Day Traders Diary


Equities began the New Year with a robust open after the U.S. Congress approved measures aimed at averting the fiscal cliff. As a result of yesterday's agreement, individuals making less than $400,000 per year will see an extension of their recent tax rates, while those making over that amount will see their top rate rise to 39.6%. However, as part of the deal, the payroll tax, which applies to all workers, will revert back to 6.2% from 4.2%. Lastly, the $109 billion sequestration has been delayed for two months. At midday, the S&P 500 is higher by 1.7%.

As expected, financials are seeing broad strength after the fiscal cliff was avoided. The SPDR Financial Select Sector ETF (XLF 16.77, +0.38) is higher by 2.4%, and is the top performing sector ETF. Among individual financials, Citigroup (C 41.03, +1.47) is the strongest major, up 3.7%. JPMorgan Chase (JPM 44.40, +0.73) is adding 1.7% as it underperforms its peers.

The materials sector is one of the biggest beneficiaries of the broad market rally and the SPDR Materials Select Sector ETF (XLB 38.25, +0.71) is rising by 1.9%. The strength comes as a result of yesterday's budget pact as well as recent Chinese economic data, which has allayed some fears regarding a possible slowdown in the Middle Kingdom. An increase in the country's economic activity would bode well for materials demandespecially steel. As such, steelmakers are outperforming the sector. Mechel Steel (MTL 7.34, +0.41) and United States Steel (X 25.62, +1.77) are seeing respective gains of 5.9% and 7.5%.

Despite the on-going market rally, retailers are lagging ahead of tomorrow's December same store sales reports. Early indications have suggested consumers showed more caution with regards to their spending habits during the recent holiday season. As such, the SPDR S&P Retail ETF (XRT 62.54, +0.16) is adding 0.3% after being up as much as 2.2% at the open. Among individual retailers, Kohl's (KSS 42.20, -0.78) and Macy's (M 38.23, -0.78) are down 1.8% and 2.0%, respectively. Earlier, Buckingham downgraded Kohl's to 'Neutral' from 'Buy.' Elsewhere, American Eagle Outfitters (AEO 19.85, -0.66) is slipping 3.2% after Jefferies downgraded the stock to 'Hold' from 'Buy.'

The December ISM Index was reported at 50.7, while the consensus expected the reading to come in at 50.5, ahead of November's reading of 49.5. Meanwhile, November construction spending decreased by 0.3% month-over-month, against the expected increase of 0.5%.

The key European indices surged following the news of a U.S. budget compromise. France's CAC gained 2.6% while the United Kingdom's FTSE and Germany's DAX both rose by 2.2%.

France's CAC saw gains among all 40 of its components. Financials were among top performers as BNP Paribas, Credit Agricole, and Societe Generale all jumped in excess of 4.0%.

German stocks were led by financials and producers of basic materials. Commerzbank advanced 3.8% and was the top performing bank. Meanwhile, steelmaker ThyssenKrupp led the materials sector, and settled higher by 4.6%.

In the United Kingdom, miners paced the rally. Eurasian Natural Resources, Glencore International, and Xstrata all booked gains near 7.0%.

Lastly, Spain's IBEX-35 and Italy's MIB both jumped over 3.0% on strength in financials and materials.

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