Day Traders Diary

2/4/16

The stock market ended its Thursday session on a modestly higher note as shaky trading in oil weighed on the market as a whole. Today's trade saw the continued influence of a few other repeat players, as central bank policies, mixed earnings results, and weaker than expected economic data remained in focus ahead of tomorrow's Employment Situation Report for January. The Dow Jones Industrial Average (+0.5%) was able to end its day ahead of both the S&P 500 (+0.2%) and the Nasdaq Composite (+0.1%).

After yesterday's close, Fed Governor Lael Brainard argued for a gradual pace to future rate hikes as, "recent developments reinforce the case for watchful waiting". This dovish tone was echoed internationally as the Bank of England left its existing policy stance unchanged. Shortly before today's open, futures were anchored by a collection of weaker than expected data. Initial jobless claims were reported above analyst expectations, nonfarm productivity came in below estimates, and unit labor costs rose faster than expected.

A rally in crude oil was able to lift futures as the commodity climbed above the $33.00/bbl price level heading into today's session. The rally in the energy component acted as a counterweight to the detrimental data for part of the session. However, as speculation regarding production cuts between OPEC and non-OPEC states declined, so did the commodity. Despite tailwinds from a falling dollar, WTI crude ended its day 2.1% lower at $31.62/bbl.

Only four sectors were able to end their day in positive territory with materials (+2.8%), industrials (+1.7%), and financials (+0.9%) leading the pack. On the flipside, consumer staples (-0.9%) and consumer discretionary (-0.6%) ended with the largest losses.

Money center banks were able to help the larger rebound effort in the financial sector, as JPMorgan Chase (JPM 58.40, +0.99) and Wells Fargo (WFC 48.25, +0.65) outperformed. Elsewhere, MetLife (MET 39.75, -2.20) underperformed the broader sector after missing analyst expectations in it Q4 earnings report.

The industrials space was able to take advantage of the weakening U.S. Dollar Index. Constituents saw an easing of currency headwinds that US companies have faced when attempting to gain pricing power, as falling import prices have negatively affected their core businesses. Large-caps General Electric (GE 29.18, +0.51) and Boeing (BA 123.61, +1.74) showed relative strength with gains of 1.8% and 1.4%, respectively.

In the consumer discretionary space, retailers showed relative weakness after the group reported same store sales before today's open. L Brands (LB 88.57, -6.60) declined 6.9% after reporting that it missed its January estimates. Meanwhile, Kohl's (KSS 41.52, -9.61) plunged 18.8% after the company reported that sales were volatile in Q4 and that January was particularly soft as lower demand for cold-weather goods led to lower store traffic.

Energy (UNCH) companies ConocoPhillips (COP 35.32, -3.31) and Occidental Petroleum (OXY 66.98, -1.15) both reported earnings misses before today's session. Occidental was able to limit its losses after it stated that maintaining operations funding and dividends are the company's top priority. Meanwhile, ConocoPhillips declined 8.6% after it announced that it would be cutting its dividend.

In the health care space (-0.5%), biotechnology showed relative strength today, evidenced by the 0.3% uptick in the iShares Nasdaq Biotechnology ETF (IBB 264.69, +0.69). Celgene (CELG 101.93, +2.44) lead the sub-group after climbing 2.5% today.

Investor participation was true to recent form with more than a billion shares changing hands at the NYSE floor. 

Treasuries ended their day near their highs with the yield on the 10-yr note lower by three basis points at 1.85%

Today's economic data included the Challenger Job Cuts report, weekly Initial Claims, the preliminary Q4 Productivity and Unit Labor Cost and December's Factory Orders.

• January Challenger Job Cuts totaled 75,114 up 41.6% year-over-year
• Initial claims for the week ending January 30 increased by 8,000 to 285,000 (Briefing.com consensus 275,000).
  • This reading remains true to the range of 250,000 to 300,000 which has bounded the reading since July 2014.
  • Today's reading pushed up the four-week moving average from 282,750 to 284,750, which is the highest since July 2015.
• Continuing claims for the week ending January 23 decreased by 18,000 to 2.255 million (Briefing.com consensus 2.253 million). 
  • The four-week moving average increased by 5,250 to 2.253 million.
• The preliminary report on Q4 productivity showed productivity decreased at a 3.0% annual rate (Briefing.com consensus -1.7%)
• This was the largest drop in productivity since the first quarter of 2014.
  • Output increased a mere 0.1% while hours worked increased 3.3% while productivity is up just 0.3% year-over-year.
  • Annual average productivity increased 0.6% from 2014 to 2015, with output and hours increasing 2.8% and 2.2%, respectively.
  • Productivity has increased at an annual rate of less than 1.0% in each of the last five years well below the long-term rate of 2.1% from 1947 to 2015.
• Fourth quarter unit labor costs increased 4.5% (Briefing.com consensus +3.8%), reflecting a 1.3% increase in hourly compensation and a 3.0% decrease in productivity.
  • That was the largest jump in unit labor costs since the fourth quarter of 2014.
  • Third quarter nonfarm business productivity was revised down to 2.1% from 2.2% while unit labor cost growth was revised up to 1.9% from 1.8%.
• Factory orders declined 2.9% in December (Briefing.com consensus -2.6%) on the heels of a downwardly revised 0.7% decline (from -0.2%) for November.
  • That is the largest month-over-month decline since December 2014. This the fourth decline in the last five months for factory orders, which are down 6.6% year-over-year.
  • New orders for manufactured durable goods were down 5.0% versus a previously reported 5.1% decline in the Durable Orders report for December. 

Tomorrow's economic data includes the January Nonfarm Payrolls report (Briefing.com consensus 188k) and December's Trade Balance (Briefing.com consensus -$43.5 billion), which will be reported at 8:30 ET. Meanwhile, December Consumer Credit (Briefing.com consensus $16.50 billion) will cross the wires at 15:00 ET.

• Russell 2000 -10.6% YTD
• Nasdaq -9.9% YTD
• S&P 500 -6.3% YTD
• Dow Jones -5.8% YTD