Day Traders Diary

5/18/16

The stock market ended the Wednesday affair on a flat note as the major averages rebounded following a hawkish reading of the FOMC's April minutes. Other focal points of today's action included continued weakness from the retail sub-group, a rebound in the dollar, and the outperformance of the heavily-weighted financial (+1.9%), technology (+0.5%), and health care (+0.3%) groups. The Nasdaq Composite (+0.5%) finished ahead of the S&P 500 (UNCH) and the Dow Jones Industrial Average (UNCH).

The major averages began their day on a choppy note as overseas indices responded to raised expectations regarding the timing and speed of interest rate normalization in the U.S. Meanwhile, a weaker-than-expected outlook from Target (TGT 67.84, -5.77) pressured the retail sub-group and big box names. However, equities recovered from their opening-hour weakness as strength from the oil patch extended into the broader market.

Equity indices climbed through the afternoon as support from oil and the heavyweight financial (+1.9%), technology (+0.5%), and health care (+0.3%) spaces bolstered the broader market. The major averages notched session highs shortly before the release of the FOMC Minutes from the April meeting.

The minutes from the April FOMC meeting indicated that a June rate hike remains wholly on the table. The committee did note that it would continue to assess incoming economic data and whether it was consistent with the Fed's dual mandate. As a result, the fed funds futures market ended the day with a 33.8% likelihood of a rate hike at the June meeting, compared to yesterday's 15.0% probability.

Seven sectors ended in the red with utilities (-1.9%), materials (-1.5%), telecom services (-1.4%) and consumer staples (-1.0%). Conversely, the heavyweight financial (+1.9%), technology (+0.5%), and health care (+0.3%) groups finished with the only gains.

In the financial sector (+1.9%), money center banks demonstrated relative strength as the group responded to the increased likelihood of an interest rate hike in the short term. Bank of America (BAC 14.69, +0.68) and Citigroup (C 45.87, +2.17) ended with gains of 4.9% and 5.0%, respectively. Conversely, interest-rate sensitive real estate investment trusts (REITs) underperformed in the space.

The high-beta chipmakers outperformed in the technology space (+0.5%), evidenced by the 1.6% gain in the PHLX Semiconductor Index. Micron Technology (MU 10.05, +0.38) and Cavium Networks (CAVM 47.77, +1.30) finished at the top of the price-weighted index. In the broader sector, Apple (AAPL 94.56, +1.07) gained 1.1% after announcing it would establish a Design and Development Accelerator in Bengaluru, India.

In the health care space (+0.3%), biotechnology outperformed, evidenced by the 1.4% gain in the iShares Nasdaq Biotechnology ETF (IBB 262.77, +3.60). The ETF sports a loss of 1.9% for the month of May.

Big box names weighed in the consumer staples space (-1.0%) as the group traded lower with consumer discretionary (-0.6%) name Target. The company disappointed investors with its guidance, but topped bottom-line estimates for the quarter. Elsewhere, Wal-Mart (WMT 63.15, -1.95) lost 3.0% ahead of tomorrow morning's earnings report.

A downturn in Treasuries weighed on the interest-rate sensitive utilities (-1.9%) sector as yields rose throughout the complex. The yield on the 10-yr note ended its day higher by seven basis points at 1.85%.

The Dollar Index (95.22, +0.67) spiked following the release of the FOMC minutes, which could breathe new life into the policy divergence trade. The euro/dollar pair ended lower by 0.9% (1.1216) while the dollar/yen pair finished at 110.22 (+1.0%).

Today's volume on the NYSE floor came in below the recent average with fewer than 758 million shares changing hands. However, a trading unit at the NYSE experienced technical issues, which temporarily suspended trading in 199 symbols.

Today's economic data was limited to the weekly MBA Mortgage Index:

The weekly MBA Mortgage Index showed a seasonally adjusted decrease of 1.6% in mortgage applications.

Tomorrow's economic data will include weekly initial claims (Briefing.com consensus 278k) and the Philadelphia Fed Survey for May (Briefing.com consensus 2.7), which will both cross the wires at 8:30 ET. Finally, April Leading Indicators (Briefing.com consensus 0.3%) will be released at 10:00 ET.

Nasdaq Composite -5.4% YTD

Russell 2000 -3.1% YTD

S&P 500 +0.2% YTD

Dow Jones +0.6% YTD