Day Traders Diary

10/01/14

The stock market began October and the fourth quarter on a defensive note. The major averages spent the day in a steady decline with the Nasdaq Composite leading the slide. The tech-heavy index lost 1.6%, while the S&P 500 (-1.3%) sliced through its 100-day moving average (1958) with nine sectors ending in the red.

Equities were pressured from the start with a disappointing set of Manufacturing PMI figures from the eurozone weighing on sentiment. The region-wide reading slipped to 50.3 (expected 50.5) and was driven in part by Germany's decline to 49.9 from 50.3 (consensus 50.3).

Once the U.S. session got going, the key indices slumped amid early weakness in the industrial sector (-1.9%). In turn, the growth-sensitive group suffered from notable losses in airlines, stemming from concerns about the first case of Ebola in the United States. Delta Air Lines (DAL 34.90, -1.25) and Southwest (LUV 32.55, -1.22) both lost near 3.5%, while the Dow Jones Transportation Average tumbled 2.5%.

Elsewhere, the financial sector (-1.2%) was the only cyclical group that ended ahead of the broader market, but its outperformance hardly qualified as "strength."

Meanwhile, the top-weighted sectortechnology (-1.6%)suffered from weakness among high-growth areas like chipmakers and social media stocks. All 30 components of the PHLX Semiconductor Index (-2.4%) ended in the red with Skyworks (SWKS 53.31, -4.74) registering the largest decline. The stock sank 8.2% amid concerns about slowing 4G smartphone demand in China.

As for social media names, Facebook (FB 76.56, -2.48) slumped 3.1%, while LinkedIn (LNKD 203.08, -4.71), Twitter (TWTR 50.06, -1.52), and Yelp (YELP 67.11, -1.14) lost between 1.7% and 3.0%.

While most cyclical groups spent the entire day in the red, the energy sector (-1.9%) made a brief appearance in the green. The short-lived advance took place during a late morning rally in crude oil futures. The energy component was up as much as 2.0%, but slumped into the close to end lower by 0.4% at $90.75/bbl.

Meanwhile, the other commodity-linked sectormaterialsended at the bottom of the leaderboard despite an uptick in mining shares. The Market Vectors Gold Miners ETF (GDX 21.40, +0.04) tacked on 0.2% as gold futures added 0.3% ($1215.40/ozt) and silver futures rallied 1.2% ($17.27/ozt). However, chemical producers struggled after Mosaic (MOS 43.23, -1.18) issued a disappointing forecast.

Unlike the cyclical sectors, the four countercyclical groups ended ahead of the broader market. Health care (-1.0%) was able to finish ahead of the S&P 500 even as biotechnology lagged with the iShares Nasdaq Biotechnology ETF (IBB 269.43, -4.20) surrendering 1.5%.

On the upside, the utilities sector (+0.5%) spent the day in the green to extend this week's gain to 1.3%. The outperformance of the rate-sensitive sector resulted from its defensive nature and a drop in long-term rates, while a 1.4% gain in Exelon (EXC 34.57, +0.48) provided added support. Shares of EXC advanced after being upgraded to 'Buy' at ISI Group.

Treasuries climbed throughout the session with the 10-yr note registering a 27-tick gain. The benchmark yield fell ten basis points to 2.40%.

Today's sell off saw above-average participation as more than 845 million shares changed hands at the NYSE.

Economic data included Construction Spending, ISM Index, ADP Employment Survey, and the MBA Mortgage Index:

Construction spending fell 0.8% in August after increasing a downwardly revised 1.2% (from 1.8%) in July, while the Briefing.com consensus expected an increase of 0.5%
Private construction spending fell 0.8% in August, nearly giving back its entire 0.9% increase from July
Public construction spending fell 0.9% in August after increasing 2.1% in July
The ISM Manufacturing Index fell to 56.6 in September from 59.0 in August, while the Briefing.com consensus expected a drop to 58.5
Most of the regional Federal Reserve manufacturing surveys showed solid gains in September, which contrasted with the pullback recorded in the national index
The Backlog of Orders Index contracted, falling from 52.5 in August to 47.0 in September, while the New Orders Index dropped to 60.0 from 66.7
The ADP National Employment Report revealed that employment in the nonfarm private business sector rose 213K in September, while the Briefing.com consensus expected an increase of 202K
The August reading was revised down to 202,000 from 204,000
The weekly MBA Mortgage Index slipped 0.2% to follow last week's decline of 4.1%
Tomorrow, the Challenger Job Cuts report for September will be released at 7:30 ET, while weekly Initial Claims (Briefing.com consensus 297K) and Factory Orders for August (consensus -9.3%) will be released at 8:30 ET and 10:00 ET, respectively.

Nasdaq Composite +5.9% YTD
S&P 500 +5.3% YTD
Dow Jones Industrial Average +1.4% YTD
Russell 2000 -6.6% YTD

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