Day Traders Diary

10/5/15

The stock market enjoyed an upbeat start to the trading week with the S&P 500 returning near its rebound high from the middle of September. The benchmark index climbed 1.8% while the Nasdaq Composite (+1.6%) followed not far behind.

The Monday buying frenzy was not fueled by quarterly earnings as the first portion of the reporting period is still two weeks away. Instead, the advance was a continuation of the Friday rally, which was predicated on the belief that a disappointing September Nonfarm Payrolls report would prevent the Federal Reserve from raising rates at the October meeting. In that same vein, the bad-is-good dynamic appeared to be on display overseas as Japan's Nikkei (+1.6%), Germany's DAX (+2.7%), and France's CAC (+3.5%) vaulted higher even though Services PMI readings in Japan (51.4; prior 53.7) and the eurozone (53.7; expected 54.0) disappointed.

With global investors showing hope for more monetary stimulus, the spotlight will be on the Bank of Japan considering the central bank will begin a two-day policy meeting on Tuesday. Last week, Bloomberg reported that the BoJ is not looking to increase the size of its quantitative and qualitative easing program, but some investors remain hopeful for a surprise to the contrary. The yen retreated about 0.5% against the dollar today, sending the dollar/yen pair up to 120.50 after spending the bulk of the past two weeks near 120.00.

All ten sectors finished the day in positive territory, but the health care space (+0.3%) struggled to stay in the green as biotechnology weighed. The iShares Nasdaq Biotechnology ETF (IBB 313.20, -2.33) was in for another volatile session, surrendering an early gain to end lower by 0.7% after being down more than 2.0%. That being said, biotechnology's underperformance only left its mark on the Nasdaq as the tech-heavy index lagged throughout the day. Meanwhile, the S&P 500 overcame that weakness with ease.

Cyclical sectors were at the forefront of the Monday advance with energy (+3.0%) holding the lead throughout the session. The sector rallied behind crude oil early on and continued its charge into the afternoon even as WTI crude retreated from its best level of the day, ending higher by 1.6% at $46.26/bbl.

Elsewhere, top-weighted technology (+1.9%) and financials (+2.1%) spent the day just ahead of the broader market while the industrial sector (+2.8%) was nearly as strong as energy. Transport stocks went along for the ride with the Dow Jones Transportation Average spiking 2.3% to register its fifth consecutive advance.

Also of note, the technology sector managed to spend the day ahead of the broader market even though Apple (AAPL 110.78, +0.40) struggled to keep pace. The sector heavyweight underperformed after Digitimes reported that new iPhone sales in Japan have not kept up with demand observed after the previous release.

Today's rally in equities coincided with daylong selling in the Treasury market that pushed the 10-yr note below Friday's low. As a result, the benchmark yield rose seven basis points to 2.06%.

Trading volume was well above average as more than a billion shares changed hands at the NYSE floor.

Economic data was limited to the ISM Services Index, which declined to 56.9 in September from 59.0 while the Briefing.com consensus expected a drop to 58.0. Although many of the sub-categories in the index showed sharp declines in September, there wasn't a prevalence of contractions like those that plagued the ISM Manufacturing Index. The services sector remains much more robust than the manufacturing sector.

Tomorrow, the August Trade Balance will be reported at 8:30 ET (Briefing.com consensus -$44.50 billion).

Nasdaq Composite +1.0% YTD

S&P 500 -3.5% YTD

Russell 2000 -5.3% YTD

Dow Jones Industrial Average -5.9% YTD