Day Traders Diary

12/16/15

The stock market ended the midweek session on a higher note with the S&P 500 climbing 1.5%. The benchmark index shrugged off the first fed funds rate hike in nine years, reclaiming its 50- (2,060) and 200-day moving averages (2,062) in the process.

Equity indices spiked at the start of the trading day, but the first half of the session featured a slow drip from opening highs as investors employed some caution ahead of the FOMC rate announcement; however, a rally to new highs unfolded during the late afternoon.

The Federal Reserve lived up to expectations, calling for a 25-basis point hike to the federal funds target range, which had been stuck in the 0.00-0.25% range for exactly seven years. Interestingly, today's rate hike did not stop the committee from slightly lowering its core PCE inflation outlook for 2016 to 1.5-1.7% from 1.5-1.8% that had been expected in September.

The Dollar Index (98.35, +0.13) displayed some volatility, but ended in the green. The index saw some pressure as Fed Chair Janet Yellen addressed the media, stressing the Fed's intention to stick to a gradual tightening path. Ms. Yellen acknowledged that the rate hike is taking place while inflation is well below the Fed's 2.0% target, but the Fed Chair believes that inflation will return to the 2.0% target once transitory factors fade away.

Unlike stocks, Treasuries held slim losses going into the afternoon, but they lurched back to flat after the Fed announcement; however, the 10-yr note dipped back into the red during the late afternoon, pushing the benchmark yield up to 2.29% (+2 bps).

Nine of ten sectors ended the day with gains while energy (-0.5%) spent the session below its flat line due to daylong weakness in crude oil. The energy component returned to last week's low, falling 4.7% to $35.55/bbl. after the latest EIA storage report showed a 4.8 million barrel inventory build.

Similar to energy, the materials sector (+1.1%) underperformed, but the group was lifted into the green during afternoon action.

Elsewhere, the top-weighted technology sector (+1.3%) also lagged, which contributed to the pullback from opening levels. Apple (AAPL 111.34, +0.85) was the culprit responsible for the early weakness, but the sector heavyweight benefited from the afternoon strength in the market. Thanks to the reversal, the largest stock by market cap climbed 0.8%, narrowing this week's loss to 1.6%.

Staying on the cyclical side, the industrial sector (+1.8%) spent the day among the leaders, thanks in part to a 5.7% spike in Honeywell (HON 104.08, +5.61) after the company reaffirmed its guidance. Another sector component—Joy Global (JOY 12.16, +0.70)—also had a strong showing, surging 6.1%, despite reporting in-line earnings, lowering its guidance, and cutting its quarterly dividend to $0.01 from $0.20/share.

Today's participation was well above average as more than 950 million shares changed hands at the NYSE floor.

Economic data included Housing Starts, Building Permits, Industrial Production, and MBA Mortgage Index:

Housing starts were at a seasonally adjusted annual rate (SAAR) of 1.173 million in November. That was 10.5% above October's revised level of 1.062 million (from 1.060 million) and above the Briefing.com consensus estimate of 1.135 million

Multifamily starts spiked 16.4% while single-family starts jumped 7.6%

Building permits soared to a SAAR of 1.289 million. That was 11% above the revised October rate of 1.161 million (prior 1.150 million) and well ahead of the Briefing.com consensus estimate of 1.150 million

That uptick was driven almost entirely by permits for multifamily units as single-family permit authorizations increased just 1.1%

Industrial production declined 0.6% in November on the heels of a downwardly revised 0.4% decline (from -0.2%) in October

The November reading was well below the Briefing.com consensus, which expected a downtick of 0.1%

The November decline was paced by a 4.3% drop in utilities and a 1.1% decrease in mining activities

The weekly MBA Mortgage Index fell 1.1% to follow last week's 1.2% increase

Tomorrow, weekly Initial Claims (Briefing.com consensus 276,000), December Philadelphia Fed Survey (Briefing.com consensus 2.0), and Q3 Current Account Balance (Briefing.com consensus deficit of $114.20 billion) will be reported at 8:30 ET while November Leading Indicators will cross the wires at 10:00 ET.

Nasdaq Composite +7.1% YTD

S&P 500 +0.7% YTD

Dow Jones Industrial Average -0.4% YTD

Russell 2000 -4.3% YTD