Day Traders Diary

12/1/16

The stock market ended Thursday on a mixed note ahead of Friday's Employment Situation report for November (Briefing.com consensus 180,000). The Dow Jones Industrial Average (+0.4%) continued its recent outperformance while the S&P 500 (-0.4%) and Nasdaq (-1.4%) ended in negative territory for the second consecutive day. The Nasdaq extended its weekly decline to 2.7%, settling just below its 50-day moving average (5264) for the first time since November 14.

Equity indices started above their flat lines, but countercyclical sectors and the top-weighted technology group displayed relative weakness from the start. The underperformance in the tech sector took a toll on the Nasdaq Composite while the broader S&P 500 benefited from solid gains in three cyclical groups.

The technology sector (-2.3%), which accounts for nearly 21.0% of the S&P 500, was pressured by daylong selling among high-beta chipmakers. The PHLX Semiconductor Index lost 4.9% with Apple (AAPL 109.47, -1.05) suppliers leading the decline after reports that the tech giant was reducing orders for the iPhone 7 due to weak demand. Apple fell 1.0% while Broadcom (AVGO 162.79, -7.70), Cirrus Logic (CRUS 49.32, -5.68), Qualcomm (QCOM 64.16, -3.97), and Skyworks (SWKS 71.78, -5.07) lost between 4.5% and 10.3%. Following today's profit taking, the PHLX Semiconductor Index remains up 26.1% for the year.

The Nasdaq also had to contend with daylong weakness in biotechnology, which sent the iShares Nasdaq Biotechnology ETF (IBB 269.49, -4.58) lower by 1.7%. However, the broader health care sector (-0.8%) settled a bit closer to its flat line.

Similar to health care, three of the remaining four countercyclical groups spent the day in negative territory. The real estate sector (-1.6%) extended its fourth-quarter loss to 10.2% while utilities (-0.9%) and consumer staples (-0.7%) struggled as yields remained on the rise. The benchmark 10-yr yield rose six basis points to 2.44% while the 2-yr yield increased two basis points to 1.14%.

Besides pressuring defensively-oriented groups, the increase in yields was a supportive factor for the financial sector (+1.7%), which is now up 18.1% in the fourth quarter due to sharp steepening in the yield curve. Sector heavyweights Bank of America (BAC 21.50, +0.38) and JPMorgan Chase (JPM 81.79, +1.62) gained 1.8% and 2.0%, respectively.

Elsewhere on the cyclical side, energy (+0.3%) and industrials (+0.8%) continued their recent outperformance, but the energy sector slid from its high into the close. Crude oil also backed away from its best level of the day, but still settled higher by 3.3% at $51.06/bbl. The energy component is now within striking distance of its 2016 high ($51.93/bbl).

For the second day in a row, the industrial sector (+0.8%) received support from transport stocks. The Dow Jones Transportation Average climbed 0.6% with CSX (CSX 36.62, +0.81) ending among the leaders. Recall that the rail carrier raised its fourth-quarter guidance yesterday.

Today's NYSE floor volume was above the 200-day average of 926 million, as 1.1 billion shares changed hands.

Economic data included Initial Claims, Construction Spending, and ISM:

Initial claims for the week ending November 26 increased 17,000 to 268,000 (Briefing.com consensus 253,000), marking the 91st straight week they have been below 300,000

Continuing claims for the week ending November 19 jumped by 38,000 to 2.081 million

Construction spending increased 0.5% in October (Briefing.com consensus +0.6%) following an upwardly revised unchanged reading (from -0.4%) for September. This will be a positive input when computing Q4 GDP

The ISM Manufacturing Index rose to 53.2 in November (Briefing.com consensus 52.1) from 51.9 in October

This was the third straight month that manufacturing activity has expanded and it is the highest reading since June 2016

Tomorrow, the Employment Situation report for November (Briefing.com consensus 180,000) will be released at 8:30 ET.

Russell 2000 +16.3% YTD

Dow Jones Industrial Average +10.1% YTD

S&P 500 +7.2% YTD

Nasdaq Composite +4.9% YTD