Day Traders Diary

11/2/16

The stock market ended the midweek affair on a lower note as US election jitters overshadowed a largely in-line policy directive from the Federal Reserve. The Nasdaq Composite (-0.9%) finished behind the S&P 500 (-0.7%) and the Dow Jones Industrial Average (-0.4%).

The broader market began the day on a lower note as a downturn in crude oil and a negative bias in global bourses kept risk appetite in check. Participants also opted to move to the sidelines as the US presidential race tightened, according to recent polls.

A joint poll conducted by ABC News and the Washington Post had investors on the defensive yesterday as Republican nominee Donald Trump took a slight edge over Democratic nominee Hillary Clinton. The poll unnerved the broader market as participants had all but priced in a Clinton presidency. Today's read offered little solace as ABC News and the Washington Post indicated that the two candidates were neck-and-neck heading into the final week. Furthermore, an L.A. Times poll added to uncertainty, giving an edge to Mr. Trump. The CBOE Volatility Index (19.10, +0.54, +3.0%) is up roughly three points from last Friday's settlement, showing that volatility expectations are on the rise.

Safe haven bonds, gold, and currencies gained on the developments as participants attempted to mitigate the impact of any surprise results from next Tuesday's election. The Treasury complex gained across the curve, exerting continued pressure on yields from multi-month highs. The yield on the benchmark 10-yr note declined three basis points to 1.80% while the yield on the 2-yr note slipped two basis points (0.82%).

The pullback in yields failed to offer a reprieve for high-yielding sectors as real estate (-1.5%), utilities (-1.3%), and telecom services (-1.2%) continued their recent losing streaks.

Crude oil also extended early losses after the EIA confirmed a larger-than-expected build in crude oil inventories. The Department of Energy reported that crude oil inventories rose by 14.42 million barrels (consensus: +1.01 million) while gasoline stockpiles fell by 2.20 million barrels (consensus: -1.89 million). The energy component settled lower by 2.9% ($45.31/bbl; -$1.37).

The major averages saw some movement after the latest policy statement from the FOMC, but the S&P 500 ended near levels seen right before the release of the statement. The FOMC opted to leave the target range for the fed funds rate unchanged at 0.25% to 0.50% while stating that the case for moving rates higher had strengthened. Interestingly enough, only two FOMC members dissented at this meeting as Boston Fed President Eric Rosengren rejoined the majority.

The benchmark index finished near its worst level of the day, slipping below the psychological 2100 price level. All eleven sectors finished in the red with energy (-1.0%) and financials (-0.8%) representing notable laggards.

The commodity-sensitive energy space (-1.0%) weighed as refining names underperformed Marathon Petroleum (MPC 41.00, -1.34) finished lower by 3.2%. On the other hand, Anadarko Petroleum (APC 60.14, +0.19) outperformed after being upgraded to "Outperform" from "Neutral" at Credit Suisse.

In the financial sector (-0.8%), banking names underperformed as falling interest rates and declining oil prices weighed. Wells Fargo (WFC 45.24,- 0.36) finished lower by 0.9%. The in-line policy statement from the Fed failed to upset the rate hike picture for the remainder of the year. Per the CME's FedWatch Tool, the implied probability of an interest rate hike at the December meeting rose to 71.5% from 68.4% in the prior session.

The heavily-weighted technology sector (-0.7%) paced the retreat in the broader market as Facebook (FB 127.17, -2.33) and Alphabet (GOOG 768.70, -14.91) fell 1.8% and 1.9%, respectively. Facebook is scheduled to report its quarterly results this evening.

Biotechnology names weighed on the health care space (-0.5%) as Allergan (AGN 197.89, -10.76) and Gilead Sciences (GILD 72.51, -1.56) fell a respective 5.2% and 2.1%. Both names missed bottom-line estimates for the quarter. Conversely, Anthem (ANTM 122.99, +5.57) gained 4.7% as reaffirmed full-year guidance overshadowed below-consensus earnings.

Today's trading volume was above the average of 865 million as more than 970 million shares changed hands at the NYSE floor.

Today's economic data included the weekly MBA Mortgage Index and the ADP Employment Report for October:

The MBA Mortgage Index indicated that mortgage applications fell 1.2% in the week ending October 29. This followed a 4.1% decline in the prior week.

The ADP Employment Change report for October showed an estimated 147,000 positions were added to private sector payrolls in October versus the Briefing.com consensus estimate of 165,000.

The mitigating factor with the headline disappointment for October was the upward revision for September to 202,000 from an originally reported 154,000 increase.

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

Tomorrow's economic data will include the 7:30 ET release of October Challenger Job Cuts. Meanwhile, weekly initial claims (Briefing.com consensus 256k) and the preliminary estimate of third quarter Productivity (Briefing.com consensus 1.8%) and Unit Labor Costs (Briefing.com consensus 1.2%) will cross the wires at 8:30 ET. The day's data will be capped off with Factory Orders for September (Briefing.com consensus +0.2%) and ISM Services for October (Briefing.com consensus 55.8), which will be released at 10:00 ET.

Dow Jones: +3.1% YTD

S&P 500: +2.6% YTD

Russell 2000: +2.5% YTD

Nasdaq: +2.0% YTD