Day Traders Diary

2/23/16

The major averages ended their day on a lower note as the broader market felt renewed pressure from the oil patch. Additionally, the underperformance of influential sectors and a worse than anticipated consumer confidence reading helped end the market's recent winning streak. Before today's session, the stock market had advanced in four of the last six sessions and the S&P 500 (-1.3%) and Dow Jones Industrial Average (-1.1%) were in positive territory for the month. Following today's decline, the two indices now hold respective month-to-date losses of 1.0% and 0.2%.

Oil was pressured today as investors weighed whether an output cap would be enough to combat the persisting oil glut. Any hopes of larger action by OPEC and non-OPEC states were dashed when Saudi oil minister Ali al-Naimi stated that the proposed production cap would not lead not an eventual output cut by Saudi Arabia. Mr. al-Naimi underscored his point by stating that higher cost drillers will need to find a way to become more efficient, borrow cash, or liquidate. Separately, comments from Iran's oil minister Bijan Zangane indicated that Iran would not be joining in the proposed output freeze. As a result, WTI crude ended its day lower by 4.9% at $31.80/bbl.

Commodity-sensitive energy (-3.3%) and materials (-2.4%) were the obvious losers with today's action in oil while financials (-1.8%) and technology (-1.8%) followed them on the bottom of the leaderboard.

In the energy space, independent oil and gas names showed the largest losses in the sector as the companies represent some of the higher cost drillers. Conversely, Dow component, Exxon Mobil (XOM 81.23, -1.16) managed to trade ahead of the broader sector, but trailed the benchmark index.

Economically-sensitive financials were hurt by a poor showing from money center banks. To that point, JPMorgan Chase (JPM 56.12, -2.45) led the downside in the sub-group after the company disclosed, at its analyst day, an additional $600 million in loan loss reserves for energy and material sector loans. JPMorgan Chase also disclosed that they see investment bank revenue declining 20.0% in the first quarter.

In the heavyweight technology space, Western Digital (WDC 42.77, -3.33) plummeted 7.2% after the company agreed to alter its deal to acquire SanDisk (SNDK 66.61, -1.07) despite a division of Unisplendour terminating its deal to purchase a 15.0% stake in Western Digital. Elsewhere, large-cap constituent Microsoft (MSFT 51.18, -1.47) surrendered 2.8% while Apple (AAPL 94.69, -2.19) lost 2.3%.

The Treasury complex saw increased buying interest throughout the day as the yield on 10-yr note sank from 1.81% to 1.74% by the end of the session.

Meanwhile, safe haven investments were bid higher with gold and the yen ending their day on a positive note. The dollar yen/pair ended at 112.10 (-0.7%) while gold gained 1.0%, climbing to $1,224.10/ozt.

Today's participation remained below the recent average with less than 914 million shares changing hands at the NYSE floor. 

Today's data included the December Case-Shiller 20-city Index, the February Consumer Confidence report, and the Existing Home Sales report for January.

The Case-Shiller 20-city Home Price Index for December rose 5.7% (Briefing.com consensus of 5.8%). This followed the previous month's increase of 5.7% (revised from 5.8%).

The Conference Board's Consumer Confidence Index decreased to 92.2 (Briefing.com consensus 97.3) in February from a downwardly revised 97.8 (from 98.1) in January.

February marked the lowest level for consumer confidence since October 2015.

The drop in February stemmed from a drop in both the Present Situation Index (from 116.6 to 112.1) and the Expectations Index (from 85.3 to 78.9).

Notably, the report attributed the weakening in the present situation to greater apprehension about business conditions, their personal financial situation, and to a lesser degree, labor market prospects.

Existing home sales ran at a seasonally adjusted annual rate of 5.47 million units in January (Briefing.com consensus 5.30 million), up 0.4% from a downwardly revised 5.45 million (from 5.46 million) in December.

Existing home sales are 11.0% higher than a year ago. At the current sales pace, there is a 4.0-month supply of inventory of unsold homes, which is well below the 6.0 month supply that is typically maintained during normal periods of buying and selling.

The lack of supply has helped push median prices higher, which in turn is limiting sales activity since price increases are outpacing income gains for a large swath of potential buyers. The share of first-time homebuyers remained at 32.0% for the second consecutive month.

Overall, the median home price for all housing types in January was $213,800, up 8.2% year-over-year.

The slight improvement in existing home sales in January was surprising as many economists thought low inventory levels, the winter blizzard in the Mid-Atlantic/Northeast late in the month, and a normal pullback from a much stronger than expected December home sales gain would produce a modest downturn in existing home sales. That wasn't the case.

It is worth noting that Fed Vice Chair Stanley Fischer will speak at 20:30 ET.

Tomorrow's economic data will be limited to the 7:00 ET release of the weekly MBA Mortgage Index and the January New Home Sales Report (Briefing.com 523k), which will cross at 10:00 ET.

Russell 2000: -10.8% YTD

Nasdaq -10.1% YTD

S&P 500 -6.0% YTD

Dow Jones -5.7% YTD