Day Traders Diary

12/11/15

The stock market ended a defensive week on a woeful note with the S&P 500 (-1.9%) diving below its 100-day moving average (2,031). The benchmark index lost 3.8% since last Friday, while the Nasdaq (-2.2%) underperformed, falling 4.1% for the week.

The bulk of today's weakness unfolded during the first half of the day while afternoon action saw the key indices slip to fresh lows. The early weakness followed an overnight session, which featured news from China, indicating the People's Bank of China nudged the yuan to a four-year low against the dollar (6.4553). This stoked up concerns about China's deflation being exported to other economies while continued weakness in commodities compounded those worries.

Furthermore, reports of trouble in the junk bond arena weighed on sentiment after it came to light that Third Avenue Management is liquidating its high-yield Focused Credit Fund and barring investor withdrawals while it is doing so. This invited fears about other bond funds with similar exposure while junk bonds faced daylong pressure that sent the iShares iBoxx $ High Yield Corporate ETF (HYG 79.52, -1.62) to its lowest close since July 2009.

All ten sectors ended the day in negative territory and the market saw no dip-buying during the afternoon. To be fair, the lack of an afternoon rebound was not a shock considering the Federal Reserve is likely to introduce another wrinkle into the fold next week when the central bank is widely expected to announce the first fed funds rate hike since June 2006.

The continued weakness in commodity prices took its toll on cyclical energy (-3.4%) and materials (-2.7%) sectors. The energy space widened this week's loss to 6.5% while crude oil also struggled, falling 3.2% to $35.62/bbl, to end the week lower by 10.9%.

Meanwhile, the remaining cyclical sectors fared a bit better, but that was a small victory considering the "best" performing growth-sensitive sector still lost 1.6%. The industrial sector settled just a step ahead of the broader market thanks to strength in select railroad names after it was reported Berkshire Hathaway (BRK.B 130.31, -1.40) is considering a bid for Norfolk Southern (NSC 89.53, +1.85). On a related note, the Dow Jones Transportation Average ended in line with the S&P 500.

The 1.9% gain in the shares of NSC represented one of few bright spots in the market as declining issues at the NYSE outpaced advancers by a 7:1 margin.

Treasuries rallied throughout the day, ending on their highs with the 10-yr yield sliding ten basis points to 2.13%.

The Friday retreat invited above-average volume as nearly a billion shares changed hands at the NYSE floor.

Economic data included PPI, Retail Sales, Michigan Sentiment, and Business Inventories:

The Producer Price Index report for November produced some better than expected readings, with both total PPI and core PPI, which excludes food and energy, increasing 0.3%

The median estimate of economists polled by Briefing.com called for a 0.1% decline in total PPI and a 0.1% increase in core PPI

On a year-over-year basis, the index for final demand is down 1.1%, which is the tenth consecutive 12-month decline. Core PPI is up 0.5%

The November Retail Sales report showed a below-consensus increase of 0.2% (Briefing.com consensus +0.3%), yet sales excluding autos (+0.4%) were stronger than expected (Briefing.com consensus +0.3%) while core retail sales, which exclude autos, gasoline station, and building materials sales, were up a healthy 0.6%

Core retail sales factor into the goods component of personal consumption expenditures in the GDP report, so this November data can be thought of as a positive input

The preliminary reading for the University of Michigan Index of Consumer Sentiment for December was 91.8, which was up slightly from the final November reading of 91.3 and nearly matched the Briefing.com consensus estimate of 91.6

The improvement stemmed from a better feeling about current conditions, evidenced by a jump in the Current Economic Conditions Index to 107.0 from 104.3

Total business inventories were unchanged in October following a downwardly revised 0.1% increase (from 0.3%) in September

The Briefing.com consensus expected business inventories to be up 0.1%

Manufacturer inventories (-0.1%) and merchant wholesaler inventories (-0.1%) were already known. Retailer inventories were the only unknown and they increased 0.1% in October on top of a 0.8% increase in September

Investors will not receive any economic data on Monday.

Nasdaq Composite +4.2% YTD

S&P 500 -2.3% YTD

Dow Jones Industrial Average -3.1% YTD

Russell 2000 -6.6% YTD

Week in Review: Stocks and Commodities Slide