Day Traders Diary

9/21/16

The stock market ended the midweek affair broadly higher as participants responded to the latest policy statements from the Federal Reserve and Bank of Japan. The S&P 500 (+1.1%) finished slightly ahead of the Nasdaq Composite (+1.0%) and the Dow Jones Industrial Average (+0.9%).

The broader market began the day on a higher note as a leg higher in crude oil and an accommodative policy decision from the Bank of Japan boosted risk appetite. The central banked opted to maintain its key policy rate (-0.10%) while shifting away from a monetary base target. Instead the central bank will establish interest rate controls designed to steepen the yield curve through quantitative and qualitative easing flows. The foreign exchange market appeared disappointed with the plan as the yen strengthened throughout the session. The dollar/yen pair finished lower by 1.2% (100.52).

Equity indices extended their gains in the opening hour as participants pored over weekly inventory data from the Department of Energy. The EIA reported that crude oil stockpiles declined by 6.20 million barrels (consensus: +3.35 million) while gasoline stockpiles fell by 3.20 million barrels (consensus: -0.57 million). The benchmark index gained lockstep with crude oil, but was unable to clear technical resistance near the 2150/2153 price level. The broader market retraced the bulk of its opening gain by midday. The energy component settled higher by 2.6% ($45.22/bbl; +$1.17).

The major averages recovered in the final hour of trade, notching new session highs as participants mulled over the latest policy statement from the FOMC and commentary from Fed Chair Janet Yellen. The FOMC opted to leave the target range for the fed funds rate unchanged at 0.25% to 0.50%. However, three committee members dissented, indicating that they supported an interest rate hike at the September meeting. Additionally, the committee lowered rate hike expectations going forward, estimating one rate hike in 2016, two to three in 2017, and three in 2018.

The benchmark index finished near its best level of the day, climbing above technical resistance near the 2160 price level. All eleven sectors ended in the green with telecom services (+1.3%), materials (+1.5%), utilities (+2.1%), and energy (+2.1%) leading the advance.

The Dow Jones Transportation Average (+1.8%) finished ahead of the broader market as FedEx (FDX 173.86, +11.21) led the index. The stock jumped 6.9% after reporting a top- and bottom-line beat and increasing its full-year earnings outlook. On the flipside, airline names rounded out the group after American Airlines (AAL 34.67, -0.48) was downgraded to "Market Perform" from "Outperform" at Raymond James. The broader U.S. Global Jets ETF (JETS 22.38, +0.02) inched higher by 0.1%.

In the influential technology sector (+1.1%), the high-beta chipmakers outperformed, evidenced by the 1.4% gain in the PHLX Semiconductor Index. Meanwhile, Adobe Systems (ADBE 107.78, +7.16) notched a new all-time high (108.22) after beating top- and bottom-line estimates for the quarter and issuing above-consensus fourth-quarter guidance. Conversely, top-weighted Apple (AAPL 113.55, -0.02) finished behind the broader sector.

Health care providers outperformed in the health care sector (+1.0%) as Anthem (ANTM 128.59, +2.83) rallied 2.3%. The stock rebounded after being removed from the US 1 List at Bank of America/Merrill Lynch in the prior session. Separately, biotechnology extended its recent winning streak as the iShares Nasdaq Biotechnology ETF (IBB 297.53, +1.83) advanced 0.6%. This follows yesterday's 1.4% gain.

The financial space (+0.7%) finished behind the broader market as participants continued to adjust rate hike expectations for the year. The fed funds futures market indicates that the implied probability of a rate hike at the November meeting has declined to 14.5% (from 22.0%) while the probability of a rate hike at the December meeting rose to 63.4% (from 59.2%). In the group, Wells Fargo (WFC 45.83, -0.73) fell 1.6% after being downgraded to "Neutral" from "Overweight" at JP Morgan.

Treasuries ended on a mixed note with the long end of the curve outperforming. The yield on the 2-yr note finished flat (0.77%) while the yield on the 10-yr note declined four basis points (1.65%).

Today's participation was roughly in-line with the recent average as more than 873 million shares changed hands on the NYSE floor.

Today's economic data was limited to the weekly MBA Mortgage Index:

The MBA Mortgage Index indicated that mortgage applications declined 7.3% in the week ending September 17. This followed a 4.2% gain in the prior week.

Tomorrow's economic data will include weekly initial claims (Briefing.com consensus 262k) and the FHFA Housing Price Index for July, which will cross the wires at 8:30 ET and 9:00 ET, respectively. Separately, Existing Home Sales for August (Briefing.com consensus 5.50 million) will be released at 10:00 ET.

Russell 2000: +9.6% YTD

S&P 500: +5.8% YTD

Nasdaq: +5.8% YTD

Dow Jones +5.0% YTD