Day Traders Diary

6/15/16

The stock market ended its Wednesday affair under selling pressure as investors responded to a shift in rate hike expectations following the Federal Open Market Committee's policy statement for June. Other contributing factors for today's trade included a downtick in oil, softening in the dollar, and the underperformance of the health care (-0.7%) and technology (-0.3%) sectors. The Nasdaq Composite (-0.2%) ended in-line with S&P 500 (-0.2%) and the Dow Jones Industrial Average (-0.2%).

Equity indices ticked higher at the beginning of the session as investors eyed a rebound in overseas equity markets. European bourses recovered from short-term oversold conditions with Germany's DAX trimming its monthly loss to 6.4%. The regional rebound was also attributed to an uptick in polling numbers for those in the Brexit "Remain" camp. The U.S. equity market gained traction in the first hour of trade with the benchmark index eventually testing resistance near 2080/2082.

The major averages pulled back from these levels as investors digested a mixed reading of the Department of Energy's weekly inventory report. The report showed that crude oil inventories (-0.93 million barrels; consensus -2.26 million) missed estimates while gasoline inventories (-2.62 million barrels; consensus -0.24 million) surprised to the upside. The energy component finished its day lower by 1.2% ($47.93, -$0.56).

The broader market would briefly return to its high in the afternoon as participants ruminated over the latest policy statement from the FOMC. The June policy statement struck a dovish tone as the central bank voted to leave its key policy rate unchanged. Furthermore, the Fed lowered its projected path for the fed funds rate in 2017 (to 1.6% from 1.9%) and 2018 (to 2.4% from 3.0%). Overall, the uncertainty exhibited by the statement proved to be a negative for the market as stocks slumped into the close.

The equity market ended its day under broad-based selling pressure as six sectors finished in the red. In the back of the pack, utilities (-0.7%), health care (-0.7%), and energy (-0.3%) underperformed. On the flipside, materials (+0.4%), consumer discretionary (+0.3%), and financials (+0.1%) led.

Retail names outperformed in the consumer discretionary space (+0.3%) after Kohl's (KSS 35.19, +0.70) received bullish commentary at Cleveland Research. The sub-group also received a boost from PVH (PVH 97.38, +3.00), which gained 3.2% after signaling that its department store business has improved since reporting its first-quarter results. Elsewhere, Viacom (VIAB 42.20, +0.99) outperformed among media names after reports indicated that Sumner Redstone's daughter is discussing the sale of its Paramount Pictures holding to Alibaba (BABA 78.39, +0.62).

The heavyweight health care space (-0.7%) demonstrated relative weakness as Allergan (AGN 239.14, -4.96) declined 2.0%. Meanwhile, the iShares Nasdaq Biotechnology ETF (IBB 262.34, -0.15) ended ahead of the broader sector, but still showed a loss of 0.1%.

The U.S. Dollar Index (94.60, -0.22) climbed off its low as the greenback trimmed its losses against the euro and pound. The euro gained 0.5% (1.1263) against the dollar while the pound rebounded 0.6% against the dollar (1.4201).

The Treasury complex ended the day higher as the yield on the 10-yr note slipped three basis points to 1.58%.

Today's participation came in above the recent average as more than 877 million shares changed hands on the NYSE floor.

Today's economic data included the weekly MBA Mortgage Index, May Core PPI, Empire Manufacturing for June, May Industrial Production, May Capacity Utilization, and April Net Long-Term TIC Flows:

The weekly MBA Mortgage Index showed a seasonally adjusted decrease of 2.4% in mortgage applications.

The Producer Price Index for final demand increased 0.4% in May (Briefing.com consensus +0.3%) while the index for final demand, less food and energy, increased 0.3% (Briefing.com consensus +0.1%).

This report, if nothing else, demonstrates how the rebound in energy prices holds the potential to invite higher inflation readings in coming months due to easier price comparisons.

The uptick in producer prices was driven predominately by prices for final demand goods, which were up 0.7% due in large part to a 2.8% increase in prices for final demand energy.

On an unadjusted basis, the index for final demand is down 0.1% year-over-year versus unchanged for the 12 months ended in April.

However, the index for final demand, less food and energy, is up 1.2% year-over-year versus a 1.0% year-over-year increase seen in March.

The Empire Manufacturing Survey for June, it popped 15 points to 6.0 (Briefing.com consensus -1.6), driven by a healthy rebound in the index for new orders (from -5.5 to 10.9).

A number above zero connotes expansion in regional manufacturing activity.

In turn, the index for future business conditions increased six points to 34.8.

After showing a spike in April, the Industrial Production report for May disappointed, declining 0.4% while the Briefing.com consensus expected a downtick of 0.1%.

Capacity utilization was also short of estimates, hitting 74.9% (Briefing.com consensus 75.2%).

The May reading represents the fourth decline in the past five months. The previous month's increase was revised down to 0.6% from 0.7%. On a year-over-year basis, industrial production is down 1.4%.

The consensus expected to a see a downturn related largely to an expected pullback in utilities production (after a big gain last month) and continued weakness in mining.

Part of that turned out to be true as utilities production declined 1.0%; however, mining activity ticked up 0.2%.

The mining index was the only one to register an uptick while all other categories declined.

Final products declined 0.7%, nonindustrial supplies fell 0.3%, construction dropped 0.3%, and materials ticked down 0.2%.

Total industry capacity was up 0.8% year-over-year, but declined to 74.9% from 75.3% in April.

Manufacturing capacity decreased 40 basis points to 75.2% and utilities capacity fell 90 basis points to 78.4%.

Mining capacity increased 40 basis points to 73.1%.

Tomorrow's economic data will include Core CPI for May (Briefing.com consensus +0.2%), weekly initial claims (Briefing.com consensus 269k), the Philadelphia Fed Survey for June (Briefing.com consensus 0.7), and the first quarter Current Account Balance (Briefing.com consensus -$125.4B) each crossing the wires at 8:30 ET. Separately, the June NAHB Housing Market Index (Briefing.com consensus 59) will be released at 10:00 ET.

Nasdaq Composite -3.4% YTD

Dow Jones +1.2% YTD

Russell +1.2% YTD

S&P 500 +1.4% YTD