Day Traders Diary

11/30/16

 The stock market closed a strong month on a sloppy note as the S&P 500 (-0.3%) spent the day in a retreat from its opening high. The benchmark index narrowed its November gain to 3.4% while the Nasdaq Composite (-1.1%) underperformed, but still added 2.6% for the month. The Dow Jones Industrial Average (UNCH) outperformed today, staying true to its November (+5.4%) form.

Equity indices entered the day with an assortment of positive headlines to rally behind, but what we saw instead, was a continuation of the selling that showed up during the last hour of yesterday's session.

The positive headlines from this morning included:

An official OPEC agreement to lower oil production to 32.5 million barrels per day

Better than expected economic data, which supports the narrative that a December rate hike makes sense and is not being rushed

News that Steve Mnuchin, who is known to be business-friendly, was nominated as Secretary of the Treasury

Report that the European Central Bank is likely to extend its quantitative easing program past March

In the end, only the OPEC-related news stuck, preventing the S&P 500 from ending well below its flat line. The energy sector (+4.8%) extended its November gain to 7.9% while crude oil soared 9.3% to $49.44/bbl, ending the month higher by 5.5%. The big rally in crude began in overnight action, before the results of the OPEC meeting were known. A short squeeze likely played a part in the rally, especially when taking into account yesterday's bearish headline flow. On a side note, today's OPEC deal will put monthly supply back at levels from the start of the year, when hopes for a supply cut were already driving daily price action.

Energy was one of just four pockets of relative strength on the sector leaderboard. Financials (+1.3%) and materials (+1.1%) also posted solid gains while industrials (-0.1%) ended just ahead of the S&P 500 thanks to strength in transport stocks after rail carrier CSX (CSX 35.83, +1.03) raised its guidance.

The financial sector extended its November gain to 13.7%, as the month-long theme of yield curve steepening continued. Selling in the 10-yr note sent its yield higher by eight basis points to 2.37% while the 2-yr yield rose two basis points to 1.11%. For the month, the 10-yr yield spiked 54 basis points while the 2-yr yield jumped 26 basis points.

Today's sharp uptick in Treasury yields weighed on rate-sensitive sectors. Utilities (-3.2%) retreated throughout the day while telecom services (-2.1%), consumer staples (-1.7%), and real estate (-1.2%) were under significant pressure from the start.

Elsewhere, the consumer discretionary sector (-0.9%) was pressured by losses in apparel retailers and homebuilders. The iShares Dow Jones US Home Construction ETF (ITB 27.34, -0.59) fell 2.1% after a disappointing Pending Home Sales report (+0.1%; Briefing.com consensus +0.7%), which made for a soft spot in today's batch of economic data. On the retail side, American Eagle Outfitters (AEO 16.56, -2.35) plunged 12.4% in reaction to disappointing guidance for the holiday period.

Two other influential sectors—health care (-1.0%) and technology (-1.2%)—kept the market under pressure throughout the day, and their underperformance was most notable when looking at the Nasdaq. Biotechnology was particularly weak, sending the iShares Nasdaq Biotechnology ETF (IBB 274.07, -6.24) lower by 2.2%. The biotech ETF narrowed its November gain to 6.8%.

Month-end flows led to increased participation as more than 1.5 billion shares changed hands at the NYSE floor.

Economic data included MBA Mortgage Index, ADP Employment, Personal Income/Spending, Chicago PMI, and Pending Home Sales:

The ADP National Employment Report showed an increase of 216,000 in November (Briefing.com consensus 160,000) while the October reading was revised down to 119,000 from 147,000.

Personal income increased 0.6% in October (Briefing.com consensus +0.4%), bolstered by a 0.5% increase in compensation of employees and a 1.8% jump in personal interest income.

Personal spending was up 0.3%, and while that was below the Briefing.com consensus estimate calling for 0.5% growth, it was essentially in-line with expectations when taking into account that personal spending growth in September was revised up to 0.7% from 0.5%.

Core PCE Prices increased 0.1%, in-line with the Briefing.com consensus.

The MNI Chicago Business Barometer checked in at 57.6 for November (Briefing.com consensus 52.0) versus 50.6 in October. The November reading marked the highest reading for the barometer since January 2015.

New Orders increased to 63.2 from 52.5

Pending Home Sales ticked up 0.1% in October (Briefing.com consensus 0.7%) and the September reading was revised down to 1.4% from 1.5%.

The weekly MBA Mortgage Index fell 9.4% after rising 5.5% last week.

Tomorrow, weekly initial claims (Briefing.com consensus 253K) will be reported at 8:30 ET while October Construction Spending (Briefing.com consensus 0.6%) and the November ISM Index (Briefing.com consensus 52.1) will cross the wires at 10:00 ET.

Russell 2000 +16.3% YTD

Dow Jones Industrial Average +9.8% YTD

S&P 500 +7.6% YTD

Nasdaq Composite +6.3% YTD