Day Traders Diary

8/22/16

The stock market endured a choppy start to the week, but the S&P 500 (-0.1%) finished its day little changed. Equity markets exhibited a slight degree of caution as participants ruminated over recent commentary from central bankers and looked ahead to the Kansas City Fed's Economic Symposium in Jackson Hole, Wyoming. Fed Chair Janet Yellen is slated to speak Friday at 10:00 ET.

Fed Vice Chair Fischer struck a somewhat hawkish tone over the weekend when he stated that the U.S. economy is close to hitting employment and inflation targets. The upbeat view on the U.S. economy had some participants question whether Mr. Fischer would advocate for at least one fed funds rate hike before the end of the year. The implied probability of a rate hike at the September meeting, as measured by the fed funds futures market, rose to 18.0% from 12.0% on Friday. The odds of a rate hike at the December meeting increased to 53.5% from 46.2%.

The prospect of a policy divergence trade was entertained overnight when Bank of Japan Governor Haruhiko Kuroda talked up the potential for the central bank to cut interest rates further into negative territory. However, that view appears to have been slightly discounted throughout the session. The dollar/yen pair ended higher by 0.1% (100.31) after jumping to the 100.90 level overnight.

The S&P 500 (-0.1%) maintained a narrow ten-point trading range after falling to its 20-day simple moving average (2176.51) at the start of the session. Other focal points impacting today's trade included a downturn in crude oil futures and sector leadership from the heavily-weighted health care (+0.1%) space. Six sectors ended in the red with commodity-sensitive energy (-0.9%) rounding out the leaderboard. Conversely, defensively-oriented consumer staples (+0.1%) health care (+0.1%), and utilities (+0.3%) outperformed.

Biotechnology demonstrated relative strength in the health care sector, evidenced by the 2.0% gain in the iShares Nasdaq Biotechnology ETF (IBB 296.01, +5.70). The group moved higher after Medivation (MDVN 80.42, +13.26) agreed to be acquired by Pfizer (PFE 34.84, -0.14) for $81.50 per share in cash. Separately, Valeant Pharmaceuticals (VRX 31.27, +2.53) spiked 8.8% after announcing that Paul Herendeen would assume the role of Chief Financial Officer. Conversely, Dow component Johnson & Johnson (JNJ 119.13, -0.79) ended lower by 0.7%.

The influential technology sector (-0.1%) finished in-line with the broader market as top-weighted Apple (AAPL 108.51, -0.81) weighed. The stock declined 0.8%, trimming its post-earnings rally to 12.3%. Fellow large cap Facebook (FB 124.15, +0.59) jumped 0.5% after receiving positive commentary in Barron's. Separately, Intersil (ISIL 18.74, +3.10) outperformed among chipmakers after reports indicated that Renesas Electronics interested in acquiring the company.

The Dow Jones Transportation Average (-0.5%) ended behind the benchmark index as airlines underperformed. American Airlines (AAL 36.00, -0.49) weighed on the sub-group, declining 1.3%.

WTI crude finished the day lower by 3.4% ($47.42/bbl; -$1.65) amid concerns regarding the extent of the recent oil rally. The energy component was also under pressure after it was reported that Iraq is preparing to increase its oil exports by approximately 150,000 barrels per day.

Relative strength among long-dated Treasuries led to some flattening in the yield curve. The yield on the 30-yr bond slipped five basis points (2.24%) while the yield on the benchmark 10-yr note fell four basis points (1.54%).

Today's participation was below the recent average as fewer than 685 million shares changed hands at the NYSE floor.

There was no economic data of note released today.

Tomorrow's economic data will be limited to the New Home Sales Report for July (Briefing.com consensus 580k), which will be released at 10:00 ET.

Russell 2000 +9.1% YTD

S&P 500 +6.8% YTD

Dow Jones +6.3% YTD

Nasdaq Composite +4.7% YTD