Day Traders Diary


The S&P 500 increased as much as 0.6% on Wednesday, as continued optimism that U.S.-China trade talks were progressing favorably underpinned another broad-based rally. The benchmark index, however, fell off morning highs and spent a good portion of the day trying to get back to its best levels.  It nearly did, but a wave of selling activity in the final 30 minutes knocked it back again.  The S&P 500 ended the session up 0.3%.

The Dow Jones Industrial Average (+0.5%), the Nasdaq Composite (+0.1%), and the Russell 2000 (+0.3%) also had similar price action.

Early optimism was buoyed by reports that China President Xi will meet with the U.S. delegation in Beijing to discuss trade issues on Friday. Some of the early buying interest faded, though, after news hit that Senator Marco Rubio (R-FL) plans to file a bill that would make expensing permanent and tax corporate buybacks the same way as dividends.

If that bill ultimately came to pass, it could potentially lead to lower share buyback activity that leads to lower EPS growth.  It was an implication that served to take a little steam out of the market.

Nevertheless, nine of the 11 S&P 500 sectors finished higher with energy (+1.3%), industrials (+0.6%), and consumer discretionary (+0.6%) leading the advance. Conversely, the utilities (-0.3%) and the communication services (-0.1%) sectors were the lone groups to finish with a loss.

While gains were largely broad-based, the communication services sector was home to some of the biggest movers in the S&P 500 following some earnings reports.

Activision Blizzard (ATVI 44.57, +2.90) rose 7.0%, recouping a good chunk of its losses from last week despite mixed Q4 results and cautious guidance for FY19. On the downside, TripAdvisor (TRIP 56.94, -3.45) and Dish Network (DISH 28.86, -2.40) fell 5.7% and 7.7%, respectively, after the companies missed earnings expectations.

Separately, Dow component Johnson & Johnson (JNJ 134.45, +0.29, +0.2%) announced plans to acquire robotics company Auris Health for approximately $3.4 billion.

U.S. Treasuries finished on a lower note, pushing yields higher across the curve. The 2-yr yield increased three basis points to 2.53%, and the 10-yr yield increased two basis points to 2.71%. The U.S. Dollar Index rose 0.5% to 97.17. WTI crude increased 1.3% to $53.80/bbl.

Reviewing today's economic data, which included the Consumer Price Index for January, the Treasury Budget for December, and the weekly MBA Mortgage Applications Index:

  • Total CPI was unchanged ( consensus +0.1%) while core CPI, which excludes food and energy, was up 0.2%, as expected. On a year-over-year basis, total CPI was up 1.6%, which is the smallest increase since June 2017. Core CPI was up 2.2%, which was the same increase as the 12-month periods ending in November and December.
    • The key takeaway from the report is that core CPI is stable above the Fed's longer-run target. That could give it some leeway to remain patient for the time being, but at the same time, if the stock market keeps rallying and economic data improve, it could be a basis to consider raising rates again.
  • The Treasury Budget for December showed a deficit of $13.5 billion versus a deficit of $23.2 billion for the same period a year ago. The Treasury Budget data is not seasonally adjusted, so the December deficit cannot be compared to the $204.9 billion deficit for November.
    • The fiscal year-to-date deficit is $318.9 billion versus a deficit of $224.9 billion for the same period a year ago. The budget deficit over the last 12 months is $873.0 billion.
  • The weekly MBA Mortgage Applications Index decreased 3.7% following a 2.5% decline in the prior week.

Looking ahead, investors will receive Retail Sales for December, the Producer Price Index for January, the weekly Initial and Continuing Claims report, and Business Inventories for November on Thursday.

  • Russell 2000 +14.4% YTD
  • Nasdaq Composite +11.8% YTD
  • S&P 500 +9.8% YTD
  • Dow Jones Industrial Average +9.5% YTD
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