Day Traders Diary

7/5/16

The stock market ended its day on a lower note, slipping alongside European bourses. The move lower in U.S. equities was prompted by growing fears regarding Italian banking names and revitalized concerns regarding the United Kingdom's exit from the European Union. Additional factors impacting today's trade included a downturn in crude oil, strengthening in the dollar, and the underperformance of the heavyweight financial (-1.5%), industrial (-0.9%), consumer discretionary (-0.7%), and technology (-0.7%) sectors. The Nasdaq Composite (-0.8%) ended behind the S&P 500 (-0.7%) and the Dow Jones Industrial Average (-0.6%).

The major U.S. averages began the day under pressure as investors eyed a downturn in European bourses. European equity markets stumbled as participants weighed remarks from the Bank of England. The central bank struck a cautious tone this morning, warning of risks to commercial property and capital inflows following the country's surprise Brexit vote. Furthermore, Italian banks were in focus after the European Central Bank notified Banca Monte dei Paschi di Siena that it needs to reduce its non-performing loan load.

The S&P 500 (-0.7%) opened under pressure, slipping alongside weakness in heavily-weighted financials (-1.5%), industrials (-0.9%), consumer discretionary (-0.7%), and technology (-0.7%). The benchmark index tested and maintained technical support near 2084/2085 into the afternoon. However, equities succumbed to further selling pressure as crude oil moved to new session lows. WTI crude ended its session lower by 4.7% ($46.73/bbl; -$2.28).

Buyers stepped in during the final hour, enabling the benchmark index to close eight points off its worst level of the day. Eight sectors ended in the red with energy (-1.9%), materials (-1.9%), and financials (-1.5%) rounding out the board. The remaining cyclical sectors ended with losses between 0.7% (technology) and 0.9% (industrials). On the flipside, countercyclical sectors outperformed as utilities (+0.7%), consumer staples (+0.5%), telecom services (UNCH) and health care (-0.1%) each benefited from safe-haven inflows.

The financial sector (-1.5%) remained pressured throughout the session, trading lower in sympathy with European banking names. On that note, Barclays (BCS 7.21, -0.38) ended lower by 5.0% as falling bond yields and the Bank of England's outlook weighed. On the home front, Dow component JPMorgan Chase (JPM 59.55, -1.71) rounded out the price-weighted index. The bank name fell 2.8% after rebounding 2.8% last week. Elsewhere, real estate investment trusts outperformed as Public Storage (PSA 259.74, +5.90) gained 2.3%.

In the industrial sector (-0.9%), airlines demonstrated relative weakness, evidenced by the 1.6% decline in the U.S. Global Jets ETF (JETS 21.10, -0.35). The group moved lower in sympathy with Delta Air Lines (DAL 34.62, -1.15) after the company reported that passenger unit revenue fell 5.0% year-over-year in June. The airline also cut its second-quarter operating margins and unit revenue guidance.

The high-beta chipmakers underperformed in the technology space (-0.7%) as the PHLX Semiconductor Index declined by 1.8%. Qorvo (QRVO 51.82, -2.68) and Skyworks (SWKS 58.85, -3.78) rounded out the index. In the broader technology sector, data storage names underperformed as Seagate Technology (STX 23.16, -0.87) and Western Digital (WDC 44.72, -1.75) lost a respective 3.6% and 3.8%.

The U.S. Dollar Index (96.21, +0.56) ended near its best level of the day as the euro, commodity currencies, and the pound each lost ground to the buck. The single currency lost 0.8% against the greenback (1.1070) while the dollar/Canadian dollar pair gained 1.2% (1.2997). Separately, the dollar lost 0.9% against the yen (101.71).

The Treasury complex settled broadly higher as the yield on the 10-yr note slipped seven basis points to 1.37%. The 10-yr yield notched a new all-time low (1.35%) earlier in the session.

Today's participation was above the recent average as more than 955 million shares changed hands on the NYSE floor.

Economic data was limited to Factory Orders for May:

New orders for manufactured goods declined 1.0% in May (Briefing.com consensus -0.9%) to follow a revised 1.8% increase in April (from 1.9%).

The decline snapped a streak of two consecutive increases.

Shipments ticked up 0.2% despite the overall decline, representing the third consecutive increase.

Orders for durable goods decreased 2.3% after increasing a revised 3.2% in April (from 3.4%).

Transportation orders fell 5.7% and orders for manufactured nondurable goods ticked up 0.3%.

Total inventories for all manufacturing industries decreased 0.3%, representing the tenth decline in the past eleven months.

The inventories-to-shipments ratio was unchanged at 1.36.

Tomorrow's economic data will include the 7:00 ET release of the weekly MBA Mortgage Index. Additionally, the May Trade Balance (Briefing.com consensus -$40.0 billion) and June ISM Services (Briefing.com consensus 53.3) will cross the wires at 8:30 ET and 10:00 ET, respectively. The day's data will be capped off with FOMC Minutes from the June meeting, which will be released at 14:00 ET.

Nasdaq Composite -3.7% YTD

Russell 2000 +0.3% YTD

S&P 500 +2.2% YTD

Dow Jones +2.4% YTD