Day Traders Diary

8/9/16

  The stock market ended the Tuesday affair on a flat note as the Nasdaq (+0.2%) settled ahead of the S&P 500 (UNCH) and the Dow Jones Industrial Average (UNCH). The major averages ended relatively unchanged as a downturn in crude oil and weakness in the consumer discretionary space (-0.3%) prevented the market from vaulting higher. Other contributing factors impacting today's trade included softening in the dollar and sector leadership from heavily-weighted technology (+0.2%) and health care (+0.2%).

The major averages began the day on a higher note as investors responded to a positive bias in global markets and a mixed set of economic data. The preliminary reading of the second quarter productivity report missed expectations as unit labor costs (+2.0%; Briefing.com consensus +1.7%) and productivity (-0.5%; Briefing.com consensus +0.5%) each disappointed. Conversely, wholesale inventories for June (+0.3%; Briefing.com consensus +0.2%) beat estimates while the May reading featured a positive revision (to 0.2%; from 0.1%).

Equity indices rose through midday as the tech-heavy Nasdaq (+0.2%) and the benchmark index (UNCH) each carved out new all-time intraday highs. However, the major averages slipped from these levels after the S&P 500 (UNCH) was unable to clear technical resistance near the 2184/2186 price level. The leg lower in the broader market also corresponded with increased selling in oil. WTI crude ended its session lower by 0.8% ($42.74/bbl; -$0.33) as investors look ahead to the Department of Energy's latest stockpile data. The EIA will release its weekly inventory report tomorrow at 10:30 ET.

The S&P 500 (UNCH) finished modestly higher, maintaining footing near its flat line. Four sectors ended in the red with materials (-0.3%), consumer discretionary (-0.3%), and energy (-0.5%) underperforming. Conversely, technology (+0.2%), health care (+0.2%), and consumer staples (+0.2%) lead the pack.

The countercyclical health care sector (+0.2%) displayed relative strength, gaining alongside pharmaceutical names. Heavyweight component Bristol-Myers (BMY 61.61, +1.31) ended higher by 2.2%, trimming its weekly loss to 2.6%. Elsewhere, Valeant Pharmaceuticals (VRX 28.16, +5.71) surged 25.4% after announcing plans to amend its debt covenants and improvements to its dermatology business. However, the company did miss analysts' estimates for the quarter. Elsewhere, Mylan Labs (MYL 79.92, +1.39) outperformed ahead of this evening's quarterly report.

Influential technology (+0.2%) outperformed as large cap components Alphabet (GOOG 784.26, +2.50) and Apple (AAPL 108.81,+ 0.44) gained 0.3% and 0.4%, respectively. The high-beta chipmakers finished ahead of the broader sector as Microchip (MCHP 60.63, +4.00) topped the PHLX Semiconductor Index (+0.8%). The company reported top- and bottom-line beats and also raised its third-quarter guidance. The price-weighted index extended its August gain to 1.6%, which compares to an uptick of 0.4% in the benchmark index.

Retail names underperformed in the consumer discretionary space (-0.2%) as quarterly results from the likes of Coach (COH 40.52, -0.93) and Wayfair (W 38.80, -9.45) weighed. Wayfair plunged 19.6% after reporting below-consensus results and lowering its full-year guidance below consensus. Elsewhere, Gap (GPS 24.01,- 1.61) declined by 6.3% after reporting disappointing July same-store sales.

The Dow Jones Transportation Average (-0.4%) ended behind the broader market as Avis Budget (CAR 38.34, -0.44) underperformed. The name was under pressure, moving lower in sympathy with Hertz Global (HTZ 44.96,- 2.35). Hertz reported below-consensus bottom-line results last evening. Separately, rail names underperformed as Union Pacific (UNP 93.07, -0.79) declined by 0.8%.

The U.S. Dollar Index (96.14, -0.26) settled off its session low as commodity currencies, the euro, and the yen gained against the buck. The dollar lost 0.3% against the commodity-sensitive Canadian dollar (1.3119) while the single currency gained 0.2% against the buck (1.1113). The dollar finished lower 0.5% against the safe-haven yen (101.91).

Treasuries enjoyed a healthy bid throughout today's session as yields slid throughout the complex. The yield on the 10-yr note ended lower by five basis points at 1.54%.

Today's participation was below the recent average as fewer than 731 million shares changed hands at the NYSE floor.

Today's economic data included the preliminary estimates of second quarter Productivity/Unit Labor Costs and Wholesale Inventories for June:

The preliminary second quarter productivity report showed productivity declining 0.5% (Briefing.com consensus +0.5%) after decreasing an unrevised 0.6% in the first quarter.

The second quarter decline was the result of output increasing 1.2% and hours worked increasing 1.8%.

Unit labor costs were up 2.0% (Briefing.com consensus +1.7%) on the heels of a downwardly revised 0.2% decline (from +4.5%) in the first quarter.

The uptick in the second quarter reflected a 1.5% increase in hourly compensation and a 0.5% decline in productivity.

On a year-over-year basis, second quarter productivity was down 0.4% while unit labor costs were up 2.1%.

This report included benchmark revisions, but even more importantly, it included a clear message that productivity in the U.S. is really weak.

That's a key economic point because rising productivity is the key to a rising standard of living.

Wholesale inventories increased 0.3% in June (Briefing.com consensus +0.2%) after increasing an upwardly revised 0.2% (from 0.1%) in May.

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 increase in wholesale inventories in June was driven by a 1.1% increase in nondurable inventories, which offset a 0.3% decline in durable inventories.

Notably, the majority of nondurable businesses saw a decline in inventories in June, yet a 4.9% increase in inventories of drugs and a 4.0% increase in inventories of farm products led to the overall increase.

In the same vein, just about every durable business saw a drop in June inventories, highlighted by a 0.1% decline in both manufacturing and automotive inventories.

The only durable areas to see an uptick inventories were lumber (+1.8%) and hardware (+1.0%).

Wholesale sales increased 1.9% in June following an upwardly revised 0.7% increase (from +0.5%) in May.

The wholesale inventories-to-sales ratio fell to 1.33 from 1.35 in May, and remains slightly above the 1.33 ratio seen in June 2015.

On a year-over-year basis, wholesale sales are down 0.6% while wholesale inventories are up 0.2%.

Tomorrow's economic data will include the weekly MBA Mortgage Index, which will be released at 7:00 ET. Separately, the Job Openings and Labor Turnover Survey for June and the Treasury Budget for July will cross the wires at 10:00 ET and 14:00 ET, respectively.

Russell 2000 +8.4% YTD

S&P 500 +6.7% YTD

Dow Jones +6.4% YTD

Nasdaq Composite +4.4% YTD