Day Traders Diary

7/12/16

The major averages extended their recent rally to a third session as investors eyed potential stimulus measures out of the United Kingdom and Japan. The broader market maintained its risk-on approach, bidding up oil, growth sectors, and beleaguered currencies while selling off safe-haven assets. The S&P 500 (+0.7%) and the Dow Jones Industrial Average (+0.7%) each carved out all-time intraday and closing highs while the Nasdaq Composite (+0.7%) turned positive for the year.

U.S. equities began the day on a higher note, responding to a continued rebound in overseas bourses. Japan's Nikkei (+2.5%) paced the rebound after Prime Minister Shinzo Abe announced a potential stimulus package could total JPY10 trillion. Separately, the Bank of England's Mark Carney added to stimulus speculation when he stated that a monetary response remains available should Britain's post-Brexit outlook worsen. The Bank of England is scheduled to meet this Thursday.

The broader market gapped up at the start of the session with the benchmark index (+0.7%) and the Dow Jones Industrial Average (+0.7%) each notching new, all-time intraday highs during the first half hour of trade. The major averages pulled back soon thereafter in a move that corresponded with a short-lived downturn in crude oil. The benchmark index found support near the 2147 price level and exhibited a mostly positive bias for the remainder of the day.

The major indices ended the day off their highs with seven sectors finishing in positive territory. The energy (+2.3%) and materials (+1.9%) sectors finished ahead of the heavily-weighted financial (+1.2%), technology (+1.0%), and industrials (+0.9%) sectors.  The defensive-oriented telecom services (-0.3%), health care (-0.5%), and utilities (-1.4%) sectors trailed the action and were the only sectors that lost ground on Tuesday.

The commodity-sensitive energy (+2.3%) sector ended its day on top of the leaderboard, rallying in conjunction with a 4.4% gain in oil futures ($46.74, +$1.97). OPEC's monthly report facilitated some buying interest after the cartel raised its demand outlook for 2016 and 2017. OPEC now estimates that global demand will increase by one million barrels per day by 2017. Separately, Alcoa (AA 10.69, +0.55) boosted the materials (+1.9%) sector after it beat analysts' estimates for the second quarter.

The Dow Jones Transportation Average (+2.2%) displayed relative strength as the major airlines outperformed. United Continental (UAL 46.16, +3.75) rallied 8.8% after raising its second-quarter unit revenue guidance. American Airlines (AAL 34.66, +3.50) spiked 11.2% after announcing that its consolidated pre-tax income will increase by $200 million due to co-branded credit cards.

The financial sector (+1.2%) displayed broad-based strength, trading higher in sympathy with European banking names. Royal Bank of Scotland (RBS 4.87, +0.15) and Barclays PLC (BCS 7.95, +0.28) settled higher by 3.2% and 3.7%, respectively. Dow component JPMorgan Chase (JPM 63.20, +1.93), which announced it will be raising the pay for 18,000 minimum wage workers, outperformed the price-weighted average.  JPMorgan Chase will report its quarterly results before the open on Thursday.

Data storage names led in the technology space (+1.0%) after Seagate Technology (STX 29.35, +5.26) increased its second quarter guidance due to better than expected demand for its HDD product portfolio. The stock surged 21.8%. The high-beta chipmakers also displayed relative strength, evidenced by the 1.3% gain in the PHLX Semiconductor Index.

The U.S. Dollar Index (96.49, -0.08) ended its day modestly lower as the euro and pound each rebounded against the greenback. The euro/dollar pair finished higher by 0.1% (1.1063) while the pound climbed 2.0% against the buck (1.3251).

The Treasury complex finished on a lower note and saw broad-based selling pressure. The yield on the 10-yr note ended the day higher by seven basis points at 1.51%.

Today's trading volume was above the recent average as more than 952 million shares changed hands on the NYSE floor.

Today's economic data included May wholesale inventories and the May Job Openings and Labor Turnover Survey:

• Wholesale inventories increased 0.1% in May (Briefing.com consensus +0.2%) after increasing an upwardly revised 0.7% (from 0.6%) in April.
  • Taking into account the upward revision to the prior month, May wholesale inventories were largely in-line with expectations.
  • The increase in May was driven by a 0.2% increase in nondurable inventories, which was aided by a 1.2% increase in apparel inventories and a 5.9% jump in farm products inventories.
  • Durable inventories were up 0.1%, bolstered by a 1.6% increase in professional equipment inventories and a 1.1% increase in electrical inventories.
  • Wholesale sales increased 0.5% following a downwardly revised 0.8% increase (from 1.0%) in April.
  • The wholesale inventories to sales ratio dipped to 1.35 from 1.36, but was up from 1.31 in the same period a year ago.
  • On a year-over-year basis, wholesale sales are down 2.5% while wholesale inventories are up 0.5%.
  • Wholesale inventories are just one component of total business inventories.
  • Manufacturing and retail inventories make up the rest of total business inventories.
  • The market doesn't typically pay much attention to this release since the full business inventories release comes a few days later.
• The May Job Openings and Labor Turnover Survey showed that job openings came in at 5.500 million from a revised 5.845 million (from 5.788 million) in April.

Tomorrow's economic data will include the weekly MBA Mortgage Index and Import/Export Prices for May, which will cross the wires at 7:00 ET and 8:30 ET, respectively. The Fed's Beige Book for July and the Treasury Budget for June will both be released at 14:00 ET. 

• Russell 2000 +6.2% YTD
• Dow Jones +5.3 % YTD
• S&P 500 +5.3% YTD
• Nasdaq Composite +0.3% YTD