Day Traders Diary

5/23/16

The S&P 500 (-0.2%) began its week on a flat note with the index traversing a narrow eight-point range. Focal points for today's action included hawkish commentary from FOMC members, a downtick in the dollar, a modest loss in oil, and the underperformance of the heavily-weighted health care (-0.5%) sector. The benchmark index (-0.2%) finished behind the Nasdaq Composite (-0.1%) and the Dow Jones Industrial Average (-0.1%).

The major indices began their day on a choppy note as investors ruminated over a string of hawkish remarks from members of the Federal Open Market Committee. Over the weekend, Boston Fed President and FOMC voter Eric Rosengren kept the door open for a June rate hike when he stated that criteria for the next hike are "on the verge" of being met. St. Louis Fed President James Bullard and San Francisco Fed President John Williams also echoed this sentiment when they each stated that an interest rate hike could be argued for sooner than the market expects.

Oil rebounded from a session low before the cash market opened, but pressured equities as it hovered beneath its flat line. The energy component ended lower by 0.6% ($48.12/bbl). Meanwhile, countercyclical utilities (-1.0%) and telecom services (-0.7%) showed the largest losses as rate-sensitive groups continued to struggle.

Equities established new lows in the final hour of trade as heavily-weighted health care (-0.5%) and consumer discretionary (-0.4%) joined utilities (-1.0%) and telecom services (-0.7%) on the bottom of the leaderboard. On the flipside, materials (+1.2%) and consumer staples (UNCH) ended at the front of the pack.

In the materials space (+1.2%), Monsanto (MON 106.00, +4.48) gained 4.4% after receiving an offer to be acquired by Bayer (BAYRY 95.48, -4.72) for $122 per share in cash. Monsanto shares have risen 17.3% since reports first indicated that Bayer was interested in the company on May 11.

The high-beta chipmakers outperformed as the sub-group moved higher on reports that Apple (AAPL 96.43, +1.21) requested 78 million units of the iPhone 7 from its suppliers, which is more than what was previously expected. Elsewhere, Red Hat (RHT 74.80, +1.63) gained 2.2% after receiving positive commentary from Barron's.

Biotechnology outperformed in the health care group (-0.5%), evidenced by the 0.7% gain in the iShares Nasdaq Biotechnology ETF (IBB 266.03, +1.85). Conversely, CIGNA (CI 126.15, -5.13) fell 3.9% after headlines signaled that there were disagreements with Anthem (ANTM 133.18, -2.55) over their potential merger. Furthermore, the Department of Justice recently voiced concerns regarding the merger of the two health care providers.

In the consumer discretionary sector (-0.4%), retail names continued to underperform as the SPDR S&P Retail ETF (XRT 40.87, -0.39) lost 1.0%. On that note, ETF components Best Buy (BBY 33.00, +0.66) and AutoZone (AZO 742.08, -19.48) are scheduled to report earnings tomorrow morning.

The U.S. Dollar Index (95.29, -0.05) pulled back as the greenback trimmed its gain over commodity currencies and the euro. The euro/dollar pair finished flat at 1.1218 while the dollar gained 0.3% against the Canadian dollar (1.3148). Separately, the dollar lost 0.8% against the yen (109.27).

Treasuries ended on a mixed note with the yield on the 10-yr note ending at 1.83% (-1 bps). Meanwhile, the yield on the 2-yr note rose one basis point to 0.89%. The 2-yr yield has increased by 11 basis points since April's settlement (0.78%) while the yield on the 10-yr note has dropped one.

Today's participation fell below the recent average aQs fewer than 800 million shares changed hands on the NYSE floor.

Investors did not receive any economic data today.

Tomorrow's economic data will be limited to the April New Home Sales Report (Briefing.com consensus 521,000), which will be released at 10:00 ET.

Nasdaq Composite -4.8% YTD

Russell 2000 -2.2% YTD

S&P 500 +0.2% YTD

Dow Jones +0.4% YTD