Day Traders Diary

9/12/16

The stock market began the week on a sharply higher note as market participants dialed back rate hike expectations for the coming months. The major averages finished broadly higher, retracing the lion's share of Friday's losses. The Nasdaq Composite (+1.7%) settled slightly ahead of the S&P 500 (+1.5%) and the Dow Jones Industrial Average (+1.3%).

Interest rates remained in focus at the start of the session as participants mulled over a continued downturn in global bond markets. Early weakness was attributed to persistent uncertainty regarding the future path of global monetary policy. Recall that last week the European Central Bank disappointed investors by voting to leave its monetary policy stance unchanged. Furthermore, ECB President Mario Draghi indicated that the Governing Council did not discuss expanding the asset purchase program at the central bank's latest meeting.

Equity indices shook weakness in the opening hour of trade as Atlanta Fed President (non-FOMC voter) Dennis Lockhart and Minneapolis Fed President (non-FOMC voter) Neel Kashkari struck divergent tones on the future path of interest rate normalization. Mr. Lockhart signaled that recent data seriously warrants the discussion of raising rates. However, Mr. Kashkari stated that there's no urgency in raising rates at this time.

The major averages notched fresh session highs shortly after Fed Governor Lael Brainard reaffirmed her dovish stance. Governor Brainard stated that the case for preemptive tightening is less compelling given persistently low inflation and continued slack in the labor market. Ms. Brainard continues to advocate a cautious approach given the limited nature of the Fed's policy toolkit. In response, the implied probability of a rate hike at the September meeting fell to 15.0% from 24.0% in the prior session.

The benchmark index settled near its best level of the day, testing resistance near the 2160 price level. All ten sectors ended in the green with technology (+1.7%), utilities (+1.7%), consumer staples (+1.9%), and telecom services (+2.0%) leading the pack. On the flipside, the commodity-sensitive energy (+0.9%) and materials (+1.0%) sectors finished at the bottom of the leaderboard.

The defensively-oriented consumer staples sector (+1.9%) outperformed as the group recovered from last Friday's 2.1% decline. In the group, Dow component Wal-Mart (WMT 71.94, +1.64) demonstrated relative strength after being upgraded to "Outperform" from "Market Perform" at Cowen. Meanwhile, Philip Morris International (PM 100.64, +3.10) ended higher by 3.2% after Goldman added the stock to its conviction buy list. The broader sector trimmed its month-to-date loss to 1.4%.

In the technology sector (+1.7%), HP (HPQ 14.49, +0.54) gained 3.9% after announcing that it will acquire Samsung's (SSNLF 1250.00, 0.00) printer business for approximately $1.05 billion. Meanwhile, Apple (AAPL 105.44, +2.31) gained 2.2%, recovering from last week's 4.3% decline. The stock was under pressure after unveiling its iPhone 7 device last Thursday. The PHLX Semiconductor Index finished higher by 2.0%, narrowing its month-to-date loss to 2.2%.

Biotechnology outperformed in the health care space (+1.6%), evidenced by the 3.0% gain in the iShares Nasdaq Biotechnology ETF (IBB 287.11, +8.48). In the ETF, Mylan Labs (MYL 41.33, +1.44) rebounded 3.6%. The sub-group also benefited from reports that activist investor Starboard has taken a 4.6% stake in Perrigo (PRGO 95.23, +6.52).

The financial sector (+1.2%) ended behind the broader market as investors trimmed rate hike expectations and as Treasury yields pulled back. In the group, Wells Fargo (WFC 48.54, -0.18) underperformed as the stock continues to see weakness from last Thursday's settlement with the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, and the Office of the LA City Attorney.

Treasuries ended modestly higher, recovering from relative weakness at the start of the session. The yield on the 2-yr note fell two basis points to 0.77% while the yield on the 10-yr note ticked down to 1.67% (-1 bps).

Today's participation was above the recent average as more than 992 million shares changed hands on the NYSE floor.

There was no economic data of note released today.

Tomorrow's economic data will be limited to the Treasury Budget for August, which will be released at 14:00 ET.

Russell 2000: +8.6% YTD

S&P 500: +5.6% YTD

Dow Jones: +5.2% YTD

Nasdaq: +4.1 % YTD