Day Traders Diary

7/26/16

The stock market ended the Tuesday affair on a flat note as investors eyed an influx of quarterly reports and upcoming policy statements from the Federal Reserve and Bank of Japan. The major indices recovered from an early pullback, responding to a modest rebound in crude oil and sector leadership from heavily-weighted technology (+0.4%) and industrials (+0.7%). The Nasdaq Composite (+0.2%) finished ahead of the S&P 500 (UNCH) and the Dow Jones Industrial Average (-0.1%).

The major averages began the day on a modestly higher note, mirroring an early rebound in crude oil. The positive move in oil helped lift the broader market as the major indices notched early highs alongside the energy component. However, the rebound in oil proved to be short-lived as investors remained cautious ahead of inventory data from the American Petroleum Institute and the Department of Energy. The energy component pulled back mid-morning, bringing the broader market along with it.

The benchmark index inched off its low throughout the session as investors set their sights on the remainder of a busy macroeconomic week. Five sectors finished in the green as materials (+0.7%) and industrials (+0.7%) topped the leaderboard. The remaining gainers finished with upticks between 0.2% (financials) and 0.4% (technology). Conversely, defensively-oriented telecom services (-1.5%), utilities (-0.9%), consumer staples (-0.8%), and health care (-0.2%) rounded out the board. For its part, WTI crude ended its pit session lower by 0.5% ($42.91/bbl; -$0.22).

The heavily-weighted industrial sector (+0.7%) helped lead the broader market as United Technologies (UTX 107.89, +3.24) and Caterpillar (CAT 82.75, +4.06) outperformed. United Technologies jumped 3.1% after beating analysts' estimates for the quarter and raising its full-year earnings estimates. On the flipside, 3M (MMM 177.66, -1.97) underperformed after reporting a mixed quarter and lowering its local currency sales growth estimates. Separately, airlines outperformed alongside positive quarterly results from JetBlue Airways (JBLU 18.67, +1.39).

The high-beta chipmakers outperformed in the technology space (+0.4%), evidenced by the 3.8% gain in the PHLX Semiconductor Index. The index jumped alongside Linear Technology (LLTC 62.49, +14.02) after speculation mounted that Analog Devices (ADI 62.87, +2.34) was interested in the company. Additionally, Texas Instruments (TXN 71.42, +5.20) outperformed after reporting positive quarterly results. In the broader space, Apple (AAPL 96.67, -0.67) lagged ahead of this evening's earnings release.

In the consumer discretionary space (-0.2%), Dow component McDonald's (MCD 121.71, -5.69) finished at the bottom of the price-weighted index. The stock was under pressure as investors weighed a bottom-line beat against slower than expected second-quarter comparable store sales growth. Conversely, retail names outperformed as the sub-group traded higher in sympathy with Nordstrom (JWN 43.93, +1.19). The stock was upgraded to "Overweight" from "Neutral"at Piper Jaffray.

Biotechnology finished behind the broader health care (-0.2%) sector as the sub-group moved lower in sympathy with Gilead Sciences (GILD 81.05, -7.50). The drug maker fell 8.5% after lowering its full-year sales guidance. In the broader sector, Anthem (ANTM 137.59, -2.39) underperformed ahead of tomorrow morning's earnings report. Conversely, medical equipment names displayed relative strength as the group moved higher following positive earnings results from Baxter (BAX 48.01, +1.91) and Waters (WAT 155.09, +6.65).

The U.S. Dollar Index (97.14, -0.15) settled modestly lower as the pound, euro, and yen each gained against the greenback. Sterling ticked higher by 0.1% against the dollar (1.3134) while the single currency gained 0.1% against the buck (1.0988). Separately, the dollar fell 1.1% against the yen (104.63) amid jitters leading into Friday's policy decision from the Bank of Japan.

Treasuries settled higher as yields slipped throughout the complex. The yield on the 10-yr note finished lower by one basis point at 1.56%.

Today's trading volume was below the recent average as fewer than 803 million shares changed hands on the NYSE floor.

Today's economic data included the Case-Shiller 20-city Index for May, Consumer Confidence for July, and New Home Sales for June: 

• The Case-Shiller 20-city Home Price Index for May fell to 5.2%, which was below the Briefing.com consensus of 5.4%. This followed the previous month's unrevised reading of 5.4%.
• The Conference Board's Consumer Confidence Index dipped to 97.3 in July from a downwardly revised 97.4 (from 98.0) in June.
  • The Briefing.com consensus estimate for July was 96.0, so this report was better than expected.
  • The slight change can be attributed entirely to the Expectations Index, which fell from 84.6 in June to 83.3 in July as consumers softened their stance somewhat on the outlook for business and labor market conditions.
  • Conversely, the Present Situations Index rose from 116.6 to 118.3.
  • Confidence levels contribute to the outlook for consumer spending, but ultimately, spending activity rests predominately on income trends.
• New home sales in June were at a seasonally adjusted rate of 592,000, up 3.5% from the revised May rate of 572,000 (from 551,000).
  • The June number was well ahead of the Briefing.com consensus estimate of 560,000 and 25.4% above the same period a year ago.
  • The strong year-over-year growth reflects a robust improvement in the context of the current economic environment.
  • Still, there is a long way to go to get back to the peak rate of 1.389 million seen in July 2005 and, for that matter, the seasonally adjusted annual rate of 891,000 seen in January 2007 (i.e. pre-Great Recession).
  • The gain in June was paced by a 10.9% increase in the West region and a 10.4% increase in the Midwest.
  • The Northeast and the South saw sales declines of 5.6% and 0.3%, respectively.
  • Notably, there was a large sales pickup in homes priced between $400,000 and $499,999, which accounted for 18% of sales versus 10% in May.
  • The percentage of home sold at all other price points were either flat, or down, from the prior month..
  • Altogether, homes priced under $300,000 accounted for 48% of homes sold (vs. 53% in May) while homes priced over $300,000 accounted for 52% of homes sold (vs. 48% in May).
  • The median sales price was $306,700, up 6.1% year-over-year
  • At the current sales pace, the inventory of new homes for sale is at a 4.9-months supply versus 5.1 months in May

Tomorrow's economic data will include the weekly MBA Mortgage Index, which will be released at 7:00 ET. Durable Orders for June (Briefing.com consensus -1.0%) and Pending Home Sales for June (Briefing.com consensus +1.1%) will be released at 8:30 ET and 10:00 ET, respectively. The day's data will be capped off with the FOMC's July rate decision, which will cross the wires at 14:00 ET. 

• Russell 2000 +7.1% YTD
• S&P 500 +6.1% YTD
• Dow Jones +6.0% YTD
• Nasdaq Composite +2.1% YTD