Day Traders Diary

6/7/16

The stock market ended the Tuesday affair on a flat note as a rally in crude oil and a positive economic outlook from Fed Chair Yellen could not keep equities near their highs. Additionally, the Dow Jones Transportation Average (+1.1%) and the PHLX Semiconductor Index (+1.0%) each outperformed the S&P 500 (+0.1%). The Dow Jones Industrial Average (+0.1%) finished in-line with the benchmark index (+0.1%) while the Nasdaq Composite (-0.1%) underperformed.

Equity indices opened above their flat lines as yesterday's remarks from Fed Chair Yellen stoked risk appetite. Ms. Yellen struck an optimistic tone yesterday when she reiterated an optimistic outlook despite a disappointing reading of the May jobs report. The Fed Chair maintained that further gradual increases in the federal funds rate are likely to be appropriate and conducive to meeting and maintaining the Fed's dual mandate.

The major averages climbed through the afternoon as the benchmark index notched a new 2016 intraday high (2119.22) and the Dow Jones Industrial Average briefly reclaimed the 18,000 price level. However, the S&P 500 tested and failed to clear resistance near the 2120/2122 price level and surrendered most of its gains through the final hour of trade. Six sectors ended in the green with energy (+2.1%) leading telecom services (+1.5%) and industrials (+0.4%). Conversely, health care (-0.7%), financials (-0.3%), and utilities (-0.3%) ended with the largest losses.

The energy sector (+2.1%) traded lockstep with crude oil as the energy component extended its 2016 advance. WTI crude ended its day higher by 1.3% ($50.38/bbl; +$0.65). The American Petroleum Institute will release its latest stockpile data this evening. Crude oil inventories are expected to decline by 3.50 million barrels. Additionally, the more influential inventory report from the Department of Energy will be released tomorrow morning at 10:30 ET.

The Dow Jones Transportation Average (+1.1%) outperformed as the index benefited from a rally in airline names. The U.S. Global Jets ETF (JETS 23.15, +0.52) ended its day higher by 2.3%. Elsewhere in the index, Avis Budget (CAR 34.26, +1.69) gained 5.2% while CSX (CSX 26.47, -0.03) underperformed in the rail sub-group. The Transportation Index has gained 4.6% in 2016, trailing the broader industrial sector (+0.4%; year-to-date +5.7%).

In the consumer discretionary space (+0.4%), the SPDR S&P Retail ETF (XRT 42.95, +0.30) gained 0.7% as Dow component Home Depot (HD 129.92, +0.73) rebounded 0.6%. The home improvement retailer also benefited from strength in the homebuilder sub-group. On that note, PulteGroup (PHM 19.37, +0.76) jumped 4.1% on news that Elliot Management took a 2.0% stake in the company. The broader iShares Dow Jones US Home Construction ETF (ITB 27.97, +0.45) gained 1.6%.

Biotechnology weighed on the broader health care space (-0.7%) and the tech-heavy Nasdaq (-0.1%). The iShares Nasdaq Biotechnology ETF (IBB 278.76, -7.31) lost 2.6% and is now down 0.4% for the month of June. The sub-group traded lower as Biogen (BIIB 252.86, -36.98) and Valeant Pharmaceuticals (VRX 24.64, -4.21) weighed.

The Treasury complex traded on a higher note throughout the session despite an uptick in equities. The yield on the 10-yr note finished its day lower by two basis points at 1.72%.

Today's participation was above the recent average as more than 844 million shares changed hands on the NYSE floor.

Today's economic data included the revised estimate for first quarter Productivity, Unit Labor Costs, and Consumer Credit for April:

Nonfarm business sector labor productivity decreased at a 0.6% annual rate in the first quarter, as expected, versus an originally reported decrease of 1.0%.

The revised productivity number was the result of output increasing 0.9% and hours worked increasing 1.5%. On a year-over-year basis, first quarter productivity increased a lowly 0.7%.

While the upward revision to first quarter productivity is nice to see, the fact remains that productivity is weak.

Unit labor costs, in turn, were revised higher, logging an increase of 4.5% (Briefing.com consensus 4.0%) versus an originally reported increase of 4.0%.

The revised unit labor costs number flowed from the 0.6% decline in productivity and a 3.9% increase in hourly compensation. On a year-over-year basis, unit labor costs are up 3.0%.

Total outstanding consumer credit increased by $13.4 billion in April after increasing a downwardly revised $28.4 billion (from $29.6 billion) in March. The Briefing.com consensus estimate for April was $18.5 billion.

In the preceding 12-month period leading up to April, consumer credit had risen by an average of $18.3 billion.

The growth in April was driven predominately by nonrevolving credit, which increased by $11.7 billion. Revolving credit increased by $1.7 billion.

In April, consumer credit increased at a seasonally adjusted annual rate of 4.5%.

Tomorrow's economic data will include the weekly MBA Mortgage Index and the April Job Openings and Labor Turnover Survey, which will be released at 7:00 ET and 10:00 ET, respectively.

Russell 2000 +3.9% YTD

S&P 500 +3.3% YTD

Dow Jones +3.0% YTD

Nasdaq Composite -0.9% YTD