Day Traders Diary

10/26/16

The stock market ended the midweek affair on a mixed note as investors mulled over underwhelming quarterly results and guidance from top-weighted Apple (AAPL 115.59, -2.66, -2.3%). Other factors impacting today's action included a fleeting rally in crude oil, rising long-term bond yields, and weakness in the heavyweight technology (-0.5%) and health care (-0.7%) sectors. The Nasdaq Composite (-0.6%) settled behind the S&P 500 (-0.2%) and the Dow Jones Industrial Average (+0.2%).

Influential Apple dragged on the broader market as participants weighed a bottom-line beat against some less than impressive guidance and declining year-over-year revenue. The Dow component fell 4.2% in the opening hour, but narrowed that loss to 2.3% by the end of the session. Apple finished at the bottom of the price-weighted average, but continues to sport an October gain of 2.3%.

The heavyweight dampened risk appetite across the broader market, but particularly weighed on fellow technology (-0.5%) bellwethers.

The benchmark index briefly erased its loss near mid-morning as upbeat weekly inventory data from the Department of Energy lifted crude oil futures off their low ($48.88/bbl). The EIA reported that crude oil inventories declined by 0.55 million barrels (consensus: +1.69 million) while gasoline stockpiles fell by 1.95 million barrels (consensus: -0.96 million). However, the energy component was unable to maintain its footing above the $50.00/bbl and soon retraced nearly the entire move. Participants continued to express some misgivings after Iraq indicated earlier in the week that it may seek an exemption from the previously discussed OPEC supply freeze agreement. WTI crude ended lower by 1.4% ($49.17, -$0.70).

Rising long-term bond yields also kept the broader market in check as bond prices fell throughout the complex. The yield on the benchmark 10-yr note settled higher by three basis points at 1.79%. The move corresponded with similar action in the sovereign bond market, but lacked a definitive catalyst. However, it is worth noting that German Finance Minister Wolfgang Schaeuble opined that monetary policy may have reached its limits.

The S&P 500 finished off its worst level of the day as seven sectors ended in the red. Real estate (-1.3%), health care (-0.7%), and technology (-0.5%) finished at the bottom of the leaderboard while financials (+0.6%), industrials (+0.4%), and energy (+0.3%) led the pack.

In the health care space (-0.7%), providers of health equipment and supplies lagged as they moved lower in sympathy with Edwards Lifesciences (EW 94.25, -19.43). The name tumbled 17.1% after missing revenue estimates for the quarter and offering cautious revenue guidance. Dow component Merck (MRK 60.87, -1.08, -1.7%) also weighed, giving back the bulk of yesterday's 2.2% post-earnings gain.

The influential technology sector (-0.5%) displayed relative weakness as quarterly results and guidance from Apple called into question the group's earnings prospects. Alphabet (GOOG 799.07, -8.60) and Facebook (FB 131.04, -1.25) finished lower by 1.0% apiece. On a side note, Alphabet is scheduled to release its quarterly earnings report tomorrow evening.

Some steepening in the yield curve gave a boost to the economically-sensitive financial space (+0.5%). The broader sector's earnings prospects improve with a steeper yield curve since banks borrow in the short-term market and issue longer-term loans. The differential between the 2-yr and 10-yr notes expanded to 92 basis points. In earnings news, Ameriprise Financial (AMP 90.13, -7.70) plunged 7.3% after reporting a mixed quarter.

In the industrial sector (+0.4%), aerospace and defense contractors led as Dow component Boeing (BA 145.54, +6.52) finished at the top of the price-weighted average. The company beat analysts' estimates for the quarter. Conversely, Southwest Airlines (LUV 38.40, -3.55, -8.5%) weighed after issuing cautious passenger revenue guidance.

Today's trading volume was above the average of 853 million as 863 million shares changed hands at the NYSE floor.

Today's economic data included the weekly MBA Mortgage Index, September International Trade in Goods, and New Home Sales for September:

The MBA Mortgage Index indicated that mortgage applications declined 4.1% in the week ending October 22. This followed a 0.6% decrease in the prior week.

The advance report on international trade in goods showed a narrowing in the goods deficit to $56.1 billion in September from a downwardly revised $59.1 billion (from -$58.4) in August.

Sales of new single-family houses jumped 3.1% in September to a seasonally adjusted annual rate of 593,000 (Briefing.com consensus 610k) from a revised August rate of 575,000 (prior 609,000).

Tomorrow's economic data will include weekly initial claims (Briefing.com consensus 259k) and Durable Orders for September (Briefing.com consensus 0.0%), which will both cross the wires at 8:30 ET. Separately, Pending Home Sales for September (Briefing.com consensus 0.6%) will be released at 10:00 ET.

Russell 2000: +6.1% YTD

Nasdaq Composite: +4.9% YTD

S&P 500: +4.7% YTD

Dow Jones: +4.4% YTD