Day Traders Diary

10/3/16

 The stock market began the week on a modestly lower note as the major averages pulled back following last Friday's relief rally. Factors impacting today's trade included weakness in European financial names, an uptick in interest rates, and relative weakness from the heavily-weighted technology (-0.4%) and financial (-0.4%) sectors. The S&P 500 (-0.3%) settled in-line with the Dow Jones Industrial Average (-0.3%) and slightly behind the Nasdaq Composite (-0.2%).

Equity indices began the day under pressure as a mixed performance from European bourses weighed on the broader market. Shares of Deutsche Bank (DB 12.98, -0.11) continued to be in focus after the German lender failed to confirm whether or not it had reached a revised settlement with the U.S. Department of Justice. Recall that the stock rallied 14.0% on Friday after AFP reported that the bank was close to reducing its fine to $5.4 billion from $14 billion.

UK Prime Minister Theresa May also contributed to early selling interest after she confirmed that the UK will invoke Article 50 of the Lisbon Treaty by the end of March 2017. The decision resuscitated fears regarding the terms and/or restrictions the UK will face in accessing the common market. Sterling declined 1.0% against the dollar in response, finishing the day near the 1.2850 price level. The UK's FTSE (+1.2%) outperformed amid strength from exporters.

The ISM Manufacturing Index for September spurred a downturn in the Treasury market as the better-than-expected economic data boosted rate hike odds. The September ISM Index rose to 51.5 (Briefing.com consensus 50.4) after registering at 49.4 in August. The data led to some early positioning in the fed funds futures market, but the implied probability of a rate hike at the December meeting finished at 62.1%, rising from the prior session's reading of 61.7%.

The benchmark index finished in the middle of today's trading range, bouncing off support near its 20-day simple moving average (2155.81) in the final hour. Eight sectors settled in the red with financials (-0.4%), consumer staples (-0.6%), utilities (-1.4%), and real estate (-1.8%) acting as the largest laggards.

In the financial sector (-0.4%), Wells Fargo (WFC 43.83, -0.45) underperformed after U.S. Presidential candidate Hillary Clinton argued that the lender bullied employees into committing fraud. Mrs. Clinton also contended that the Consumer Financial Protection Bureau should be afforded new powers in order to deal with "bad corporate actors." The banking name tumbled 12.8% in September after it was reported that two million credit and deposit accounts were opened illegally.

Health care providers underperformed in the health care space (-0.2%) as Cigna (CI 128.01, -2.31) and Anthem (ANTM 122.90, -2.41) declined by 1.8% and 1.9%, respectively. The names continued to show weakness after last week's speculation that a judge who is presiding over their merger hearing may break the hearing up into two separate phases. Separately, biotechnology erased an early loss as the iShares Nasdaq Biotechnology ETF (IBB 290.00, +0.54) finished ahead of the broader market.

In the consumer discretionary space (-0.1%), auto names ended on a mixed note after reporting auto and truck sales for September. General Motors (GM 32.04, +0.27) ended higher by 0.9% after reporting a smaller-than-expected decline in monthly U.S. sales. Meanwhile, Toyota Motor (TM 115.26, -0.80) declined by 0.7% even though the company reported that U.S. sales rose 1.5% year-over-year while a decline was expected.

Treasuries finished near their worst levels as yields rose through the curve. The yield on the 2-yr note increased three basis points (0.90%) while the yield on the benchmark 10-yr note rose two basis points (1.62%).

Today's participation was below the recent average as fewer than 800 million shares changed hands on the NYSE floor.

Today's economic data was limited to August Construction Spending and the September ISM Index:

The ISM Manufacturing Index for September checked in at 51.5 (Briefing.com consensus 50.4). The September reading was better than expected and up from 49.4 in August.

The dividing line between expansion and contraction for this measure of national manufacturing activity is 50.0.

Total construction spending declined 0.7% in August (Briefing.com consensus +0.2%) following a downwardly revised 0.3% decline (from 0.0%) for July.

On a year-over-year basis, total construction spending is down 0.3%.

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

There is no economic data of note scheduled to be released tomorrow.

Russell 2000: +9.6% YTD

Nasdaq: +5.9% YTD

S&P 500: +5.7% YTD

Dow Jones: +4.8% YTD