Day Traders Diary

3/30/16

The stock market trades on a modestly higher note at midday as the major averages shake some early weakness following the release of the Employment Situation Report for March. Other focal points of today's trade have included a fleeting rebound in the dollar, struggling oil prices, and the outperformance of the heavyweight health care (+0.7%), financials (+0.5%), and technology (+0.3%) sectors. Currently, the Nasdaq Composite (+0.4%) and the Dow Jones Industrial Average (+0.2%) outperform the S&P 500 (+0.1%).

Futures adopted a risk off posture ahead of the release of the Nonfarm Payrolls reading for March and in light of mixed data from overseas. The largely in-line employment report led to some initial selling pressure in the cash market, as it indicated progress towards the Fed's dual mandate. However, the report lost some of its influence in the wake of recent dovish commentary from Fed Chair Yellen, who said the Fed needs to take into account global developments when deciding policy.

Separately, a sustained downturn in commodities has kept pressure on energy (-1.7%) and materials (-0.3%) thus far today. Currently, WTI crude trades lower by 4.0% at $36.79/bbl. Commodities collectively underperformed today as a rebound in the dollar weighed in the early going. However, the U.S. Dollar Index (94.62, +0.03) has fallen back towards its flat line as the greenback loses momentum against the euro and the yen. The euro trades 0.1% higher against the dollar (1.1393) while the dollar/yen pair has lost 0.7% to trade at 111.76.

As for the broader market, a rebound in the heavily-weighted health care (+0.7%), financial (+0.5%), and technology (+0.3%) sectors helped to lead the averages off their opening lows.

In the heavyweight health care space (+0.7%), biotechnology outperforms, evidenced by the 1.5% gain in the iShares Nasdaq Biotechnology ETF (IBB 266.66, +5.85). The sub-group has benefited from a gain in Regeneron Pharmaceuticals (REGN 409.53, +49.09) following positive results involving its experimental eczema treatment. The broader sector has trimmed its 2016 loss to 5.3%.

Economically-sensitive financials (+0.5%) have benefited from the largely in-line Employment Situation Report and relative strength from money center banks. The sub-group may be benefiting from an uptick in the fed funds futures market. The fed funds futures market estimates the probability of a rate hike at the September meeting at 54.0%. Prior to today's data, the first Fed meeting with a 50.0%+ probability of a hike was not until December (55.4%).

The Dow Jones Transportation Average (-1.1%) demonstrates relative weakness as the index moves into negative territory for the week (week-to-date -0.9%). The group is being weighed down by major airline names. On that note, Delta Airlines ( 47.08, -1.60), and American Airlines (AAL 39.76, -1.25) have declined 3.3% and 3.1%, respectively.

The yield on the 10-yr note rose during the uptick in equities, but has since returned to its flat line. At this juncture, the yield on the 10-yr note is unchanged at 1.77% while the yield on the 2-yr note is higher by three basis points at 0.75%.

Today's economic data included the Employment Situation Report for March, ISM Index for March, Construction Spending for February, and the final reading of Michigan Consumer Sentiment:

Nonfarm payrolls increased by 215,000 (Briefing.com consensus 200,000)

February nonfarm payrolls revised to 245,000 from 242,000 and January nonfarm payrolls revised to 168,000 from 172,000

Private sector payrolls increased by 195,000 (Briefing.com consensus 195,000)

February private sector payrolls revised to 236,000 from 230,000 and January private sector payrolls revised to 182,000 from 158,000

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

The U-6 unemployment rate, which accounts for the total unemployed plus persons marginally attached to the labor force and the underemployed, was 9.8% versus 9.7% in February

March hourly earnings were up 0.3% (Briefing.com consensus +0.3%) after being down 0.1% in February.

Over the last 12 months, average hourly earnings have risen 2.3% versus 2.2% in February

The average workweek was unchanged at 34.4 (Briefing.com consensus 34.5)

March manufacturing workweek slipped to 40.6 hours from 40.7 hours in February. Factory overtime was 3.3 hours for the fourth month in a row

The labor force participation rate was 63.0% versus 62.9% in February

The ISM Index for March checked in at 51.8, up from 49.5 in February and above the Briefing.com consensus estimate of 50.6.

A number below 50.0 denotes contraction, which is where the index has been trapped for five consecutive months prior to today's release. The five-month streak of readings below 50 is the longest stretch of this kind since 2009.

The March improvement was driven by increases in most sub-indices of the report. The New Orders Index rose to 58.3 from 51.5; the Imports Index rose to 49.5 from 49.0; the Exports Index increased to 52.0 from 46.5; the Supplier Deliveries Index rose to 50.2 from 49.7; and the Prices Index surged to 51.5 from 38.5.

Although the vast majority of components improved, the Employment Index slipped to 48.1 from 48.5.

The report stipulated that the average PMI reading for January, February, and March (49.8) corresponds to a real GDP growth of 2.1% on an annualized basis.

Total construction spending was down 0.5% in February (Briefing.com consensus +0.2%). Furthermore, construction spending in January was revised up to 2.1% from 1.5%.

Total construction spending is up 10.3% year-over-year, with private construction spending up 10.6% and public construction spending up 9.2%.

The weakness in February was driven by public construction spending, which decreased 1.7% on the back of a 2.8% drop in residential spending.

Public nonresidential spending, which accounts for a large share of total public construction spending, was down 1.7%.

Private construction also decreased, falling 0.1%, with nonresidential construction dropping 1.3% while residential construction increased 0.9%.

The decline in nonresidential construction was mostly due to a 15.0% drop in the Communication category and a 6.0% drop in Manufacturing.

The final reading for the University of Michigan Consumer Sentiment Survey for March increased to 91.0 (Briefing.com consensus 90.5) from the preliminary reading of 90.0.

Despite the upward revision, the March reading marked a downturn from the final reading of 91.7 for February and a similar showing in January (92.0).

According to the report, an improvement in economic expectations pushed up the overall index while the index of current economic conditions held unchanged at 105.6.

The survey noted that consumers expect the slower pace of economic growth is likely to put an end to declines observed in the unemployment rate.