Day Traders Diary

10/12/16

The stock market ended Wednesday on a flat, and relatively mixed, note as the minutes from the FOMC's September policy meeting failed to disturb an otherwise quiet trading session. The S&P 500 (+0.1%) settled a hair below its 100-day simple moving average (2139.44) while the Nasdaq Composite (-0.2%) finished on a slightly lower note.

Rising bond yields and a strengthening dollar remained focal points in today's action as investors looked to substantiate their rate hike outlook with the minutes from the FOMC's September 20-21 meeting.

Bond yields and the greenback rose through the first half of trade as a solidifying rate hike outlook provided support. Market participants continued to discount the possibility of a November rate hike while betting on a policy shift at the December meeting. According to the CME's Fed Watch Tool, the probability of a rate hike at the November meeting is just 9.3% while the probability of a hike at the December meeting sits at 69.9%.

The minutes from the FOMC's September policy meeting indicated that there were a number of arguments for raising rates in September, but that the committee opted to wait for further data. All in all, there wasn't really any "new" news in the minutes, which essentially reinforced preconceived policy notions held by the market ahead of their release. 

Those notions revolved around a belief that the next hike in the target range for the fed funds rate will most likely occur at the December 13-14 FOMC meeting, barring any big economic potholes hit along the way.

The U.S. Dollar Index (97.92, +0.23, +0.24%) tested, but failed to clear the psychological 98.00 price level while the yield on the 10-yr note finished higher by one basis point at 1.77%.

Although long-term rates rose again today, the real estate (+1.3%), utilities (+1.0%), telecom services (+0.6%), and consumer staples (+0.5%) sectors -- so-called "yield plays" -- all outperformed on Wednesday in a move that had the semblance of being a bounce from short-term oversold conditions.  For instance, entering Wednesday's trade, the S&P 500 utilities sector had fallen 9.4% over the last three months.

The S&P 500 (+0.1%) finished the session off its high, having failed earlier in the day to clear technical resistance in the 2144/2146 area.

Eight sectors finished in positive territory while three -- health care (-0.6%), energy (-0.4%), and materials (-0.2%) -- ended the day with a loss.

Retail names outperformed in the consumer discretionary space (+0.4%), evidenced by the 0.8% gain in the SPDR S&P Retail ETF (XRT 43.68, +0.33). Separately, Amazon (AMZN 834.09, +3.09) finished ahead of the broader market after Cantor Fitzgerald raised its price target on the stock to $1,000 from $835.

The financial sector (+0.2%) displayed relative strength on a slight steepening in the yield curve and extended its gain for the month to 1.1%, helped also by insurers and asset managers.

Biotechnology underperformed once again in the health care sector (-0.6%), evidenced by the 2.5% decline in the iShares Nasdaq Biotechnology ETF (IBB 270.13, -6.87), which closed below its 200-day moving average -- a move that will be regarded as a negative technical development. Mylan (MYL 37.07, -1.24) fell 3.2% as it pulled back from an 8.2% gain on Monday.

Health care providers also weighed as Humana (HUM 168.44, -9.09) tumbled 5.5%. The stock fell after the managed care provider announced that the number of 4-star plan members declined to 1.17 million from 2.15 million in the prior year. The company also raised its full-year earnings guidance. 

The energy sector (-0.4%) underperformed amid a 1.1% decline in crude oil futures ($50.15/bbl, -$0.56). As a reminder, the American Petroleum Institute will release its weekly inventory report after today's close. Meanwhile, the Department of Energy will release its more influential inventory report tomorrow morning at 11:00 a.m. ET.

Today's trading volume fell came in below the recent averages of 926 million as 655 million shares changed hands at the NYSE floor. Today's low volume was partly attributed to the Jewish holiday of Yom Kippur, which began at sunset on Tuesday and will continue until nightfall today.

Today's economic data included the weekly MBA Mortgage Index and the Job Openings and Labor Turnover Survey for August:

The MBA Mortgage Index indicated that mortgage applications fell 6.0% in the week ending October 8. This followed a 2.9% increase in the prior week.

The August Job Openings and Labor Turnover Survey showed that job openings came in at 5.443 million from a revised 5.831 million (from 5.871 million) in July.

Tomorrow's economic data will include weekly initial claims report (Briefing.com consensus 255k) and the Import/Export Price report for September, both of which will cross the wires at 8:30 a.m. ET. Separately, the Treasury Budget for September will be released at 2:00 p.m. ET.

Russell 2000: +12.4% YTD

S&P 500: +4.7% YTD

Nasdaq: +4.6% YTD

Dow Jones: +4.1% YTD