Day Traders Diary



The S&P 500 lost 2.1% on Monday, as uncertainty surrounding a host of issues continued to drive an inclination to sell into strength and to reduce risk exposure to stocks. The benchmark index (2545.94) ran into resistance at the 2600 level amid a morning rebound effort before steadily backpedaling throughout the afternoon and re-testing its February low (2532.69).  That re-test invited some late buying interest that enabled the indices to close off their worst levels of the day.

The Dow Jones Industrial Average (-2.1%), the Nasdaq Composite (-2.3%), and the Russell 2000 (-2.4%) also squandered intraday rebound efforts to finish near session lows. The tech-sensitive Nasdaq is now negative for the year, and the small-cap Russell 2000 has fallen more than 20.0% from its yearly high.

The degree of pessimism is picking up noticeably, evidenced by the widespread de-risking activity.  No sector was safe today.  All 11 sectors ended in negative territory, with losses ranging from 1.0% (financials) to 3.7% (real estate).

Influential fund manager, Jeffrey Gundlach, contributed to the bearish price action.  in a CNBC interview, he expressed ample concern about the rising U.S. budget deficit, while adding that he thinks passive investing has reached "mania" status and that investors should avoid index funds. Mr. Gundlach also said his best idea for 2019 is "capital preservation."

Softening economic data also fueled concerns about the growth outlook and compounded the market's negative bias.  The NAHB Housing Market Index for December fell from 60 to 56 ( consensus 61), which is its lowest level in nearly four years.  The Empire Manufacturing Index for December, meanwhile, dropped to 10.9 ( consensus 20.0) from 23.3.

The silver lining, if one could call it that, is that the weaker-than-expected data will help validate the market's belief that the Federal Reserve is apt to turn more conservative with its 2019 rate-hike projections.

Mounting losses in the stock market have raised the stakes in front of Wednesday's FOMC announcement, which many participants still think is going to produce another rate hike and at the same time see the Fed temper its rate-hike projections for 2019.  President Trump today questioned again why the Fed would be raising rates at this time.

The real estate (-3.7%), utilities (-3.3%), and consumer discretionary (-2.8%) sectors led the broad-based retreat. The financials sector (-1.0%) was the best-performing group, although it still finished notably lower and well off the 0.9% gain it registered earlier in the day.

The pullback in the financial sector was emblematic of a market that continues to see any sign of strength as a selling opportunity.  On a related note, Goldman Sachs (GS 168.05, -4.72, -2.7%) underperformed after Malaysian authorities reportedly filed criminal charges against Goldman Sachs related to the 1MDB scandal.

The health care sector (-2.1%) for its part fell amid the uncertainty attached to a ruling by a federal judge in Texas that the Affordable Care Act is unconstitutional. That decision will head to an Appeals Court and most experts believe it is ultimately headed to the Supreme Court.

Separately, Xerox (XRX 21.29, -3.16) was the biggest laggard in the S&P 500 with a loss of 12.9% after Moody's cut Xerox's senior unsecured debt ratings to Ba1 from Baa3. The cut from investment grade to junk status was due to an uncertain revenue base amid a decline in demand for copy and printing services as well as intense global competition, according to Bloomberg.

Reviewing Monday's economic data, which included the Empire State Manufacturing Survey for December and the NAHB Housing Market Index for December:

  • The Empire Manufacturing Survey for December checked in at 10.9 for December ( consensus 20.0), down from 23.3 in November, with a deceleration seen across almost every category.
    • A number above 0.0 still connotes expansion, yet it is clear to see that activity decelerated in December; moreover, the report indicates that optimism about the six-month outlook was slightly more tempered than in November.
  • The NAHB Housing Market Index for December came in at 56 ( consensus 61), down from 60 in November.
    • The drop reflects deteriorating confidence in housing market conditions, although it needs to be noted that the dividing line between optimism and pessimism is 50.0.

Looking ahead, investors will receive Housing Starts and Building Permits for November on Tuesday.

  • Nasdaq Composite -2.2% YTD
  • Dow Jones Industrial Average -4.6% YTD
  • S&P 500 -4.8% YTD
  • Russell 2000 -10.5% YTD


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