Day Traders Diary

5/12/16

The major averages trade on a lower note at midday as weakness in heavyweight health care (-0.8%), technology (-0.8%), and industrials (-0.4%) drags on the broader market. Today's trade has featured a reversal in oil, a below-consensus reading of weekly initial claims, and hawkish remarks from FOMC voters. The Nasdaq Composite (-0.8%) trades behind the S&P 500 (-0.2%) and the Dow Jones Industrial Average (-0.1%).

Futures showed a modest gain as investors weighed an uptick in crude oil and positive trade out of Europe this morning. However, this positive bias began to roll over shortly after weekly initial jobless claims surprised to the downside (264,000; Briefing.com consensus 274,000). Despite the negative datapoint, equity indices began their day with a modest uptick.

The major averages surrendered their opening gains within the first half hour of trade as the broader market was weighed down by the heavyweight technology (-0.8%) and health care (-0.8%) sectors. Additionally, crude oil slipped from its high ($47.02/bbl) and moved into the red. Currently, WTI crude trades flat at $46.24/bbl.

Equities indices were pushed to new lows following hawkish remarks from Fed President Loretta Mester. President Mester stated that Fed policymakers should not be "paralyzed" by risks to economic forecasts as recent inflation data has been encouraging. Elsewhere, fellow FOMC voter and Boston Fed President Eric Rosengren echoed that sentiment by reiterating that the market is underestimating the pace of rate hikes. Currently, the fed funds futures market estimates the likelihood of a hike resulting from the June meeting at 7.5%.

The stock market floats above its session low with technology (-0.8%), health care (-0.8%), and industrials (-0.4%) leading to the downside. Conversely, telecom services (+0.8%), materials (+0.7%), and utilities (+0.5%) lead the pack.

In the influential technology sector (-0.8%), heavyweight component Apple (AAPL 90.19, -2.32) demonstrates relative weakness. The tech giant established a new 52-week low ($89.47) before reclaiming the $90.00 price level. The company has fallen 13.5% since reporting earnings on April 26. Meanwhile, the high-beta chipmakers underperform as iPhone suppliers lag. Skyworks (SWKS 61.50, -3.09) has lost 4.8%, compared to a decline of 2.2% in the broader index. Separately, Palo Alto Networks (PANW 130.09, -9.40) has lost 6.7% after having its price target reduced to $180 from $208 at Piper Jaffray.

Biotechnology underperforms in the health care space (-0.8%). The iShares Nasdaq Biotechnology ETF (IBB 249.81, -6.29) has lost 2.1% over the last week, compared to a loss of 1.0% in the broader sector. Elsewhere, Aetna (AET 108.90, -3.26) has fallen 3.0% after confirming that it will continue to offer health care plans through health care exchanges.

Retail names continue to underperform in the consumer discretionary space (-0.2%). The sub-group is trading lower in sympathy with Kohl's (KSS 34.14, -4.56). The company trades lower by 11.8% after missing top-and bottom-line estimates for the quarter. The SPDR S&P Retail ETF (XRT 41.49, -0.23) has extended its loss to 3.6% so far this week, compared to a decline of 0.6% in the broader sector.

The U.S. Dollar Index (94.03, +0.23) floats off its high as the greenback sports gains against yen and the euro. The euro has slipped 0.3% against the dollar (1.1388) while the dollar/yen pair trades higher by 0.5% at 108.91.

The Treasury complex trades lower with the yield on the 10-yr note rising three basis points to 1.76%.

Today's economic data was limited to weekly initial claims and Import and Export Prices for April:

The latest initial claims report produced a surprise -- and not a good one. Initial claims for the week ending May 7 increased by 20,000 to 294,000 (Briefing.com consensus 270,000).

While the latest week marked the 62nd straight week initial claims have been below 300,000, it was the highest level of claims since February 28, 2015, and there were no special factors influencing the increase.

With this report, the four-week moving average jumped to 268,250 from 258,000.

Continuing claims for the week ending increased by 37,000 to 2.161 million. That is the highest level for continuing claims since April 2, 2016.

The four-week moving average, though, dipped to 2.137 million from 2.140 million and is the lowest level for this average since November 11, 2000.

The initial claims surprise is something that will probably contribute to the market's belief that the Fed won't raise rates in June.

According to the BLS, fuel prices drove a 0.3% increase in import prices in April. That was the second consecutive month that import prices have increased 0.3%.

They're still down 5.7% over the past year, yet that is the smallest year-over-year drop since December 2014. Export prices increased 0.5% after being unchanged in March, but are still down 5.0% year-over-year.

Excluding fuel, import prices increased 0.1%, which is the first monthly advance since July 2014. Nonfuel import prices are down 2.0% year-over-year.

Excluding agriculture, export prices also increased 0.5% on the heels of a 0.3% increase in March. That gain left them down 4.6% year-over-year.