Day Traders Diary

9/20/16

The stock market ended the Tuesday affair on a flat note as investors favored a cautious approach ahead of policy statements from the Federal Reserve and Bank of Japan. The Nasdaq Composite (+0.1%) settled in-line with the Dow Jones Industrial Average (+0.1%) and slightly ahead of the S&P 500 (UNCH).

Equity indices advanced at the start of the session as investors mulled the potential rate hike implications of some weaker-than-expected housing data. Housing starts for August came in at a seasonally adjusted rate of 1.142 million (Briefing.com consensus 1.186 million) while building permits fell to 1.139 million (Briefing.com consensus 1.160 million). The data follows yesterday's above-consensus reading of the NAHB Housing Market Index for September (65; Briefing.com consensus 59).

The fed funds futures market ticked higher following the negative data, however, the move was likely related to some last-minute positioning. The implied probability of a rate hike at the September meeting rose to 18.0% from 12.0% in the prior session. Participants have heavily discounted the potential for a rate hike at this meeting, hoping to hear clues about the path of interest rate normalization in the central bank's guidance. Looking down the road, the odds of a rate hike at the December meeting rose to 60.7% from 53.9% on Monday.

The U.S. Dollar Index (96.00, +0.16, +0.17%) also enjoyed a modest bid as participants eyed the potential for a policy divergence trade. The Bank of Japan is scheduled to release its latest policy decision and a comprehensive assessment of its monetary policy this evening. It remains unclear how the central bank will proceed, but reports indicated earlier in the week that the BoJ may favor expanding its negative interest rate policy. The central bank will release its policy decision around 23:00 ET.

The benchmark index settled near the bottom of today's trading range after failing to clear resistance near the 2150/2153 price level. Five sectors finished in the green with financials (+0.1%), consumer staples (+0.2%), and health care (+0.4%) leading the advance. On the flipside, defensively-oriented real estate (-0.2%), telecom services (-0.2%) and utilities (-0.2%) led energy (-0.8%) on the bottom of the board.

The health care sector (+0.4%) outperformed as drug manufacturers and biotechnology names displayed relative strength. Biotechnology rallied after Allergan (AGN 238.67, -6.62) agreed to acquire Tobira Therapeutics (TBRA 38.91, +34.17) for an upfront payment of $28.35 per share. This constitutes a 498.0% premium from Tobira's prior closing price. The agreement also contains Contingent Value Rights that could increase total considerations up to $49.84 per share.

In the financial sector (+0.1%), banking names outperformed as Wells Fargo (WFC 46.56, +0.55) jumped 1.2%. The stock rallied after being upgraded to "Overweight" from "Equal-Weight" at Morgan Stanley. However, Wells Fargo finished off its best level of the day (47.20) as participants weighed heated commentary from the Senate Banking Committee. Senator Elizabeth Warren called for a more stringent investigation into the bank's sales practices.

Crude oil finished the session modestly higher after shaking early weakness. The energy component erased an early loss after reports indicated that Russia may back a one-year agreement to stabilize oil prices. WTI crude settled higher by 0.4% ($44.08/bbl; +$0.18). On a side note, the American Petroleum Institute is scheduled to release its weekly inventory report this evening while the Department of Energy will release its more influential inventory report tomorrow morning at 10:30 ET.

Treasuries ended on a higher note with the long end of the curve outperforming. The yield on the 2-yr note fell one basis point (0.77%) while the yield on the 10-yr note declined three basis points (1.69%).

Today's participation was below the recent average as fewer than 741 million shares changed hands on the NYSE floor.

Today's economic data was limited to Housing Starts and Building Permits for August:

Housing starts in August declined 5.8% from July to a seasonally adjusted annual rate of 1.142 million (Briefing.com consensus 1.186 million).

Building permits fell 0.4% from July to a seasonally adjusted annual rate of 1.139 million (Briefing.com consensus 1.160 million) due entirely to a 7.2% decline in permits for multi-unit dwellings.

For more on these economic releases, be sure to visit Briefing.com's Economic Calendar page.

Tomorrow's economic data will be limited to the weekly MBA Mortgage Index, which will be released at 7:00 ET. Meanwhile, the FOMC will release its September policy statement and rate decision at 14:00 ET.

Russell 2000: +8.2% YTD

S&P 500: +4.7% YTD

Nasdaq: +4.7% YTD

Dow Jones +4.1% YTD