Day Traders Diary

9/13/16

The major averages ended the Tuesday affair sharply lower as rising long-term interest rates pressured the broader market. The upswing in interest rates was led by growing uncertainty surrounding the future path and effectiveness of global central bank policy. The S&P 500 (-1.5%) settled behind the Dow Jones Industrial Average (-1.4%) and the Nasdaq Composite (-1.1%).

Equity indices began the session under pressure as investors continued to mull over central bank policy here at home and from overseas. Fed Governor Lael Brainard reaffirmed a dovish stance in the prior session, stating that the case for preemptive tightening has become less compelling. In response, the implied probability of a rate hike at the September meeting fell to 15.0% from 24.0% at the start of the week.

The dovish posture failed to carry over buying interest into today's session as participants responded to mixed performances from global markets and a downturn in crude oil. The energy component was under pressure after the International Energy Agency's monthly report struck a bearish tone. The IEA cut its global demand growth forecast for 2016 to 1.3 million barrels per day (previous: 1.4 million barrels) while the group also trimmed its 2017 growth estimate to 1.2 million barrels (previous: 1.4 million barrels). The negative revisions cast doubt on the potential timetable for an oil market rebalancing.

The benchmark index notched a session low (2120.27) shortly after midday, finishing narrowly above that level. All ten sectors ended in the red with financials (-1.8%), materials (-1.9%), telecom services (-2.0%), and energy (-2.9%) acting as notable laggards. Conversely, technology (-0.6%) and consumer staples (-1.4%) ended with the narrowest losses.

The commodity-sensitive energy sector (-2.9%) ended broadly lower amid a sustained downturn in crude oil. WTI crude finished lower by 3.0% ($44.92/bbl; -$1.37). In the group, oilfield service names underperformed with Baker Hughes (BHI 48.34, -1.36) and Halliburton (HAL 41.11, -1.29) losing 2.8% and 3.0%, respectively. On a side note, the American Petroleum Institute is slated to release its weekly inventory report this evening while the Department of Energy is scheduled to release its more influential inventory report tomorrow at 10:30 ET.

The economically-sensitive financial sector (-1.8%) was under pressure as participants reassessed rate hike expectations for the year. In the group, Wells Fargo (WFC 46.96, -1.58) declined 3.7%. The name has been under pressure since announcing a settlement with the Consumer Financial Protection Bureau last Thursday. The broader sector has declined 2.8% this month and currently sports a year-to-date loss of 0.2%.

Biotechnology underperformed in the health care space (-1.5%), evidenced by the 1.6% loss in the iShares Nasdaq Biotechnology ETF (IBB 282.62, -4.49). The ETF was under pressure after rallying 3.0% in the prior session. In the ETF, Vertex Pharmaceuticals (VRTX 95.27, -2.59) underperformed after Raymond James issued a "Market Perform" designation on the stock.

The influential technology space (-0.6%) finished ahead of the benchmark index as top-weighted component Apple (AAPL 108.12, +2.68) led. The Dow component rallied 2.6% after T-Mobile (TMUS 45.34, -0.59) and Sprint (S 6.56, -0.36) reported bullish pre-order data for the iPhone 7. The PHLX Semiconductor Index (-0.9%) also finished ahead of the broader market as iPhone suppliers drafted higher on the news. Broadcom (AVGO 165.24, +0.76) and Skyworks (SWKS69.36, +1.02) ended higher by 0.5% and 1.5%, respectively.

Treasuries ended sharply lower with the long end of the curve demonstrating relative weakness. The yield on the 2-yr note rose two basis points to 0.79% while the yield on the 10-yr note jumped six basis points to 1.72%.

Today's participation was above the recent average as more than one billion shares changed hands on the NYSE floo

Today's economic data was limited to the Treasury Budget for August:

The Treasury Budget for August showed a deficit of $107.1 billion versus a deficit of $64.4 billion in August 2015. The Treasury Budget data is not seasonally adjusted, so the August deficit cannot be compared to the $112.8 billion deficit registered in July.

Total receipts in August were $231.3 billion while total outlays were $338.4 billion.

Receipts were $20.5 billion more than receipts in August 2015. Total outlays, meanwhile, were $63.2 billion more than the same period a year ago.

The 12-month deficit widened to $529.9 billion from $487.2 billion in July.

Tomorrow's economic data will include the 7:00 ET release of the weekly MBA Mortgage Index. Meanwhile, Import/Export Prices for August will each cross the wires at 8:30 ET.

Russell 2000: +6.8% YTD

S&P 500: +4.1% YTD

Dow Jones: +3.7% YTD

Nasdaq: +3.0% YTD