Day Traders Diary

8/29/16

The stock market ended the Monday affair on a higher note as investors responded to a largely in-line Personal Income and Spending Report for July by walking back fed funds rate hike expectations. The Dow Jones Industrial Average (+0.6%) finished ahead of the S&P 500 (+0.5%) and the Nasdaq Composite (+0.3%).

The major averages marched higher at the start of the session, bolstered by positive economic data that did not raise concerns of a sooner-than-expected fed funds rate hike. Personal income in July rose 0.4% (Briefing.com consensus +0.4%) while personal spending increased 0.3% (Briefing.com consensus +0.3%). The core PCE Price Index increased 0.1% in July (Briefing.com consensus +0.1%), signaling a year-over-year increase of 1.6%. The report as a whole did little to change the projected growth rate of third-quarter GDP.

The Personal Income and Spending Report took on extra significance after last week's Jackson Hole Symposium. Federal Reserve Chair Yellen indicated that the case for a rate hike had strengthened in recent months while Fed Vice Chair Fischer acknowledged that this view could be consistent with more than one rate hike before the end of the year. However, the Fed Vice Chair conditioned the potential hikes on a steady improvement in economic data. The fed funds futures market reflects the implied probability of a fed funds rate hike at the September meeting at 21.0%, falling from Friday's reading of 33.0%

The benchmark index ended off its session high, but reclaimed its 20-day simple moving average (2178.21). All ten sectors ended in the green with utilities (+0.8%), telecom service (+0.8%), materials (+1.0%), and financials (+1.0%) leading the pack. Conversely, heavily-weighted technology (+0.3%) and health care (+0.3%) ended with the slimmest gains.

The financial sector (+1.0%) enjoyed a broad-based rally as money center banks, investment brokerages, and real estate investments trusts paced the advance. Wells Fargo (WFC 49.56, +1.05) ended higher by 2.2% while Dow component Travelers (TRV 118.48, +1.34) finished ahead of the price-weighted index. Elsewhere, the iShares Dow Jones Real Estate ETF (IYR 82.52, +0.77) rebounded 0.9% after losing 0.9% in the prior session. The broader sector has gained 2.7% this month, topping the monthly leaderboard.

In the influential technology sector (+0.3%), Apple (AAPL 106.82, -0.12) ended lower by 0.1% after reports indicated that the company will be subject to fines associated with back taxes from holdings in Europe. Separately, headlines also indicated that Apple sent out invites to a September 7 press event. The company is expected to reveal the next installment of its iPhone device at the event.

Biotechnology underperformed in the health care sector (+0.3%), evidenced by the 0.5% loss in the iShares Nasdaq Biotechnology ETF (IBB 283.87, -1.27). The group remains pressured following recent calls for the industry to adjust its drug-pricing practices. On that note, Mylan Labs (MYL 43.22, +0.19) ended higher by 0.4% as investors mulled over the company's decision to produce a generic version of its EpiPen device. Conversely, Gilead Sciences (GILD 78.17, -1.60) declined 2.0%, notching a new two-year low (77.63).

The U.S. Dollar Index (95.59, +0.02, +0.02%) ended flat, erasing an overnight gain. The euro lost 0.1% against the dollar (1.1185). 

Treasuries ended on a higher note as yields slipped through the curve. The yield on the benchmark 10-yr note finished lower by seven basis points (1.57%) while the yield on the 2-yr note finished at 0.81% (-4 bps).

Today's participation was below the recent average as fewer than 643 million shares changed hands on the NYSE floor.

Today's economic data included July Personal Income/Personal Spending and Core PCE Prices for July: 

• The Personal income and Spending Report for July had the potential to be market moving, yet it didn't create any fireworks as the key components were all right in-line with the Briefing.com consensus estimates.
  • The report didn't alter the outlook for Q3 GDP growth to exceed 3.0% and it doesn't alter the understanding that inflation continues to undershoot the Fed's 2.0% objective.

For further details on this economic release, be sure to visit Briefing.com's Economic Calendar page.

Tomorrow's economic data will include the Case-Shiller 20-city Index for June (Briefing.com consensus 5.1%) and August Consumer Confidence (Briefing.com consensus 97.0), which will be released at 9:00 ET and 10:00 ET, respectively.

• Russell 2000 +9.5% YTD
• S&P 500 +6.7% YTD
• Dow Jones +6.2% YTD
• Nasdaq Composite +4.5% YTD