Day Traders Diary

2/5/16

The major averages ended the final session of the week under heavy selling pressure as the health of the U.S. economy and its ability to sustain further fed funds rate hikes remained in focus following the release of the January Employment Situation Report. The report contained diverging metrics that showed weaker than expected job growth but stronger than expected wage growth. Additionally, the data showed that the unemployment rate fell to an eight-year low of 4.9%. The Nasdaq Composite (-3.3%) finished behind both the S&P 500 (-1.9%) and the Dow Jones Industrial Average (-1.3%).

Other contributing headwinds to today's session included:

A reversal in the dollar that weighed on oil

A lack of leadership from market cornerstones; and

Weaker than expected earnings results

Overnight sessions and futures were fairly restrained as global markets awaited the U.S. Nonfarm Payrolls report. Participants found the report disjointed with misses on headline metrics but positive growth from other benchmarks. For instance, both nonfarm payroll and private sector payroll numbers grew less than expected, but the unemployment rate dropped to 4.9%. Furthermore, hourly earnings rose 0.5% showing potential for an uptick in inflation. This disconnect between data points fueled anxiety over the health of the economy and increased speculation regarding future rate increases.

Countercyclical telecom services (+0.8%) and utilities (+0.3%) were able to end the day in positive territory while heavyweight sectors like technology (-3.4%) consumer discretionary (-3.2%) and health care (-2.0%) finished on the bottom of the leaderboard.

In the top-weighted technology space, large-cap constituents showed relative weakness with Facebook (FB 104.06, -6.42), Alphabet (GOOGL 703.76, -26.27), and Microsoft (MSFT 50.16, -1.84) declining between 3.5% and 5.8%. Elsewhere, LinkedIn (LNKD 108.38, -83.90) plunged 46.6% after below consensus guidance overshadowed a bottom line beat. The high-beta chipmakers showed relative weakness, evidenced by the 3.5% decline in the PHLX Semiconductor Index. Component Qorvo (QRVO 37.25, -1.53) underperformed in the sub-group after issuing below-consensus guidance.

Discretionary component Amazon (AMZN 502.13, -34.13) saw continued weakness, falling 6.4%. The stock has surrendered 20.5% since reporting its Q4 earnings on January 28th. Netflix (NFLX 82.79, -6.92) also extended its recent slide, diving 7.7%.

The commodity-sensitive energy space was hurt by falling oil prices as dollar strength weighed on the commodity and sector. WTI crude ended its pit session down 2.4% at $30.87/bbl. ConocoPhillips (COP 32.90, -2.42) extended its post-earnings losing streak as it declined 6.9%, registering its second consecutive loss after cutting its dividend.

Biotechnology showed relative weakness, evidenced by the 3.2% decline in the iShares Nasdaq Biotechnology ETF (IBB 256.24, -8.45). To be fair though, large-cap health care names Johnson & Johnson (JNJ 100.54, -3.36) and AbbVie (ABBV 53.12, -3.64) did not fare any better with respective declines of 3.2% and 6.4%.

Today's participation was above the recent average with more than 1.1 billion shares changing hands at the NYSE floor.

Treasuries fell to their lows after the release of January's Employment Situation Report but eventually inched higher even as the sell off in equities continued. The yield on the 10-yr note ended its day higher by one basis point at 1.85%.

Today's economic data included the January Nonfarm Payrolls report, December's Trade Balance, and Consumer Credit for December.

Nonfarm payrolls increased by 151,000 (Briefing.com consensus 188,000)

December nonfarm payrolls revised to 262,000 from 292,000

November nonfarm payrolls revised to 280,000 from 252,000

Private sector payrolls increased by 158,000 (Briefing.com consensus 183,000)

December private sector payrolls revised to 251,000 from 275,000

November private sector payrolls revised to 279,000 from 240,000

Unemployment rate was 4.9% (Briefing.com consensus 5.0%) versus 5.0% in December

The U6 unemployment rate, which accounts for the total unemployed plus persons marginally attached to the labor force and the underemployed, was unchanged at 9.9%

Persons unemployed for 27 weeks or more accounted for 26.9% of the unemployed versus 26.3% in December

January average hourly earnings were up 0.5% (Briefing.com consensus 0.3%) after increasing x% in December

Over the last 12 months, average hourly earnings have risen 2.5% versus 2.5% in December

Aggregate earnings were up 0.9%, which should be a positive portent for consumer spending

The average workweek was up 0.1 to 34.6 hours (Briefing.com consensus 34.5)

January manufacturing workweek was up 0.1 hours to 40.7 hours

Factory overtime was unchanged at 3.3 hours

The labor force participation rate was 62.7% versus 62.6% in December

The December trade deficit widened to $43.4 billion from an upwardly revised deficit of $42.2 bln (from $42.4 bln) for November (Briefing.com consensus estimate of -$43.5 billion).

The widening in the deficit was owed to imports increasing by $0.6 billion from November to $224.9 billion in December and exports decreasing by $0.5 billion to $181.5 billion.

On a year-over-year basis, exports were down 6.9% while imports were down 6.5%. December marked the 12th straight month that exports have declined on a year-over-year basis. Imports have declined year-over-year for the last nine months.

For 2015, the goods and services deficit increased by $23.2 billion to $531.5 billion with exports decreasing $112.9 billion to $2,230.3 billion and imports falling $89.7 billion to $2761.8 billion.

The real trade deficit averaged $60.2 billion in the fourth quarter versus $58.8 billion in the third quarter. That increase helps explain the negative contribution net exports had on fourth quarter GDP.

The Consumer Credit report for December showed an increase of $21.27 billion (Briefing.com consensus$16.50 billion). November's credit growth was revised higher to $14.02 billion from $13.95 billion.

Investors will not receive any economic data on Monday.

Russell 2000 -13.1% YTD

Nasdaq  -12.9% YTD

S&P 500 -8.0% YTD

Dow Jones -7.0% YTD