Day Traders Diary

4/15/16

The major averages ended an upbeat week on a lower note as a week-long rally in the heavily-weighted financial sector (-0.3%) came to an end. Other focal points for today's trade included some below-consensus domestic economic data, a slide in crude oil, and the underperformance of the heavily-weighted technology (-0.5%) space. The Nasdaq Composite (-0.2%) ended its day in-line with the Dow Jones Industrial Average (-0.2%) and behind the S&P 500 (-0.1%).

Equities stumbled at the start of the session as implications from some above-consensus economic data out of China weighed on expectations for continued easing from the People's Bank of China. Meanwhile, economic readings at home did little to bolster investors' risk appetite as Industrial Production (-0.6%; Briefing.com consensus +0.0%) for March, Capacity Utilization (74.8%; Briefing.com consensus 75.5%) for March, and the preliminary University of Michigan Consumer Sentiment Survey (89.7; Briefing.com consensus 92.0) for April all missed expectations.

A downturn in crude oil also pressured the broader market as the energy component pared gains ahead of this weekend's summit between oil producers in Doha, Qatar. OPEC and non-OPEC members will meet to discuss a possible production cap agreement meant to combat the ongoing supply glut. To be fair though, expectations for an agreement are mixed and the impact of such an agreement is difficult to gauge. WTI crude ended its day lower by 2.5% at $40.40/bbl, but gained 1.6% since last Friday.

The major averages carved out fresh lows in the afternoon after heavily-weighted technology (-0.5%) joined energy (-1.3%), financials (-0.3%), and health care (UNCH) on the bottom of the leaderboard.

The economically-sensitive financial sector (-0.3%) spent its day pulling back from larger weekly gains. On that note, money center banks broke their recent winning streak as Bank of America (BAC 14.00, -0.14) and JPMorgan Chase (JPM 61.87, -0.72) ended the day with losses of 1.0% and 1.2%, respectively. Elsewhere, Citigroup (C 44.92, -0.06) reported a bottom-line beat in the first quarter, but surrendered a 3.5% gain to end beneath its flat line. However, Citigroup ended the week higher by 11.0%, compared to a 4.0% gain in the broader sector.

In the heavily-weighted financial sector (-0.5%), large cap constituent Apple (AAPL 109.85, -2.25) slipped 2.0% after Nikkei reported that the company will extend its iPhone production cut into the second quarter. Elsewhere, the PHLX Semiconductor Index (-0.9%) finished lower as suppliers for the smartphone underperformed.

Six sectors ended the day above their flat lines with utilities (+0.7%), consumer staples (+0.6%), materials (+0.4%), and consumer discretionary (+0.3%) outperforming.

Retailers outperformed in the consumer discretionary space (+0.3%), evidenced by the 0.8% gain in the SPDR S&P Retail ETF (XRT 45.34, +0.35). The sub-group was rebounding from larger losses in the prior week. To that point, the ETF gained 3.4% on a week to date basis, after sliding 4.7% following last week's disappointing same-store sales readings.

The Treasury complex ended its day off its high as the safe haven group pulled back when equities trimmed their loss in the final hour. The yield on the 10-yr note finished at 1.75% (-4 bps). This represents a decline of three basis points from last Friday's settlement.

Today's participation was above the recent average as more than one billion shares have changed hands on the NYSE floor. The increased participation was due to April options expiration.

Today's economic data included Empire Manufacturing for April, Industrial Production and Capacity Utilization for March, and the preliminary University of Michigan Consumer Sentiment Survey for April:

The Empire Manufacturing Survey jumped to 9.6 for April from 0.6 for March. The dividing line between expansion and contraction is 0.0.

The April reading is the highest in more than a year and was led by increases in the new orders, prices paid, and prices received indexes. Notably, the six-month outlook improved for the third month in a row.

The Industrial Production and Capacity Utilization report for March disappointed with total production down 0.6% (Briefing.com consensus 0.0%) and total industry capacity utilization at just 74.8% (Briefing.com consensus 75.5%). One can glean from this report that first quarter GDP isn't going to be anything special.

March was the second straight month that industrial production declined 0.6% after February was revised down from an originally reported 0.5% decline. On a year-over-year basis, industrial production is down 2.0%.

A significant portion of the decrease in March can be traced to the indexes for mining and utilities, which fell 2.9% and 1.2%, respectively. The drop in mining output was the largest since September 2008.

Manufacturing output was down 0.3% following a downwardly revised 0.1% decline (from +0.1%) in February. The production of durables was down 0.4% in March while the output of nondurable manufacturing edged lower following a 0.5% decrease in February.

The Federal Reserve released its annual revision to the index of industrial production and capacity utilization on April 1. With the revision, the February reading for capacity utilization, which was previously reported to be 76.7%, was revised to 75.4%. It was marked down again to 75.3% with the March report.

The manufacturing capacity utilization rate of 75.1% is 3.4 percentage points below its long-run average; meanwhile, the utilization rate of 73.7% for both mining and utilities is the lowest over the histories for each of those series.

The preliminary reading for the University of Michigan Consumer Sentiment Survey for April dropped to 89.7 (Briefing.com consensus 92.0) from 91.0 in March and 95.9 in the same period a year ago.

The lower reading for April marks the fourth straight monthly decline. Notably, the downturn was driven more by the Index of Consumer Expectations, which fell to 79.6 from 81.5, than it was by the Current Economic Conditions Index, which dipped to 105.4 from 105.6.

The report summary indicates that consumers reported a slowdown in expected wage gains, weakening inflation adjusted income expectations, and growing concerns that slowing economic growth would reduce the pace of job creation.

Based on the indication from the data, it was said that inflation-adjusted personal consumption expenditures will increase 2.5% in 2016.

Monday's economic data will be limited to the NAHB Housing Market Index for April (Briefing.com consensus 59).

Nasdaq Composite  -1.4%

Russell 2000 -0.4% YTD

S&P 500: +1.8% YTD

Dow Jones +2.7%