Day Traders Diary



    The S&P 500 dropped 1.5% on Wednesday in what was a tale of two trading sessions.  The first part of the day was governed by a sense of hope that the Federal Reserve would provide the stock market with a dovish-minded perspective on the interest rate outlook.  The second part of the day, which began at 2:00 p.m. ET (the time of the FOMC announcement) was governed by a sense of disappointment that the FOMC, and Fed Chair Powell, didn't deliver on the market's wishes.

    The S&P 500, up as much as 1.5% at its high for the day, sold off in the wake of the FOMC announcement, setting a new low for the year (2488.96) before bouncing slightly in closing action to end the day at 2506.96. 

    The blue-chip Dow Jones Industrial Average lost 1.5%, the tech-heavy Nasdaq Composite lost 2.2%, and the small-cap Russell 2000 lost 2.0%.


    The optimism early in the day was on full display in the stock market with all 11 S&P 500 sectors trading in the green and the broader market seemingly setting aside its concerns about disappointing outlooks from FedEx (FDX 162.51, -22.50, -12.2%) and Micron (MU 31.41, -2.70, -7.9%), both of which attributed earnings warnings to weaker-than-expected demand.

    The battered financial (-1.3%) and energy (-1.3%) sectors assumed a leadership position in the early going, yet they rolled over with the rest of the market following the Fed's interest-rate decision and Fed Chair Powell's press conference.

    In terms of the Fed decision, the target range for the fed funds rate was increased by 25 basis points to 2.25% to 2.50%, as most expected it would be, and the so-called dot-plot was revised to show a median projection for two rate hikes in 2019, versus three previously.  That wasn't altogether surprising either; nonetheless, it still appeared hawkish relative to the zero rate hikes currently expected by the fed funds futures market.

    Selling interest picked up noticeably right after the FOMC directive was released and then it kicked into a higher gear during Fed Chair Powell's press conference.

    Some of Mr. Powell's more nettlesome talking points for the market were that (1) policy does not need to be accommodative now and that he doesn't believe the current policy is restrictive, and (2) he does not see the Fed altering its approach to balance sheet normalization and sees the preferred policy method being use of the fed funds rate.


    Every sector was driven lower after the Fed decision and they all ended the day in negative territory with losses ranging from 0.2% (utilities) to 2.2% (consumer discretionary).

    The sell-off in the stock market prompted a flight to safety in U.S. Treasuries, pushing yields lower. The yield curve also flattened with the Fed-sensitive 2-yr yield losing two basis points to 2.64%, and the benchmark 10-yr yield losing five basis points to 2.78%.

    Separately, Facebook (FB 133.25, -10.41) was a notable laggard Wednesday, both in the first part of the day and in the second part of the day.  It declined 7.3% after a New York Times article alleged Facebook provided technology companies more access to user data than it previously disclosed and following a Washington Post report stating the company is being sued by the Washington D.C. Attorney General over alleged privacy violations from the Cambridge Analytica scandal. Facebook is now down 38.7% from its all-time record close on July 25.

    Reviewing today's economic data, which included Existing Home Sales for November, the weekly MBA Mortgage Applications Index, and the Current Account Balance for Q3:

    • Existing home sales increased 1.9% month-over-month in November to a seasonally adjusted annual rate of 5.32 million ( consensus 5.20 million). Total sales were 7.0% lower than the same period a year ago.
      • The key takeaway from the report is that while sales have now increased for two consecutive months, the trajectory remains challenged by higher mortgage rates and limited affordability.
    • The weekly MBA Mortgage Applications Index fell 5.8%, compared to the 1.6% increase in the prior week.
    • The current account deficit for the third quarter totaled $124.8 billion ( consensus -$126.0 billion). The second quarter deficit was revised to $101.2 billion from $101.5 billion.

    Looking ahead, investors will receive weekly Initial and Continuing Claims, the Philadelphia Fed Index for December, and the Conference Board's Leading Economic Index for November on Thursday.

    • Nasdaq Composite -3.9% YTD
    • Dow Jones Industrial Average -5.7% YTD
    • S&P 500 -6.3% YTD
    • Russell 2000 -12.3% YTD
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