Day Traders Diary

9/6/16

 The stock market began an abbreviated week on a higher note as a weaker-than-expected reading of the ISM Non-Manufacturing Index for August led investors to dial back rate hike expectations for the year. The Nasdaq Composite (+0.5%) finished the day slightly ahead of the S&P 500 (+0.3%) and the Dow Jones Industrial Average (+0.3%).

The ISM Non-Manufacturing Index for August was a big disappointment, dropping to 51.4 (Briefing.com consensus 54.7) from 55.5 in July. The August reading was the lowest reading for this index since February 2010. The key takeaway from the report is that it appears as if both the manufacturing sector and the non-manufacturing sector experienced a noticeable slowing of activity in August.

The added takeaway is that the slowdown seen on both sides of the economy will likely leave the Fed reluctant to raise the fed funds rate at its September meeting. Recall that it was shown last week that the ISM Manufacturing Index dropped to 49.9 from 52.6 in July. A number below 50.0 denotes a general contraction in manufacturing activity. The U.S. Dollar Index (94.85,-0.99, -1.03%), fed funds futures, and the economically-sensitive financial sector (-0.1%) fell in response while Treasuries and defensively-oriented telecom services (+0.9%) and utilities (+1.1%) enjoyed a bid.

The benchmark index erased its opening loss by midday as heavily-weighted health care (+0.4%) and technology (+0.5%) demonstrated relative strength. The broader market settled near its best level of the day with seven sectors ending in the green. The defensively-oriented telecom services (+0.9%) and utilities (+1.1%) sectors followed energy (+1.5%) on the top of the board. Conversely, financials (-0.2%) and industrials (-0.3%) led the downside.

The commodity-sensitive energy space (+1.5%) demonstrated relative strength amid a string of M&A news and a rebound in dollar-denominated oil. EOG Resources (EOG 94.83, +5.92) rallied 6.7% after announcing a deal to merge with Yates Petroleum. The deal to merge is valued at approximately $2.5 billion. Spectra Energy (SE 41.00, +4.85) surged 13.4% after announcing a stock-for-stock merger with Enbridge (ENB 43.06, +2.07). For its part, WTI crude ended its pit session higher by 1.0% ($44.85/bbl; +$0.46).

In the technology sector (+0.5%), Facebook (FB 129.73, +3.22) outperformed, notching a fresh all-time high (129.94). Conversely, top-weighted Apple (AAPL 107.68, -0.05) ended lower by 0.1% ahead of tomorrow's special event. The company is expected to introduce the iPhone 7 at 13:00 ET. The PHLX Semiconductor Index (-0.2%) underperformed as iPhone suppliers weighed. Skyworks (SWKS 73.01, -1.61) and Qorvo (QRVO 56.02, -1.58) rounded out the price-weighted index.

The health care space (+0.4%) finished ahead of the broader market as biotechnology outperformed. In the group, Gilead Sciences (GILD 77.88, +0.99) jumped 1.3% after being upgraded to "Buy" from "Hold" at Jefferies. Separately, health care plan names underperformed with Cigna (CI 127.58, -0.60) losing 0.5% after reaffirming its full-year adjusted net income guidance.

The financial sector (-0.2%) underperformed amid diminishing rate hike expectations for the year and a downturn in Treasury yields. The fed funds futures market estimates the implied probability of a rate hike at the September meeting at 18.0%, falling from the prior session's estimate of 21.0%. Money center banks and life insurance names underperformed with Prudential (PRU 78.59, -0.90) and Wells Fargo (WFC 49.99, -0.56) declining 1.1% apiece.

Treasuries ended on a higher note with yields dropping through the curve. The yield on the 2-yr note ended lower by seven basis points (0.72%) while the yield on the 10-yr note settled lower by seven basis points (1.54%).

Today's participation was above the recent average as more than 835 million shares changed hands on the NYSE floor.

Today's economic data was limited to ISM Services for August:

The ISM Non-Manufacturing Index for August was a big disappointment, dropping to 51.4 (Briefing.com consensus 54.7) from 55.5 in July.

This was the lowest reading for this index since February 2010.

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

Tomorrow's economic data will include the 7:00 ET release of the weekly MBA Mortgage Index. Separately, the Job Openings and Labor Turnover Survey for July and the Fed's Beige Book for September will cross the wires at 10:00 ET and 14:00 ET, respectively.