Day Traders Diary

10/5/16

The stock market ended the midweek affair on a higher note as a rally in crude oil futures and financials (+1.5%) outweighed some lingering rate jitters. The Dow Jones Industrial Average (+0.6%) finished ahead of the Nasdaq Composite (+0.5%) and the S&P 500 (+0.4%).

Index futures climbed in pre-market action, receiving a boost after the release of a weaker-than-expected reading of the ADP National Employment Report for September. The report indicated the addition of 154,000 (Briefing.com consensus 171k) private sector payrolls in September, but it is worth remembering that the Employment Situation Report, which will be released on Friday, carries a lot more influence. The September Employment Situation Report will be released on Friday at 8:30 ET (Briefing.com consensus 176,000). The hiring landscape remains in focus as participants continue refining their rate hike expectations.

Interest rates edged higher, keeping a lid on the market after the ISM Services Index for September handily beat expectations. The index jumped to 57.1 (Briefing.com consensus 52.8) from 51.4 in August. The Treasury complex sold off in response as yields moved higher across the curve. The increase in interest rates pressured defensively-oriented real estate (-1.9%), telecom services (-1.8%), utilities (-0.3%), and consumer staples (-0.2%) for a second straight session.

A rally in crude oil also contributed to strength in growth-sensitive sectors. The energy component extended an early lead after the Department of Energy confirmed a positive reading from the American Petroleum Institute. The EIA reported that crude oil stockpiles declined by 2.97 million barrels (consensus: +2.56 million) while gasoline inventories rose by 0.22 million barrels (consensus: +0.70 million). WTI crude finished the day higher by 2.2% ($49.76/bbl; +$1.08).

The benchmark index finished off its session high, testing technical resistance near the 2160 price level. Seven sectors settled in the green with financials (+1.5%), energy (+1.4%), and materials (+0.7%) leading the advance.

The heavily-weighted financial (+1.5%) sector topped the leaderboard as steepening in the yield curve improved the earnings potential for the group. The spread between the 2-yr yield and 10-yr yield expanded to 89 basis points. Money center banks and life insurance names outperformed as MetLife (MET 45.99, +1.12) and Wells Fargo (WFC 44.99, +1.24) gained 2.5% and 2.8%, respectively. The broader group has gained 1.4% this week, leading the remaining sectors on the weekly leaderboard.

The high-beta chipmakers outperformed in the technology sector (+0.4%), evidenced by the 0.7% gain in the PHLX Semiconductor Index. Broadcom (AVGO 173.48, +4.43) gained 2.6% after receiving an "Outperform" designation at Bernstein. Micron (MU 17.70 -0.10) settled modestly lower as a disappointing gross interest margin masked a bottom-line beat. Separately, Twitter (TWTR 24.87, +1.35) gained 5.7% after reports indicated that the company could receive takeover bids as early as this week. Recall that Alphabet (GOOG 776.47, +0.04), Microsoft (MSFT 57.64, +0.40), Disney (DIS 92.45, +0.14), and Salesforce.com (CRM 68.42, -4.21) have previously been cited as potential suitors.

Retail names displayed relative strength in the consumer discretionary space (+0.4%) as the SPDR S&P Retail ETF (XRT 43.99, +0.58) gained 1.3%. In the group, apparel retailers led as Nordstrom (JWN 53.00, +1.35) and Gap (GPS 22.53, +0.75) moved higher by 2.6% and 3.4%, respectively. Conversely, discount retailers underperformed for a second session as Dollar Tree (DLTR 75.12, -1.31) weighed on the group.

Treasuries finished near their worst levels as yields rose through the curve. The yield on the 2-yr note increased one basis point (0.83%) while the yield on the benchmark 10-yr note rose two basis points (1.70%).

Today's participation was above the recent average as more than 962 million shares changed hands on the NYSE floor.

Today's economic data included weekly MBA Mortgage Index, ADP Employment Report for September, August Trade Balance, Factory Orders for August, and ISM Services for September:

The MBA Mortgage Index indicated that mortgage applications rose 2.9% in the week ending October 1. This followed a 0.7% decline in the prior week.

ADP said an estimated 154,000 positions (Briefing.com consensus 171,000) were added to private sector payrolls in September, almost all of which came from the Service-providing sector (151,000).

Small businesses added 34,000 jobs, midsized businesses increased their payrolls by 56,000 positions, and large businesses added 64,000 jobs.

The Trade balance report for August showed a widening in the deficit to $40.7 billion (Briefing.com consensus -$39.1 billion) from $39.5 billion in July.

Factory orders increased 0.2% in August (Briefing.com consensus +0.1%) following a downwardly revised 1.4% increase (from 1.9%) in July. Total manufacturing shipments were unchanged after declining 0.4% in July.

The ISM Non-Manufacturing PMI increased to 57.1 in September (Briefing.com consensus 52.8) from 51.4 in August.

September marked the highest reading for the index since October 2015.

Tomorrow's economic data will be limited to September Challenger Job Cuts and weekly initial claims (Briefing.com consensus 258k), which will be released at 7:30 ET and 8:30 ET, respectively.

Russell 2000: +9.9% YTD

Nasdaq: +6.2% YTD

S&P 500: +5.7% YTD

Dow Jones: +4.9% YTD