Day Traders Diary

5/31/16

The major averages ended the Tuesday session on a mixed note after the S&P 500 (-0.1%) tested and failed to clear resistance at the 2102/2104 price level. Today's trade also featured positive economic data, a reversal in crude oil, strengthening in the dollar, and the underperformance of the financial (-0.3%) and consumer discretionary (-0.1%) sectors. The Dow Jones Industrial Average (-0.4%) finished behind the S&P 500 (-0.1%) and the Nasdaq Composite (+0.3%).

Today's session began on a choppy note as the major averages consolidated after last week's leg higher. Equities abandoned a slim lead when the benchmark index tested and was rejected by the 2102/2104 price level. As a result, indices ebbed lower through the afternoon as the heavyweight financial (-0.3%) and consumer discretionary (-0.1%) spaces lagged the broader market.

The benchmark index found support near the 2090/2092 price level and trimmed its loss in the final half hour of trade. Six sectors finished the day in the red with energy (-0.6%), materials (-0.5%), consumer staples (-0.5%) leading to the downside. Conversely, safe haven utilities (+0.6%) and telecom services (+0.5%) led health care (+0.1%) and technology (+0.1%) on the positive side of the leaderboard.

The energy space (-0.6%) abandoned a modest gain as a reversal in oil weighed on the broader sector. The energy component began its day on a higher note, testing the $50.00/bbl price level, but was unable to maintain this level. WTI crude ended its pit session lower by 0.5% at $49.10/bbl. Reports cited commentary from a UAE oil minister as a contributing factor for the reversal. On a side note, OPEC will be meeting June 2 in Vienna, Austria for its biannual meeting.

The financial sector (-0.3%) experienced broad-based weakness as the group trimmed its monthly gain. The broader sector gained 1.8% in May compared to a 1.5% uptick in the benchmark index. In the group, Bank of America (BAC 14.79, -0.09) declined by 0.6% after gaining 2.5% last week. The broader sector trailed only health care (+0.1%; month-to-date +2.0%) and technology (+0.1%; month-to-date +5.3%) on a monthly basis.

In the consumer discretionary space (-0.1%), Royal Caribbean (RCL 77.39, -0.38) and Carnival (CCL 47.74, -0.86) extended their recent losing streaks as they weighed on the leisure sub-group. Elsewhere, Dow components Home Depot (HD 132.12, -1.13) and Disney (DIS 99.22, -1.07) fell 0.9% and 1.1%, respectively.

Large cap component Apple (AAPL 99.82, -0.53) weighed on the technology space (+0.1%) as the company pulled back from a gain of 5.4% last week. Adding to the name's difficult session was a report from Nikkei, which stated that the new iPhone will only feature small changes. Separately, Cognizant Technology (CTSH 61.44, -1.02) underperformed and trimmed its May advance to 5.3%.

The U.S. Dollar Index (95.86, +0.34) ended off its best level of the day as the euro lost ground to the greenback. The euro/dollar pair ended lower by 0.1% (1.1129) while the dollar lost 0.4% against the yen 110.72.

Treasuries finished flat as the yield on the 10-yr note ended unchanged at 1.85%. The yield on the benchmark note rose two basis point from its April settlement at 1.83%.

Today's volume was above the recent average as more than 1.439 billion shares changed hands on the NYSE floor.

Today's economic data included Personal Income and Personal Spending for April, April core PCE Prices, Case-Shiller 20-city Index for May, May Chicago PMI, and May Consumer Confidence:

The Personal Income and Spending report brought some more good news for the growth pickup story. It showed a 0.4% increase in personal income (Briefing.com consensus +0.4%) and a sizable 1.0% increase in personal consumption expenditures (PCE) (Briefing.com consensus +0.7%). That was the largest month-over-month increase in spending since August 2009.

In brief, the Personal Income and Spending report for April is certainly on the Fed's rate-hike side.

The personal savings rate as a percentage of disposable income fell to 5.4% from 5.9%.

With a 0.8% increase in aggregate earnings seen in the Employment Situation report for April, it appears that consumer spending out of savings helped drive the strong increase in personal spending in April.

The PCE Price Index was up 0.3% while the core PCE Price index, which excludes food and energy, was up 0.2%.

On a year-over-year basis, the PCE Price Index is up 1.1%, compared to 0.8% in March, while the core PCE Price Index is up 1.6%, the same as in March.

Real PCE increased 0.6% after being unchanged in March. That is definitely a positive input as it relates to second quarter GDP forecasts and should be seen favorably by the Federal Reserve, along with the progress of the PCE Price Index toward the Federal Reserve's 2% inflation target.

The Case-Shiller 20-city Home Price Index for March rose to 5.4%, which was above the Briefing.com consensus of 5.1%.

This followed the previous month's unrevised reading of 5.4%.

The bulk of the economic data seen of late has been quite supportive of a pickup in growth in the second quarter. The Chicago PMI report for May was not. It fell to 49.3 (Briefing.com consensus 50.9) from 50.4 in April.

The May reading is the lowest since February and below 50.0, which is the dividing line between expansion and contraction for manufacturing activity in the Chicago Fed region.

This is the sixth time it has been in contraction over the past six months.

The main source of the disappointment was a 6.6-point drop in the Production Index and a downturn in the New Orders Index, both of which fell below 50.0.

Four of the five components that make up the business barometer were below 50.0. Only supplier deliveries was above 50.0.

Inventories dropped 11.7 points to 37.9, which is the lowest reading for that index since November 2009.

While that could possibly suggest a need to replenish inventories, the survey exposed some doubt about that possibility as a special question revealed 68.7% of respondents did not plan to increase business investment over the next six months.

In other words, there is some heightened uncertainty about the outlook that could leave manufacturers reluctant to build inventories since there doesn't appear to be much faith right now in the demand outlook.

The Conference Board's Consumer Confidence report for May fell to 92.6 from 94.7 in April (Briefing.com consensus 96.2). 

The downturn was fed by a drop in both the Present Situation Index, which fell from 117.1 to 112.9, and the Expectations Index, which declined from 79.7 to 79.0.

Clearly, the biggest driver of things was consumers' assessment of current conditions.

The downgraded view flowed from an uptick in the percentage of respondents saying jobs are "hard to get" (from 22.8% to 24.4%) and saying business conditions are "bad" (from 18.2% to 21.6%).

Consumers' outlook for the labor market was less favorable as those anticipating fewer jobs increased from 16.7% to 18.1%. The proportion expecting a reduction in income, though, held steady at 12.4%.

Tomorrow's economic data will include the MBA Mortgage Index and the May ADP Employment Change Report (Briefing.com consensus 180k), which will be released at 7:00 ET and 8:15 ET, respectively. Separately, the ISM Service Index for May (Briefing.com consensus 50.4) and Construction Spending for April (Briefing.com consensus 0.5%) will cross the wires at 10:00 ET. Finally, the day's data will be capped off with the Fed's Beige Book for June at 14:00 ET while May Auto and Truck sales will be reported throughout the day.

S&P 500 +2.6% YTD

Dow Jones +2.1% YTD

Russell 2000 +1.7% YTD

Nasdaq Composite -1.2% YTD