Day Traders Diary

12/6/16

The stock market registered its third consecutive advance on Tuesday with the S&P 500 rising 0.3% while the Nasdaq Composite (+0.5%) outperformed slightly.

Once again, the trading day was very quiet, but once again, that did not stop the market from inching higher. Investor sentiment remained upbeat despite the weekend failure of a constitutional reform referendum in Italy. The country's MIB index surged 4.2% while demand for Italian debt sent Italy's 10-yr yield lower by four basis points to 1.95%.

Equities spent the first two hours of action near their flat lines, but climbed into the afternoon amid gains in most sectors. A few cyclical sectors opened in the red, but only energy (-0.1%) remained in negative territory when the closing bell rang. To be fair, most other growth-sensitive groups settled near the broader market while financials (+1.0%) continued their recent outperformance. The financial sector extended its December gain to 2.8%.

Only one other sector—telecom services (+1.5%)—ended the day ahead of the broader market, underscoring today's range-bound action. However, small cap stocks saw more movement with the Russell 2000 rising 1.1% as participants showed increased demand for domestically-oriented names.

Market participants received a flurry of earnings, but the consumer discretionary sector (+0.3%) settled near the S&P 500 even though Autozone (AZO 779.81, +3.39) and Toll Brothers (TOL 31.94, +1.47) climbed after releasing above-consensus results. The two posted respective gains of 0.4% and 4.8% while the iShares Dow Jones US Home Construction ETF (ITB 27.86, +0.46) climbed 1.7%.

The modest uptick in the discretionary space masked a 7.6% dive in the shares of Chipotle Mexican Grill (CMG 366.37, -29.90). The stock extended its 2016 decline to 23.7% after management made cautious comments about guidance for fiscal year 2017.

Elsewhere, Dow component Boeing (BA 152.24, +0.08) made its way into the morning newsflow after President-Elect Donald Trump complained about the high cost of the Air Force One program. Shares of Boeing were down about 0.5% in early action, but the stock erased its loss by the close, likely due to the understanding that Boeing's business would see little to no impact even if the U.S. government cancelled its order for a new aircraft.

It is worth noting that the energy sector (-0.1%) displayed resilience. The sector erased a 1.0% loss even though crude oil slumped, ending the day lower by 1.5% at $50.95/bbl.

Treasuries spent the day inside narrow ranges with modest demand for the 10-yr note sending its yield lower by a basis point to 2.39%.

Today's participation was a bit light as fewer than 860 million shares changed hands at the NYSE floor.

Economic data included Productivity, Unit Labor Costs, Trade Balance, and Factory Orders:

• Third-quarter productivity was left unrevised at 3.1% (Briefing.com consensus 3.3%) while Unit Labor Costs were revised up to 0.7% from 0.3% (Briefing.com consensus 0.2%)
  • Higher unit labor costs may not be the best thing for corporate profit margins, yet there is an encouraging element for consumer spending growth since the revision for unit labor costs was driven solely by an increase in hourly compensation growth
• The trade deficit widened to $42.6 billion in October (Briefing.com consensus -$41.8 bln) from an upwardly revised $36.2 billion deficit (from -$36.4 bln) in September
  • Net exports will be a drag on fourth-quarter real GDP, considering October real trade deficit of $60.30 billion was above the third-quarter average of $56.60 billion
• New orders for manufactured goods increased 2.7% in October (Briefing.com consensus +2.5%) on top of an upwardly revised 0.6% increase (from 0.3%) in September
  • Overall demand remains sluggish, considering orders are still down 2.0% year-over-year

Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET while October JOLTS will be announced at 10:00 ET. October Consumer Credit (Briefing.com consensus $18.70 billion) will be reported at 15:00 ET.

• Russell 2000 +19.5% YTD
• Dow Jones Industrial Average +10.5% YTD
• S&P 500 +8.2% YTD
• Nasdaq Composite +6.5% YTD