Day Traders Diary

3/17/16

 The stock market ended Thursday's session up 0.7%. The gain itself was not a major gain, yet today's trading action was notable as the S&P 500 got back to the unchanged mark for the year (and even slightly positive) during the session. Some late-day selling interest knocked the S&P back into red figures for the year, but only by a slim margin (-0.2%).

Today's trading remained focused on the latest policy statement from the Federal Open Market Committee (FOMC) as investors maintained their risk-on disposition. Meanwhile, supportive conditions from a weaker dollar and the resulting rally in commodities also contributed to today's advance.

Equity indices opened their day modestly lower as global bourses digested Wednesday's decision from the FOMC to leave the fed funds rate unchanged and to lower the projected glide path for future increases. Despite the dovish tone, foreign markets ended mostly lower as the decision also emphasized uncertain conditions involving global economic and financial developments.

The risk-off posture ended within the first hour of trading as a rally in dollar-denominated commodities bolstered the broader market.

Both oil and gold benefited from a tumble in the greenback as the dollar slipped in the wake of traders re-thinking their policy divergence trades. WTI crude ended its day higher by 4.0% at $40.66/bbl while gold jumped 2.9% to finish at $1,265.10/ozt.

The commodity-sensitives materials (+2.3%) and energy (+1.4%) sectors were standouts for most of today's session, yet they had ample company as every sector, with the exception of the health care sector (-1.1%), ended in positive territory.

A rally in the industrials sector (+2.0%) was instrumental in lending support to the broader market, along with the outperformance of the heavily-weighted financial sector (+1.2%). The industrials benefited from logistics company FedEx (FDX 161.34, +17.07), which rallied 11.8% following a third quarter earnings beat. Additionally, while Caterpillar (CAT 75.90, +1.56) struggled initially after issuing a first quarter sales and earnings warning, it soon reversed course as investors took some comfort in the fact that Caterpillar also reaffirmed its full year sales and earnings guidance.

The heavily-weighted financial sector displayed some early weakness but managed to rebound as money-center banks recovered from their session lows, helped in part by the rally in the commodities space that lessened some of the related angst surrounding banks' loan exposure to embattled commodity companies. Investment banks provided added sector leadership with Morgan Stanley (MS 25.85, +0.69) rallying 2.7%.

The countercyclical health care sector (-1.1%) was a weak spot, but still ended well off its session low (-2.0%). A bounce in the biotechnology pace helped the sector pare its losses. The iShares Nasdaq Biotechnology ETF (IBB 247.09, -3.11) tumbled as much as 3.3% today before ending down 1.2%. The weakness in the health care space was broad based, though, as Merck (MRK 51.59, -0.35) and fellow Dow component UnitedHealth (UNH 124.53, -0.37) ended at the bottom of the price-weighted average.

The yield on the 10-yr note traded down to 1.88% (-3 bps) in early action, but lost some swagger as the stock market began to extend its gains and settled at 1.90%.

The Dow Jones Industrial Average (+0.9%) finished ahead of the S&P 500 (+0.7%) and the tech-heavy Nasdaq (+0.2%). With today's action, the Dow Jones Industrial Average entered positive territory for the year (+0.3%). Notably, despite the bullish bias, today's trading volume was still lower than average with 1.012 billion shares changing hands at the NYSE.

Today's economic data included weekly initial claims, March Philadelphia Fed Survey, Q4 Current Account Balance, February's Leading Indicators, and the JOLTS Job Opening Report for January:

Initial claims for the week ending March 12 rose by 7,000 to 265,000 (Briefing.com consensus 266,000). With few exceptions along the way, initial claims have basically been between 250,000 and 300,000 since July 2014.

Today's report highlights the fact that initial claims have been below 300,000 for 54 straight weeks, which is the longest streak since 1973.

There were no special factors influencing the latest initial claims reading, which bumped the four-week moving average to 268,000 from 267,000.

Continuing claims for the week ending March 5 were 2.235 million, an increase of 8,000 from the prior week's revised level of 2.227 million (from 2.225 million).

The four-week moving average for continuing claims decreased by 9,250 to 2.243 million, which is the lowest it has been since the week of January 9, 2016.

The Philadelphia Fed Index checked in at 12.4 for March versus -2.8 for February. That was much better than the Briefing.com consensus estimate of -1.4 and the first positive reading in seven months.

A number above zero for this particular index denotes expansion in manufacturing activity.

The positive reading for March then is a welcome sight, although it may perhaps only be a function of the lengthy streak of contraction in the region that spurred the rebound in March.

We'll learn more with the April reading if this was simply a one-month rebound from depressed conditions or the start perhaps of a lengthier expansion.

The improvement in March was spurred by large increases in the new orders index, which jumped to 15.7 from -5.3, and the shipments index, which surged to 22.1 from 2.5.

The unfilled orders index also showed some notable improvement, moving to -1.9 from -12.7, yet it is still indicative of contraction, albeit at a slower pace.

Firms continued to report an overall decline in inventories, with that particular index moving to -12.7 from -17.1. The number of employees index also remained negative, but improved to -1.1 from -5.0.

The Prices Paid Index followed a similar course, checking in at -0.9 versus -2.2 for February.

Notably, respondents' six-month outlook picked up sharply, rising to 28.8 from 17.3 in February. That is the highest reading in four months.

The fourth quarter current account balance narrowed to -$125.3 billion (Briefing.com consensus -$116.0 billion) from a downwardly revised -$129.9 billion (from -$124.1 billion).

The Conference Board's Leading Economic Index increased 0.1% in February (Briefing.com consensus 0.2%) after declining 0.2% in January and 0.3% in December. For the six-month period ending in February, the leading economic index increased just 0.3% versus 2.0% during the previous six months.

The bump up in February was led by positive contributions from initial claims (0.18 percentage points) and the yield spread (0.16 percentage points).

Small contributions were made by the leading credit index (0.04 percentage points) and manufacturers's new orders for consumer goods and materials (0.02 percentage points); otherwise, all other components made negative contributions or no contribution at all. The biggest drag on the February reading was building permits, which subtracted 0.1 percentage points.

Separately, the Coincident Index also increased 0.1% in February while the Lagging Index increased 0.4%.

The January Job Openings and Labor Turnover Survey showed that job openings increased to 5.541 million from a revised 5.281 million (from 5.607 million) in December.

Tomorrow's economic data will be limited to the University of Michigan preliminary reading of the Michigan Sentiment Index for March, which will be released at 10:00 ET.

Nasdaq Composite -4.6% YTD

Russell 2000 -4.0% YTD

S&P 500 -0.2% YTD

Dow Jones +0.3% YTD