Day Traders Diary

3/1/16

The stock market began March with a broad-based rally as the major averages responded to a better-than-expected reading of the ISM Index for February. Additionally, today's rally was supported by key sector leadership from the financial (+3.5%) and technology (+3.1%) sectors, positive trade from the oil pit, dovish remarks from New York Fed President William Dudley, and new monthly inflows. The Nasdaq Composite (+2.9%) was able to end ahead of the S&P 500 (+2.4%) and the Dow Jones Industrial Average (+2.1%).

The major indices were able to rally off their opening levels after the ISM Index report showed a smaller contraction in manufacturing during February (49.5; Briefing.com 49.0) than was reported in January (48.2). Improvement in U.S. economic data, as well as hopes for further economic easing in the wake of weaker-than-expected economic data from overseas, helped bolster sentiment in global equities.

Sector leadership from the heavily-weighted technology (+3.1%) and financial (+3.5%) sectors helped maintain and extend today's rally. The groups outperformed throughout the session, even during a momentary downturn in crude oil. For its part, the energy component ended the Tuesday affair higher by 1.7% at $34.39/bbl.

In the economically-sensitive financial sector (+3.5%), money center banks showed relative strength, as Citigroup (C 41.27, +2.42) and Bank of America (BAC 13.19, 0.67) jumped 6.2% and 5.4%, respectively. Despite today's showing, the two names remain down a respective 22.1% and 23.7% in 2016. Meanwhile, the broader financial sector is down 8.7% during that same period.

In the influential technology space, large-cap names like Facebook (FB 109.82, +2.90), Alphabet (GOOGL 742.17, +24.95), and Oracle (ORCL 37.99, +1.21) climbed between 2.7% and 3.5%. Meanwhile, Dow component Apple (AAPL 100.53, +3.84) surged 4.0%. The high-beta chipmakers also outperformed the broader market as the PHLX Semiconductor Index gained 2.9%, trimming its year-to-date loss to 3.6%.

On the flipside, the countercyclical sectors showed the worst performances for the day. Utilities (-0.5%), consumer staples (+1.0%), and telecom services (+1.3%) finished behind the broader market. To be fair though, the three sectors show the best and only positive performances among the S&P sectors on a year-to-date basis. To that point, the groups show respective gains of 5.8%, 1.6%, and 9.8%.

The heavyweight health care space managed a 1.9% gain despite the underperformance of Medtronic (MDT 74.18, -3.21), which plummeted 4.2% after reporting results that fell in-line with analyst estimate. Separately, biotechnology showed relative strength as the iShares Nasdaq Biotechnology ETF (IBB 265.27, +11.18) gained 4.4% today. For the year, the ETF remains down 22.7%.

Adding to today's optimistic mood were dovish remarks from New York Fed President and FOMC voting member William Dudley, who acknowledged that the balance of risks to growth and inflation outlooks for the U.S. might be starting to tilt slightly to the downside.

The Treasury complex plunged after the release of the ISM Index reading with the 10-yr yield ending higher by six basis points at 1.82%.

On the currency front, the U.S. Dollar Index (98.35, +0.14) retreated from its best level of the day as the yen and the euro sought to make up some ground. The dollar/yen rose 1.1% to 113.91 after reaching a session high of 114.14. Meanwhile, the euro/dollar ticked down 0.1% to 1.0866 after hitting a session low of 1.0841.

Trading volume was roughly in-line with the recent average as 1.09 billion shares changed hands on the floor of the NYSE.

Today's economic data included Construction Spending for January and the ISM Index for February:

• The ISM Index for February checked in at 49.5, up from 48.2 in January and above the Briefing.com consensus estimate of 49.0.
  • A number below 50.0 denotes contraction. What the improvement from January says, then, is that manufacturing activity on a national basis contracted in February but at a slower rate than January..
  • This is the fifth straight month the ISM Index has been below 50.0. That hasn't happened since the throes of the financial crisis in 2009.
  • The uptick in February wasn't a broad happening, as revealed by the sub-indices. The New Orders Index held steady at 51.5; the Imports Index dropped from 51.0 to 49.0; the Exports Index slipped from 47.0 to 46.5; the Supplier Deliveries Index fell from 50.0 to 49.7; and the Customers' Inventories Index declined from 51.5 to 47.0.
  • Where there was improvement was in the Production Index (from 50.2 to 52.8), the Employment Index (from 45.9 to 48.5), the Backlog of Orders Index (from 43.0 to 48.5), the Prices Index (from 33.5 to 38.5), and the Inventories Index (from 43.5 to 45.0).
  • The report stipulated that the average PMI reading for January and February (48.9) corresponds to real GDP growth of 1.8% on an annualized basis.
• Total construction spending was up 1.5% month-over-month in January (Briefing.com consensus +0.5%). Furthermore, construction spending in December was revised up to a 0.6% increase from a previously reported 0.1% gain.
  • Total construction spending is up 10.4% year-over-year, with private construction spending up 9.5% and public construction spending up 13.0%.
  • The strength in January was driven by public construction spending, which increased 4.5% on the back of a 4.6% jump in nonresidential spending. Public residential spending, which accounts for a tiny portion of total construction spending, was down 1.9%.
  • The uptick in public construction spending was driven by increases in most categories, but none more prominent than highway and street spending, which surged 14.7%. The only areas experiencing a decline in spending were office (-4.2%), health care (-5.0%), educational (-1.9%), and transportation (-3.7%).
  • On the private side, construction spending increased 0.5% in January. That improvement also flowed from the nonresidential side of things, which saw a 2.5% increase in spending. There, too, highway and street spending led the way with a 14.6% gain. The weakest area in private nonresidential spending was commercial (-4.3%). Private residential spending was flat in January.

Tomorrow's economic data includes the weekly MBA Mortgage Index, which will be released at 7:00 ET. Meanwhile, the February ADP Employment Change report (Briefing.com consensus 190k) and the Fed's Beige Book for March will be released at 8:15 ET and 14:00 ET, respectively. 

• Russell 2000 -7.3% YTD
• Nasdaq -6.4% YTD
• S&P 500 -3.2% YTD
• Dow Jones -3.2% YTD