Day Traders Diary



The major averages closed mixed with the S&P 500 and Dow Jones Industrial Average setting closing record highs on Wednesday, as value/cyclical stocks continued to sport a bullish bias following a better-than-feared Consumer Price Index (CPI) report for July.

The Russell 2000 increased 0.5% after being down as much as 0.8% intraday. The Nasdaq Composite, however, declined 0.2% along with the Russell 1000 Growth Index (-0.2%).

Specifying the data, total CPI increased 0.5% m/m in July, as expected, while core CPI, which excludes food and energy, increased 0.3% m/m ( consensus 0.4%). On a year-over-year basis, total CPI was unchanged at 5.4% and core CPI moderated to 4.3% from 4.5%.

The data supported the narrative that inflation rates are peaking, yet the inflation-sensitive 10-yr yield was trading higher for the sixth straight session after the report. It took a very strong 10-yr note auction to bring it back down to its unchanged mark of 1.34% after it traded at 1.37% intraday.

Some rate discomfort might have contributed to the underperformance of the growth stocks, but a willingness to stay invested helped money flow into the value/cyclical stocks. The S&P 500 materials (+1.4%), industrials (+1.3%), and financials (+1.2%) sectors increased by at least 1.0% on Wednesday.

Interestingly, the health care sector (-1.0%) was the only sector in the S&P 500 that closed lower, largely due to weakness in Pfizer (PFE 46.31, -1.88, -3.9%) and Moderna (MRNA 385.33, -71.43, -15.6%). MRNA pulled back 15.6% after doubling between July 9 and August 9. PFE gained about 20% over the past month.

Southwest Air (LUV 51.84, +0.73, +1.4%) issued downside Q3 revenue guidance as the Delta variant caused a deceleration in close-in bookings and an increase in close-in trip cancellations this month. LUV and other airline stocks still posted decent gains, as the news may have been expected since airline share prices had struggled since June.  

Separately, Kansas City Fed President George (2022 voter) and Dallas Fed President Kaplan (2023 voter) suggested the Fed should consider tapering asset purchases sooner rather than later, echoing comments from Atlanta Fed President Bostic (2021 voter) and Boston Fed President Rosengren (2022 voter) earlier this week.

The 2-yr yield decreased two basis points to 0.21%. The U.S. Dollar Index decreased 0.2% to 92.90. WTI crude futures rose 1.4%, or $0.94, to $69.27/bbl.

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