Day Traders Diary

2/3/16

The stock market ended a volatile Wednesday session on a mixed note as the major averages rallied off their opening lows. Today's advance can be attributed to a lockstep rally in oil, an easing of the strong dollar, and dovish remarks from New York Fed President and FOMC voting member William Dudley. The Dow Jones Industrial Average (+1.1%) finished ahead of the S&P 500 (+0.5%) and the Nasdaq Composite (-0.3%).

Today's session began on a lower note as equities sold off after January's reading of the ISM Service Index showed a faster than expected deceleration in the service sector. Relief from the heavy selling pressure came from an unexpected source, as oil rebounded despite bearish readings from both the API and EIA weekly inventory reports. Oil was able to rally as participants viewed a nosedive in the U.S. Dollar Index to be more beneficial to the commodity than the impact from a larger than expected inventory build. WTI crude closed its session 8.0% higher at $32.29/bbl.

Divergence in monetary policy between central banks had strengthened the U.S. dollar through 2015, but a string of poorer than anticipated economic data has called future rate increases into question. Underpinning this idea were statements from New York Fed President and FOMC voting member William Dudley, who stated that financial conditions have tightened since December's rate increases and that additional strength from the dollar could have "significant consequences" for the U.S. economy.

Commodity-sensitive materials (+3.3%) and energy (+4.0%) were able to top the leaderboard throughout the day while heavyweights financials (-0.1%), consumer discretionary (-0.3%), and technology (-0.4%) underperformed.

The energy space was able rally as strength from oil pushed the sector higher. Energy giant Exxon Mobil (XOM 78348, +3.89) outperformed in the group with a gain of 5.2% as the company recovered from yesterday's post-earnings sell off. Anadarko Petroleum (APC 42.49, +3.23) was able to continue its strong showing from yesterday's earnings report, climbing 8.2%.

The beleaguered financial sector saw early pressure but was able to shape a nice reversal in the afternoon. Supporting this move was a reversal in money center banks like Bank of America (BAC 13.03, -0.20) and Wells Fargo (WFC 47.60, -0.85), both of which were down more than 3.9% before ending their days with respective losses of 1.5% and 1.8%.

In the heavyweight technology space, Facebook (FB 112.69, -1.92) ended its post-earnings winning streak. The stock lost 2.0% today but remains up 19.3% since last Wednesday's report. Alphabet (GOOGL 749.38, -31.53) continued to struggle to capitalize on its earnings beat, declining 4.0%.

In the health care space (+0.5%), biotechnology showed early weakness but ended the day ahead of the broader sector. The iShares Nasdaq Biotechnology ETF (IBB 264.00, +2.99) ended its day higher by 1.2%.

Today's participation followed recent tradition with more than a billion shares changing hands on the NYSE floor.

Treasuries ended their day on their lows with the yield on the 10-yr note higher by three basis points at 1.88%.

Today's economic data included the weekly MBA Mortgage Index, the ADP Employment Change for January, and January's ISM Services Index:

The MBA Mortgage Index showed a seasonally adjusted decrease of 2.6% in mortgage applications from last week's reading of an increase of 8.8%.

The January ADP Employment Change showed 205,000 positions were added to private sector payrolls in January (Briefing.com consensus 190,000).

The job gains were centered in small and medium-sized businesses, which showed increases of 79,000 and 82,000, respectively.

They came almost entirely from the service-providing sector, which produced 192,000 new positions, including 44,000 in the professional and business sector.

The ISM Non-Manufacturing Index for January dipped to 53.5 (Briefing.com consensus 55.0) from an upwardly revised 55.8 reading for December (from 55.3).

This report is bothersome from a broader standpoint since it lends weight to the notion that the manufacturing slowdown is having a spillover effect on the services side of the economy, which accounts for the vast majority of GDP.

The ISM Non-Manufacturing Index has been trending lower since last July when it peaked at 59.6.

The January reading is the lowest level for the index since March 2014, yet it still marks the 72nd consecutive month of being above 50.0.

The providers of the report indicate that a reading above 48.9 for the ISM Non-Manufacturing Index, over a period of time, generally indicates an expansion of the overall economy, and that the past relationship suggests the January reading of 53.5 corresponds to real GDP growth of 1.8% on an annualized basis.

Tomorrow's economic data includes the 7:30 ET release of the Challenger Job Cuts report while weekly Initial Claims (Briefing.com consensus 275k), the preliminary Q4 Productivity (Briefing.com consensus -1.7%) and Unit Labor Cost (Briefing.com consensus 3.8%) will all be reported at 8:30 ET. The day's data will be topped off with the 10:00 ET release of Factory Orders for December (Briefing.com consensus -2.6%).

Russell 2000 -11.1% YTD

Nasdaq  -10.1% YTD

S&P 500 -6.4% YTD

Dow Jones -6.3% YTD