Day Traders Diary

6/3/16

The stock market ended a flat week on a similar note as investors digested a below-consensus reading of the Employment Situation Report for May. The S&P 500 lost 0.3%, ending its week unchanged. Today's trade included weakening in the dollar, a downswing in oil, a rally in the Treasury complex, and the underperformance of the heavyweight financial (-1.4%), consumer discretionary (-0.6%), and technology (-0.4%) sectors. The Nasdaq Composite (-0.6%) finished behind both the benchmark index (-0.3%) and the Dow Jones Industrial Average (-0.2%).

Today's session began on a lower note as a disappointing Employment Situation Report for May altered rate hike expectations. The headline nonfarm payrolls reading (38K; Briefing.com consensus 155K) surprised to the downside while the remainder of the report provided little reprieve. Meanwhile, a larger-than-expected contraction in the ISM Services Index for May (52.9; Briefing.com consensus 55.4) also disappointed investors.

The negative datapoints altered participants' views of potential rate hikes in the coming months. Currently, the fed funds futures market reflects the odds of a rate hike at the June and July meeting of the FOMC at a respective 6.0% and 33.0%. This compares to yesterday's readings of 21.0% and 58.0%, respectively. As a result, the economically-sensitive financial sector (-1.4%) finished at the bottom of the daily and weekly leaderboard.

The major averages notched a session low in the first hour of trading before equities steadily marched off their worst levels of the day. Four sectors ended in the green as countercyclical utilities (+1.7%) led materials (+0.8%), telecom services (+0.6%), and consumer staples (+0.6%). Conversely, the heavyweight financial (-1.4%) consumer discretionary (-0.6%), and technology (-0.4%) sectors rounded out the board.

The financial space (-1.4%) displayed broad-based weakness as money center banks, investment brokerages, and life insurance names experienced sharper losses. In the group, Citigroup (C 45.39, -1.58) and Bank of America (BAC 14.42, -0.52) declined by 3.4% and 3.5%, respectively. Meanwhile, Dow component Goldman Sachs (GS 155.67, -3.61) finished at the bottom of the price-weighted index.

In the consumer discretionary space (-0.6%), media names underperformed with Time Warner (TWX 75.84, -0.91) and CBS (CBS 54.39, -1.01) losing a respective 1.2% and 1.8%. Elsewhere, the SPDR S&P Retail ETF (XRT 42.65, -0.30) ticked down 0.7% after gaining 1.2% yesterday. On the flipside, Gap (GPS 19.09, +0.76) jumped 4.2% after reporting above-consensus same-store sales for May.

Heavily-weighted Alphabet (GOOGL 735.86, -8.41) and Microsoft (MSFT 51.79, -0.69) underperformed in the technology space (-0.4%), declining 1.2% apiece. Separately, the high-beta chipmakers outperformed, evidenced by the 0.3% gain in the PHLX Semiconductor Index. Component Broadcom (AVGO 162.56, +7.65) outperformed, gaining 4.9% after topping analysts' estimates for the quarter.

Biotechnology displayed relative weakness in the health care space (-0.6%) as the iShares Nasdaq Biotechnology ETF (IBB 281.77, -4.51) trimmed its weekly gain to 2.0%.

The U.S. Dollar Index (93.93, -1.64) ended on its low as participants trimmed their exposure to a potential policy divergence trade. The euro lost 1.9% against the dollar (1.1364) while the dollar/yen pair ended lower by 2.1% (106.56).

The Treasury complex finished near its best level of the day as the yield on the 10-yr note settled at 1.70% (-10 bps).

Today's participation was above the recent average with more than 888 million shares changing hands at the NYSE floor.

Today's economic data included the Employment Situation Report for May,  the April Trade Balance, Factory Orders for April, and ISM Services for May:

The May Employment Situation report will give a lot of people a lot to think about. That includes members of the FOMC, which will now most likely be thinking it is best to hold off on a rate hike at the June meeting.

