Day Traders Diary

6/28/16

The stock market finished Tuesday on a broadly higher note as equities rebounded alongside European bourses. The major averages drifted to the upside today as investors abandoned their risk-off posture, bidding oil, oversold currencies, and the heavily-weighted financial (+2.5%), technology (+2.0%), health care (+2.0%), and consumer discretionary (+1.9%) sectors. The Nasdaq Composite (+2.1%) ended its day ahead of the S&P 500 (+1.8%) and the Dow Jones Industrial Average (+1.6%).

The major U.S. averages began the day on a higher note as participants eyed a rebound in European equity markets. The Euro Stoxx 50 Index climbed 2.1%, rebounding from an 11.2% decline over the last two sessions. European banking names helped lead the gains as investors shifted their attention to a two-day EU Summit in Brussels. News flow from the Summit has been relatively light, but comments from German Chancellor Angela Merkel indicated that EU membership remains an all or nothing endeavor. Ms. Merkel said that Britain cannot simply pick and choose elements of membership.

Equities pulled back in the late morning, which corresponded to some late selling interest in the European market. The S&P 500 (+1.8%) found support near the 2020 price level, vacillating near that area until the final ninety minutes of trade. The major averages notched fresh session highs in the final hour of trade, finishing the day at their best levels. In front of the pack, commodity-sensitive energy (+2.6%) led heavily-weighted financials (+2.5%), technology (+2.0%), health care (+2.0%), and consumer discretionary (+1.9%). Conversely, countercyclical telecom services (+0.3%), utilities (+0.3%), and consumer staples (+0.6%) finished with the slimmest gains.

The energy sector (+2.6%) ended its day broadly higher, responding to a 3.1% ($47.92/bbl; +$1.44) gain in oil. In the group, Pioneer Natural Resources (PXD 149.71, +3.10) outperformed after updating its guidance. The company estimated that production growth will increase 12.0% through fiscal year 2016 while maintaining that its capital program is funded through 2018. The American Petroleum Institute will release its weekly inventory data this evening.

In the financial sector (+2.5%), money center banks demonstrated relative strength as Bank of America (BAC 12.70, +0.52) and Citigroup (C 40.44, +1.96) gained 4.3% and 5.1%, respectively. On a side note, after the close on Wednesday, the Fed will release results from its Comprehensive Capital Analysis and Review (CCAR). Expectations remain high that most banks will be granted approval to increase their respective capital return programs. Separately, Dow component Travelers (TRV 114.13, +3.78) ended its day atop of the price-weighted index.

Biotechnology outperformed in the health care space (+2.0%), evidenced by the 3.8% rebound in the iShares Nasdaq Biotechnology ETF (IBB 250.66, +9.17). The sub-group traded higher alongside large caps Gilead Sciences (GILD 82.31, +4.06) and Allergan (AGN 227.72, +10.24). For the month, the ETF has lost 10.4%.

The PHLX Semiconductor Index (+2.7%) demonstrated relative strength, trimming its monthly loss to 4.8%. In the index, Skyworks (SWKS 60.26, +2.25) jumped 4.3% after Craig Hallum provided bullish commentary on the name. The firm maintained its "Buy" designation on the stock, citing industry-leading margins. In the broader technology space (+2.0%), Facebook (FB 112.70, +3.73) rallied 3.4%, erasing yesterday's loss.

The U.S. Dollar Index (95.96, -0.58) slipped today as the euro and the pound rebounded against the dollar. The euro/dollar pair ended higher by 0.6% (1.1089) while sterling jumped 1.0% (1.3354) against the buck. Conversely, the dollar gained 0.6% against the safe haven yen (102.64).

The Treasury complex finished modestly lower as the yield on the 10-yr note rose two basis points to 1.46%.

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

Today's economic data included the third estimate of first quarter GDP and GDP deflator, the Case-Schiller 20-city index for April, and Consumer Confidence for June:

The third estimate for first quarter GDP showed output increasing at an annual rate of 1.1% (Briefing.com consensus 1.0%), up from the second estimate of 0.8% and the advance estimate of 0.5%.

The third estimate for first quarter GDP should not be regarded as the basis for any change in economic sentiment this morning for a number of reasons.

First, the report is very dated considering it is being released two days before the end of the second quarter.

Second, the report featured a downward revision to personal spending.

Third, it still points to a very weak period of growth in the first quarter.

And fourth, it is virtually meaningless for a market that is now consumed with what the third and fourth quarters will look like following the Brexit vote.

The upward revision in the third estimate was driven largely by exports increasing more than previously estimated.

That boosted the contribution from net exports to the change in GDP from -0.21 percentage points to 0.12 percentage points.

That negated the drag from the revised contribution level for personal spending from 1.29 percentage points to 1.02 percentage points.

Small upward revisions to government spending, the change in private inventories, and fixed investment helped account for the remaining difference.

Final sales of domestic product, which exclude the change in inventories, increased from 1.0% to 1.3% with the third estimate.

The Case-Shiller 20-city Home Price Index for April rose to 5.4%, which was below the Briefing.com consensus of 5.5%. This followed the previous month's revised reading of 5.5% (from 5.4%).

The Conference Board's Consumer Confidence Index increased to 98.0 in June from a downwardly revised 92.4 (from 92.6) in May.

The June reading was well ahead of the Briefing.com consensus estimate, which was pegged at 93.1, and is the highest level for the index since last September.

The uptick in June was driven by an improvement in both the Present Situation Index, which increased from 113.2 to 118.3, and the Expectations Index, which rose from 78.5 to 84.5.

The Conference Board noted that expectations regarding business and labor market conditions, as well as personal income prospects, improved moderately.

This report offers a nice headline surprise, although its relevance is diminished considering the survey was mailed and responses were collected prior to the Brexit vote and its aftermath.

The latter consideration will lend more relevance to the consumer confidence reading for July.

Tomorrow's economic data will include the 7:00 ET release of the weekly MBA Mortgage Index. Meanwhile, Personal Income (Briefing.com consensus 0.3%), Personal Spending (Briefing.com consensus 0.3%), and Core PCE Prices (Briefing.com consensus 0.2%) for May will cross the wires at 8:30 ET. Finally, the day's data will be capped off with Pending Home Sales for May (Briefing.com consensus -1.4%), which will be released at 10:00 ET.

Nasdaq Composite -6.3% YTD

Russell 2000 -2.6% YTD

S&P 500 -0.4% YTD

Dow Jones -0.1% YTD