Day Traders Diary

4/28/16

The stock market trades on a mixed note at midday as investors weigh disappointing news from the Bank of Japan against the advance estimate of Q1 GDP (+0.5%; Briefing.com consensus +0.9%), which was largely in-line. Additionally, today's trade has featured an uptick in M&A activity, and the outperformance of the heavily-weighted health care (+0.3%), and consumer discretionary (+0.1%) spaces. The tech-heavy Nasdaq (+0.2%) trades in-line with the S&P 500 (+0.1%) and ahead of the Dow Jones Industrial Average (-0.2%).

Futures slid after the Bank of Japan disappointed investors with its decision to maintain its current policy stance and levels of monetary easing. The decision came despite a larger than expected decline in household spending (-5.3%; est. -4.2%) and shrinking National Core CPI (-0.3% year-over-year; est. -0.2%). As a result, overseas bourses and futures slipped with Japan's Nikkei (-3.6%) leading the downside.

Futures ticked up off their lows ahead of and following the release of the advance estimate of Q1 GDP (+0.5%; Briefing.com consensus +0.9%). The reading showed growth that missed the Briefing.com consensus, but fell roughly in-line with the Atlanta Fed's GDPNow model (+0.6%). Meanwhile, the broader market was able to shake some opening hour weakness as the heavily-weighted technology (UNCH) and consumer discretionary (+0.1%) sectors led the averages off their lows.

However, in recent action, the major indices have pulled back from their highs as five sectors trade in the red. Currently, telecom services (-0.4%), utilities (-0.1%), and financials (-0.1%) lead the downside while consumer staples (+0.6%), health care (+0.3%), and energy (+0.3%) top the board.

The technology space (UNCH) is rebounding from yesterday's 0.8% decline as heavyweight Facebook (FB 117.36, +8.47) buoys the group. Facebook beat top- and bottom-line estimates for the first quarter and announced that its advertising revenue jumped to $5.2 billion in the first quarter (+57.0% year-over-year). Meanwhile, PayPal (PYPL 40.79, +0.78) has gained 2.0% after reporting above-consensus results in its first quarter. The broader sector sports the largest loss in April, declining 3.4% over that period.

Today's session has seen a healthy dose of M&A activity within the heavyweight health care space (+0.3%). The two largest acquisitions include Sanofi's (SNY 43.13, -0.49) offer to acquire Medivation (MDVN 56.25, +4.20) for approximately $9.3 billion (or $52.50 per share) and Abbott Labs' (ABT 41.30, -2.52) acquisition of St. Jude Medical (STJ 78.83, +16.88) for $25.0 billion (or approximated $85.00 per share). Meanwhile, biotechnology shook early weakness as Celgene (CELG 108.67, +2.52) outperforms after beating bottom-line estimates for the first quarter.

The consumer discretionary space (+0.1%) has also benefited from some M&A news. Media name Comcast (CMCSA 61.53, +0.23) announced that it would acquire Dreamworks Animation (DWA 39.98, +7.78) for $41 per share. Meanwhile, fellow media name Viacom (VIAB 42.94, -0.85) has declined 1.9% after reporting a bottom-line beat on-in line revenue. The company also reported that its media network revenue declined 3.0% on a year-over-year basis. Separately, Amazon (AMZN 616.00, +9.43) has rebounded 1.6% ahead of its quarterly earnings report after today's close.

The energy sector has gained 0.3% as WTI crude shows a gain of 1.1% ($45.85/bbl). On a monthly basis, the broader sector has gained 10.6%.

The U.S. Dollar Index (93.83, -0.55) has moved lower as the euro, yen, and Canadian dollar all sport gains against the greenback. The euro/dollar pair has gained 0.2% (1.1340). Meanwhile the dollar has lost 2.9% against the yen (108.25) following the Bank of Japan's latest policy statement. Finally, the dollar has lost 0.4% against the commodity-sensitive Canadian dollar (1.2545).

The Treasury complex has slipped from its highs as the yield on the 10-yr note traverses a narrow range between 1.85% and 1.87%. Currently, the yield on the benchmark note rests at 1.86% (+1 bps).

Today's economic data included the advance reading of Q1 GDP and weekly initial claims: 

• First quarter real GDP increased at a seasonally adjusted annual rate of just 0.5% (Briefing.com consensus 0.9%). That was below expectations and the weakest quarter of growth since the first quarter of 2015, which was up just 0.6%.
• The GDP Deflator was up 0.7% (Briefing.com consensus +0.6%).
  • This was not an uplifting GDP report, yet the market knew that was likely to be the case with the Atlanta Fed's GDPNow model tracking at 0.6%. Accordingly, the reaction to the headline print has been muted.
  • Personal consumption expenditures growth was a weak 1.9% in the first quarter; meanwhile, gross private domestic investment declined 3.5%, exports were down 2.6%, imports were up 0.2%, and government spending was up 1.2%.
  • There was a 1.27 percentage point contribution to Q1 GDP from personal consumption expenditures, which flowed almost entirely from a 1.24 percentage point contribution from spending on services.
  • Gross private domestic investment subtracted 0.6 percentage points as a 0.76 percentage point drag from nonresidential investment weighed heavily. Net exports subtracted 0.34 percentage points, and government spending added 0.2 percentage points.
  • The change in private inventories, which factors into the overall change in gross private domestic investment, subtracted 0.33 percentage points.
  • Real final sales of domestic product, which excludes the change in inventories, were up a scant 0.9% versus the prior 10-quarter average of 2.4%.
• Initial claims for the week ending April 23 increased by 9,000 to 257,000 (Briefing.com consensus 259,000).
  • That was roughly in-line with expectations and marked the 60th straight week that claims have been below 300,000, which is the longest since 1973. In other words, no change really in the underlying trend.
  • The four-week moving average for initial claims decreased by 4,750 to 256,000, which is the lowest average since December 8, 1973.
• Continuing claims for the week ending April 16 decreased by 5,000 to 2.130 million.
  • That dropped the four-week moving average to 2.158 million, which is the lowest average since November 11, 2000.