Day Traders Diary

8/19/16

The stock market trades on a modestly lower note at midday as investors continue to reassess the possibility of at least one fed funds rate hike before the end of the year. The S&P 500 (-0.4%) leads to the downside while the tech-heavy Nasdaq (-0.2%) floats just beneath its flat line.

The major averages began the day under selling pressure as a downturn in European markets and a pause in the recent oil rally weighed on equities. Italy's MIB (-2.2%) led the retreat in Europe as relative weakness from the country's banking sector weighed on the index. Separately, reports indicated that U.K. Prime Minister Theresa May hopes to invoke Article 50 of the Lisbon Treaty by April 2017. The action would begin formal talks regarding the country's withdrawal from the European Union.

The news weighed on the pound/dollar pair, which helped push the U.S. Dollar Index (94.57, +0.42, +0.44%) to a fresh session high. The index had already enjoyed a decent bid as dollar bulls ruminated over recent remarks from Fed officials. San Francisco Fed President Williams (not an FOMC voter) stated last evening that the Fed should get back to hiking rates sooner rather than later. Meanwhile, Dallas Fed President Kaplan (not an FOMC voter) indicated that the Fed has space to maneuver on a rate hike, but that a lower neutral rate narrows that room.

The S&P 500 (-0.4%) recovered the bulk of its opening loss by mid-morning, reclaiming support near the 2178/2180 price level. However, the index has moved back to test that level in recent action. Nine sectors trade in the red with defensively-oriented telecom services (-1.3%) and utilities (-1.6%) rounding out the leaderboard. Other focal points impacting today's trade include a pullback in oil futures, a downturn in Treasuries, and relative weakness in the heavily-weighted health care sector (-0.6%). 

The commodity-sensitive energy sector (-1.0%) underperforms, responding to a modest loss in crude oil. WTI crude trades lower by 0.2% ($48.80/bbl; -$0.09), trimming its weekly gain to 9.8%. The energy component is under pressure as a rally in the greenback weighs on dollar-denominated commodities. On a side note, the Baker-Hughes Rig Count will be reported at 13:00 ET.

The high-beta chipmakers display relative strength as the PHLX Semiconductor Index (+0.7%) extends its weekly gain to 2.0%. In the group, Applied Materials (AMAT 29.54, +1.86) outperforms after beating bottom-line estimates for the quarter and raising its fourth-quarter outlook above consensus.

In the broader technology sector (UNCH), Apple (AAPL 109.35, +0.27) outperforms, shrugging off opening hour weakness. The stock slipped 0.7% at the start of the session as investors weighed a string of insider sales.

Retail names outperform in the consumer discretionary space (-0.2%) as stronger-than-expected bottom-line results from Gap (GPS 26.35, +0.47), Ross Stores (ROST 64.92, +2.04), and Foot Locker (FL 68.48, +6.78) boost the sub-group. Dow component Nike (NKE 58.85, +1.64) has drafted higher following the results from its peers, and currently leads the price-weighted index. The broader SPDR S&P Retail ETF (XRT 45.80, +0.05) has gained 0.1%, extending its weekly advance to 0.6%.

The U.S. Dollar Index (94.57, +0.42, 0.44%) trades off its session high as the greenback sports a gain against the yen, euro, and pound. The dollar/yen pair trades higher by 0.4% (100.23) while the single currency has declined 0.3% against the buck (1.1318). Separately, cable has declined 0.9% (1.3051). 

The Treasury complex trades off session lows while yields hold gains through the curve. The yield on the 2-yr note has risen four basis points (0.75%) while the yield on the 10-yr note is higher by five basis points (1.58%).

There was no economic data of note released today.