particular, put in another strong showing with the Philadelphia Semiconductor Index rising 1.5%. The group's recent outperformance has helped contribute to the tech sector's leadership position this week (+2.3%).

The defensive-oriented consumer staples (-0.2%), utilities (-0.6%), and real estate (-1.9%) sectors, meanwhile, finished in the red as the market adopted more of a risk-on tone.

Strikingly, the Dow Jones Transportation Average, which is a key driver of economic sentiment, was also unable to find steam.  UPS (UPS 101.21, -2.37, -2.3%) and FedEx (FDX 188.27, -1.38, -0.7%) dragged on the average.  On a related note, XPO Logistics (XPO 60.27, -6.42, -9.6%) traded sharply lower after providing a disappointing adjusted EBITDA growth forecast for FY19.  

Other notable laggards included Dow components Exxon Mobil (XOM 76.02, -0.66, -0.9%) and Verizon (VZ 57.25, -1.60, -2.7%). Exxon fell as oil prices rolled over, and Verizon was downgraded to 'Equal-Weight' from 'Overweight' at Morgan Stanley. 

Under Armour (UAA 19.81, -2.37, -10.4%) also stood out as the worst-performing stock in the S&P 500 after the company provided a disappointing revenue growth outlook for its core North American market between 2020 and 2022 at its Investor Day.

Overseas, attention turned to the UK, where Prime Minister Theresa May won a "no confidence" vote from her own Conservative Party with respect to her leadership. The vote came amid the heightened uncertainty surrounding the UK's Brexit plan. The British pound rose 1.1% to 1.2617 against the dollar, which also benefited from the U.S. Dollar Index losing 0.3% to 97.08.

Reviewing Wednesday's economic data, which included the Consumer Price Index for November and the weekly MBA Mortgage Applications Index:

  • Total CPI was unchanged month-over-month in November, as expected, while core CPI, which excludes food and energy, was up 0.2%, also as expected. Total CPI was up 2.2% year-over-year, versus 2.5% in October, and core CPI was up 2.2%, versus 2.1% in October.
    • The key takeaway is that consumer inflation trends are not running away from the Federal Reserve's longer-run target, which should feed into the market's growing belief that the Federal Reserve has some data-based scope to take it easy after a December rate hike.
  • The weekly MBA Mortgage Applications Index rose 1.6% after increasing 2.0% in the prior week.

Looking ahead, investors will receive Export and Import Prices for November, the Treasury Budget for November, and weekly Initial and Continuing Claims on Thursday.

  • Nasdaq Composite +2.8% YTD
  • Dow Jones Industrial Average -0.8% YTD
  • S&P 500 -0.8% YTD
  • Russell 2000 -5.2% YTD

 

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