Day Traders Diary

6/29/16

The stock market ended the Wednesday affair on a broadly higher note, extending its recent rebound alongside European bourses. Equity markets continued their uptrend as investors maintained their risk-on posture, bidding oversold currencies, commodities, and the heavily-weighted financial (+2.3%), health care (+1.9%), and industrial (+1.7%) sectors. The Nasdaq Composite (+1.9%) finished ahead of the S&P 500 (+1.7%) and the Dow Jones Industrial Average (+1.6%).

Global equity markets tilted to the upside overnight as European bourses continued to recover from their recent weakness. The Euro Stoxx 50 (+2.8%) trimmed its post-Brexit decline to 6.8% while the U.K.'s FTSE (+3.6%) erased its loss, and is now up 3.6% since Thursday's referendum. Additionally, strength from the oil patch contributed to the early positive bias as the energy component gained following the American Petroleum Institute's weekly inventory data.

The major U.S. averages gapped higher at the start of the session, bolstered by a largely in-line reading of the Personal Income and Spending Report for May. The release was largely a non-event, having little impact on rate hike expectations. On that note, Federal Reserve Governor Powell commented overnight that global risks have shifted to the downside following the British referendum.

The benchmark index climbed through the afternoon, eventually finding resistance near the 2070 price level. The area is significant as it represents the underside of Friday's gap down and rests within five points of the index's 50-day simple moving average (2076.49). Ten sectors ended in the green with financials (+2.3%) and energy (+2.0%) leading the pack while health care (+1.9%), industrials (+1.8%), and technology (+1.7%) followed.

The economically-sensitive financial sector (+2.3%) ended the session near its best level of the day as money center banks outperformed. In the group, JPMorgan Chase (JPM 61.20, +1.68), Citigroup (C 42.12, +1.68), and Bank of America (BAC 13.19, +0.49) gained between 2.8% and 4.2% ahead of this evening's Comprehensive Capital Analysis and Review (CCAR) results. Expectations remain high that most banks will be granted approval to boost their respective capital return programs. The broader sector trimmed its monthly loss to 4.9%, but still sports a loss of 5.6% for the year.

Biotechnology displayed relative strength in the health care space (+1.9%), evidenced by the 2.2% rebound in the iShares Nasdaq Biotechnology ETF (IBB 256.05, +5.39). The ETF has rallied 6.0% since notching a four-month closing low on Monday (241.49). In the sub-group, large cap Biogen (BIIB 238.91, +10.39) jumped 4.6% after receiving an upgrade to "Outperform" at Bernstein.

The transports outperformed in the industrial sector (+1.8%), evidenced by the 2.2% gain in the Dow Jones Transportation Average. In the sector, airlines outperformed as the U.S. Global Jets ETF (JETS 20.96, +0.58) rebounded 2.9%. The ETF has trimmed its post-Brexit loss to 5.1%. Elsewhere, General Electric (GE 30.55, +0.61) rallied 2.0% after the company received approval to have its nonbank Systemically Important Financial Institution designation rescinded.

The U.S. Dollar Index (95.79, -0.45) extended its losing streak, weakening for the second session. The euro gained 0.4% against the dollar (1.1106) while the pound finished higher by 0.7% against the buck (1.3437). Separately, the dollar gained 0.1% against the safe haven yen (102.84).

Treasuries spent most of their session near their flat lines despite a persistent rally in equities. However, the complex notched new session lows in the final hour as the yield on the 10-yr note rose four basis points to 1.51%.

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 weekly MBA Mortgage Index, the Personal Income and Spending Report, and Pending Home Sales for May:

The weekly MBA Mortgage Index showed a seasonally adjusted decrease of 2.6% in mortgage applications.

Personal income increased 0.2%, which was weaker than expected (Briefing.com consensus +0.3%), and personal spending jumped 0.4%, which was stronger than expected (Briefing.com consensus +0.3%).

The core PCE Price Index, which excludes food and energy, increased 0.2%, which was just as expected.

Income growth was led by a 0.2% increase in wages and salaries.

Spending growth featured a 0.5% increase in goods spending and a 0.4% increase in services spending.

The personal savings rate dipped from 5.4% to 5.3%.

The PCE Price Index increased 0.2%, which left it up 0.9% year-over-year.

That is down from the 1.1% year-over-year increase seen in April.

The core PCE Price Index was up 1.6% year-over-year for the third straight month.

All in all, this was not a report that would have triggered an increased fear of a Fed rate hike at the July meeting even if Brexit didn't happen.

Brexit, of course, did happen, so the fact that the May report was mixed, and didn't feature a pickup in inflation on a year-over-year basis, will only help to solidify the belief that the Fed is likely on hold for some time yet.

Pending Home Sales for May declined by 3.7% while the Briefing.com consensus expected a downtick of 1.4%. Meanwhile, the April reading was revised to 3.9% from 5.1%.

Tomorrow economic data will be limited to weekly initial claims (Briefing.com consensus 265k) and Chicago PMI for June (Briefing.com consensus 50.8), which will be released at 8:30 ET and 9:45 ET, respectively.

Nasdaq Composite -4.6% YTD

Russell 2000 -0.4% YTD

S&P 500 +1.3% YTD

Dow Jones +1.6% YTD