Nonfarm payrolls increased by 38,000 (Briefing.com consensus 155,000). Over the past three months, job gains have averaged 116,000

April nonfarm payrolls revised to 123,000 from 160,000

March nonfarm payrolls revised to 186,000 from 208,000

Private sector payrolls increased by 25,000 (Briefing.com consensus 160,000)

April private sector payrolls revised to 130,000 from 171,000

March private sector payrolls revised to 167,000 from 184,000

Unemployment rate was 4.7% (Briefing.com consensus 4.9%) versus 5.0% in April

The U6 unemployment rate, which accounts for the total unemployed plus persons marginally attached to the labor force and the underemployed, was unchanged at 9.7%

Persons unemployed for 27 weeks or more accounted for 25.1% of the unemployed versus 25.7% in April

April average hourly earnings were up 0.2% (Briefing.com consensus 0.2%) after being up 0.4% in April

Over the last 12 months, average hourly earnings have risen 2.5%

Aggregate earnings were up 0.2% on top of a downwardly revised 0.4% increase (from 0.8%) for April

The average workweek was 34.4 hours (Briefing.com consensus 34.5) versus 34.4 hours in April

May manufacturing workweek was up 0.1 to 40.8 hours

Factory overtime was unchanged at 3.2 hours

The labor force participation rate was 62.6% versus 62.8% in April

The drop in the unemployment rate to 4.7% certainly stands out, and while it will be a positive talking point for the White House, it also comes with some hot air considering the participation rate fell to 62.6% in May

This follows a reading of 62.8% in April.

Additionally, it might also be touted that the number of unemployed in the civilian labor force declined by 484,000 in May.

The offset to that positive talking point is that the number of employed persons working part-time for economic reasons increased by 468,000 in May.

Average hourly earnings growth was up 2.5% year-over-year in May. That is a positive indication, yet it will get drowned out by the weak payroll growth.

The trade deficit widened to $37.4 billion in April (Briefing.com consensus $41.6 billion) from an upwardly revised $35.5 billion (from -$40.4 billion) in March.

Exports and imports of goods and services for all months through March 2016 were revised with this report to incorporate annual revisions to the goods and services series; hence, the notable deviation from the consensus estimate and the notable revision for the March report.

The widening in the deficit between April and March was the result of imports increasing by $4.5 billion over March to $220.2 billion and exports increasing by only $2.6 billion to $182.8 billion.

It is encouraging to see a pickup in both imports and exports; moreover, the demand pickup for goods was broad-based in both instances.

The real goods deficit increased $1.5 billion to $57.6 billion, yet this will still compute favorably in Q2 GDP forecasts since it is below the first quarter average of $60.5 billion.

New orders for manufactured goods increased 1.9% in April (Briefing.com consensus +1.6%) on top of an upwardly revised 1.7% increase for March (from 1.1%).

That marked the first time that factory orders have increased in back-to-back months since June-July 2014.

Shipments also increased for the second straight month, rising 0.5% after increasing 0.3% in March.

Shipments of nondefense capital goods excluding aircraft -- a metric used in the GDP computation -- increased 0.4% after a downwardly revised 0.0% reading for March (from +0.5%).

Orders for durable goods jumped 3.4%, bolstered by a 65.3% increase in orders for nondefense aircraft and parts. Orders for nondurable goods increased 0.4%.

Total inventories for all manufacturing industries decreased 0.1% while the inventories-to-shipments ratio dipped to 1.36 from 1.37.

The Non-Manufacturing ISM Report on Business (aka The ISM Services Index) checked in at 52.9% in May, down from 55.7% in April. The Briefing.com consensus estimate was pegged at 55.4%.

May marked the 76th straight month of expansion in the non-manufacturing sector.

However, the trend here will nonetheless qualify as a disappointment since it points to a slowdown in activity for the largest side of the U.S. economy.

The downturn in April was driven by a drop in the indexes for New Export Orders (from 56.5 to 49.0), New Orders (from 59.9 to 54.2), Employment (from 53.0 to 49.7), and the Backlog of Orders (from 51.5 to 50.0).

The only indexes showing increases from April were Prices (from 53.4 to 55.6) and Supplier Deliveries (from 51.0 to 52.5).

There is no economic data of note scheduled for release on Monday. However, Fed Chair Yellen will speak before the World Affairs Council of Philadelphia at 12:30 ET.

S&P 500 +2.7% YTD

Russell 2000 +2.5% YTD

Dow Jones +2.2% YTD

Nasdaq Composite -1.3% YTD