Day Traders Diary

10/31/16

 The major averages finished the month on a flat note, settling with monthly losses across the board. Participants preferred a cautious approach at the beginning of the week as a glut of earnings reports and economic data remained in sight. The Nasdaq Composite was little changed, ending October down 2.3%. Meanwhile, the S&P 500 also settled flat, finishing the month lower by 1.9%.

Equity indices briefly rose at the start of the session as a recent wave of M&A chatter culminated in some weekend deals. CenturyLink (CTL 26.58, -3.81, -12.5%) agreed to acquire Level 3 (LVLT 56.15, +2.10, +3.9%), offering $66.50 per share, or approximately $25 billion. Meanwhile, General Electric (GE 29.10, -0.12, -0.4%) reached a deal to combine its oil and gas business with Baker Hughes (BHI 55.40, -3.72, -6.3%).

The upbeat start proved to be short-lived, however, as an extended downturn in crude oil futures drove the broader market back to its flat line. The energy component was under pressure after members of OPEC failed to solidify a proposed supply freeze agreement. The oil collective held a technical meeting over the weekend, but could not cement individual production cut allocations. WTI crude settled lower by 3.9% ($46.84/bbl; -$1.88), finishing October down 2.6%.

The broader market attempted to shrug off the move in crude oil as a pullback in bond yields and largely in-line economic data offered support.

The latest inflation reading fell largely in-line with expectations as personal income rose 0.3% (Briefing.com consensus +0.4%) in September while personal spending increased 0.5% (Briefing.com consensus +0.5%). The Core PCE Price Index ticked higher by 0.1% (Briefing.com consensus +0.1%), pushing year-over-year growth to 1.7%. This is the last inflation reading ahead of the Fed's November policy meeting this Wednesday.

Fed funds futures were little changed by the data with the December meeting still commanding an outsized number of rate hike bets. According to the CME's FedWatch Tool, the implied probability of a December hike is 77.8%. 

Nine sectors ended in positive territory with utilities (+2.0%), real estate (+1.4%), and industrials (+0.2%) outperforming. Conversely, energy (-1.2%) and health care (-0.6%) finished in the red.

In the energy sector (-1.2%), Dow component Exxon Mobil (XOM 83.32, -1.46) ended lower by 1.7% after being removed from the "Conviction Buy List" at Goldman. However, fellow Dow component Chevron (CVX 104.75, +0.93) gained 0.9% after Goldman upgraded it to "Buy" from "Neutral" and added it to its "Conviction Buy List." The broader sector finished the month down 3.0%, ending behind the benchmark index.

Biotechnology extended its recent loss as the iShares Nasdaq Biotechnology ETF (IBB 256.68, -3.81, -1.5%) ended the month lower by 11.3%. This compares to a decline of 6.6% in the broader health care sector (-0.6%). The sub-industry was under pressure as participants weighed the regulatory implications of this election cycle. On that note, McKesson (MCK 127.17, +3.06) rebounded 2.5% after falling 22.7% in the prior session.

In the industrial sector (+0.2%), Roper (ROP 173.31, +5.40) outperformed after beating bottom-line estimates for the quarter. The stock rallied 3.2% as a bottom-line beat overshadowed some cautious guidance. Dow component General Electric (GE 29.10, -0.12) ended lower by 0.4% after gaining 0.5% at the start of the session.

The Treasury complex settled on a higher note with yields pulling back across the curve. The yield on the 2-yr note slipped one basis point to 0.85% while the yield on the benchmark 10-yr note ended down two basis points (1.83%). The yield on the 10-yr note increased 23 basis points in October.

Today's trading volume was above the average of 850 million as more than one billion shares changed hands at the NYSE floor.

Economic data included Personal Income, Personal Spending, Core PCE Prices, and Chicago PMI for October:

Personal income increased 0.3% (Briefing.com consensus +0.4%), personal spending increased 0.5% (Briefing.com consensus +0.5%), and the core PCE Price Index was up 0.1% (Briefing.com consensus +0.1%).

The Personal Income and Spending report for September was mostly in-line with expectations.

The MNI Chicago Business Barometer checked in at 50.6 for October (Briefing.com consensus 54.0), down from 54.2 in September and the lowest reading since May.

Tomorrow's economic data will include the 10:00 ET release of the ISM Index for October (Briefing.com consensus 51.9) and Construction Spending for September (Briefing.com consensus 0.5%). Separately, Auto and Truck Sales for October will be released throughout the day.

Russell 2000: +4.9% YTD

Dow Jones: +4.1% YTD

S&P 500: +4.0% YTD

Nasdaq Composite: +3.6% YTD