Day Traders Diary


The S&P 500 added 0.5%, extending this week's advance to 1.1%. Meanwhile, the Nasdaq underperformed with a gain of 0.2% as Cisco Systems (CSCO 21.36, -2.63) weighed on the tech-heavy index.
Shares of Cisco plunged 11.0% after the company reported below-consensus top-line results and said it expects second quarter revenue to decline by up to 10.0%. Interestingly, the disappointing guidance had little effect on other tech names. The largest technologyand Nasdaqcomponent, Apple (AAPL 528.16, +7.53), settled higher by 1.5% while the broader tech sector (-0.4%) spent the entire session climbing off its opening low.
Outside of technology, the remaining nine sectors posted gains between 0.4% and 0.9%. Countercyclical groupsconsumer staples, health care, utilities, and telecom servicesoutperformed from the start while cyclical sectors caught up in late morning/early afternoon action.
The intraday rally took place during Janet Yellen's confirmation hearing in front of the Senate Banking Committee. The hearing did not generate any bombshells, and all of Ms. Yellen's comments were in-line with her prepared remarks that were released last evening. In addition, her comments made it clear that the central bank will not be in any hurry to reduce the pace of its asset purchases. On that note, the Fed Chair nominee said:
The benefits of bond buying exceed the costs The Fed is apt to maintain accommodative policy for some time after the asset purchase program ends
QE cannot go on forever, but there is no set time for when the Fed will reduce the pace of its asset purchases
It is important not to remove support while the recovery is still fragile
There doesn't appear to be a bubble in stock prices when considering the level of P/E ratios and the equity risk premium
Stocks and bonds drew support from these comments, and although the Treasury market saw some afternoon weakness following a disappointing 30-yr auction, the 10-yr note ended near its high with its yield down three basis points at 2.70%.
The prospects of continued easing also provided support to gold futures, which settled higher by 1.4% at $1286.50 per troy ounce. On a related note, miners underpinned the materials sector (+0.8%), which ended among the leaders. The Market Vectors Gold Miners ETF (GDX 24.55, +0.64) advanced 2.7%.
Today's participation was well below average as just over 630 million shares changed hands on the floor of the New York Stock Exchange.
On the economic front, weekly initial claims were essentially in-line with recent trends as the claims level fell to 339,000 from an upwardly revised 341,000 (from 336,000). The consensus expected the initial claims level to fall to 330,000. After weeks of biases from the government shutdown and computer glitches in California, the initial claims level has entered a relatively calm phase. Layoff levels are holding steady at around 335,000.
Separately, nonfarm labor productivity increased 1.9% in the third quarter. That was up from a downwardly revised 1.8% (from 2.3%) in the second quarter, and the strongest quarterly gain since increasing 2.5% in Q3 2012. The consensus expected nonfarm business productivity to increase 2.0%.
Output levels increased 3.7% in the third quarter, up from a 3.3% increases in Q2 2013. Compensation growth softened, increasing only 1.3% after increasing 2.3% in the second quarter. The combination of faster output growth and slower compensation gains resulted in unit labor costs falling 0.6% in the third quarter. Unit labor costs have declined for two out three quarters thus far in 2013. The consensus expected unit labor costs to increase 0.8%.
Lastly, the September trade deficit widened to $41.8 billion from a downwardly revised $38.7 billion (from $38.8 billion) in August. The consensus expected the trade deficit to increase to $39.1 billion. The advance reading of the third quarter GDP data assumed the trade deficit narrowed to roughly $38 billion in September. The wider-than-expected September trade deficit will likely reduce the positive effect net exports had on third quarter GDP growth.
Tomorrow, the November Empire Manufacturing Index, October export prices ex-agriculture, and import prices ex-oil will all be released at 8:30 ET while October industrial production and capacity utilization will cross the wires at 9:15 ET. The September wholesale inventories report will be the final economic data point of the week, scheduled for a 10:00 ET release.

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