Day Traders Diary

12/14/16

 The stock market ended the midweek session on a lower note, extending its retreat after the Federal Open Market Committee announced a 25-basis point rate hike. The S&P 500 settled lower by 0.8% while the Russell 2000 (-1.2%) underperformed.

Going into today's session, market participants were all but sure that the Fed would raise rates for the first time since last December. The central bank lived up to that expectation, but the accompanying "dot plot" indicated that policymakers expect to raise rates three times in 2017. This is at odds with the fed funds futures market, which expects just two hikes in 2017.

During her press conference, Fed Chair Janet Yellen was asked if fiscal policies that fail to boost productivity could prompt the Fed to be more aggressive when it comes to hiking rates, but Ms. Yellen's response only acknowledged the presence of considerable uncertainty on the fiscal front.

Treasuries retreated in reaction to the rate increase while the U.S. Dollar Index (102.10, +1.04) jumped 1.0% to mark a fresh high for the year. As for Treasuries, short-dated issues bore the brunt of today's selling while the long end remained anchored. The 2-yr yield jumped eight basis points to 1.25% while the 10-yr yield rose five basis points to 2.52%. The long bond ended slightly lower with its yield increasing one basis point to 3.14%.

All eleven sectors ended the day in negative territory with rate-sensitive groups leading the retreat. Real estate (-1.9%) and utilities (-2.0%) settled near the bottom of the leaderboard while consumer staples (-1.0%) and telecom services (-1.0%) posted slimmer losses. The health care sector (-0.4%) ended a bit ahead of the market thanks to the outperformance among biotech names. The iShares Nasdaq Biotechnology ETF (IBB 269.42, +0.37) added 0.1%.

Most cyclical sectors struggled at the start while technology (-0.3%) and financials (-0.6%) displayed early strength. The financial sector surged in immediate reaction to the rate hike, but reversed just below its high from December 8. The economically-sensitive sector remains higher by 4.2% for the month, trading only behind telecom services (month-to-date +4.8%).

The energy sector (-2.1%) settled at the bottom of the leaderboard, pressured by daylong weakness in crude oil. The energy component sank 3.7% to $51.03/bbl, beginning its retreat after yesterday's bearish API inventory report. Crude saw no respite from a bullish inventory report that was released by the Energy Information Administration this morning.

With all eyes on the Fed, stock-specific news was relegated to the backburner, masking press reports from China that suggested an unnamed U.S. automaker will be fined for monopolistic behavior. General Motors (GM 35.95, -1.41) lost 3.8% while Ford (F 12.53, -0.24) surrendered 1.9%.

Investor participation was ahead of average with more than 1.2 billion shares changing hands at the NYSE floor.

Economic data included Retail Sales, PPI, Industrial Production, and Business Inventories:

Retail sales increased just 0.1% (Briefing.com consensus +0.3%) after a downwardly revised 0.6% increase (from +0.8%) for October. A 0.5% decline in auto sales was the main drag on total retail sales

Excluding autos, retail sales were up 0.2% (Briefing.com consensus +0.4%), aided by modest sales increases in most retail categories

Both the final demand indexes for PPI and core-PPI, which excludes food and energy, were up 0.4% in November against the Briefing.com consensus estimates of +0.1% and +0.2%, respectively

With prices rising at the producer level, some angst may arise about higher consumer inflation going forward

Industrial production declined 0.4% in November following an upwardly revised 0.1% increase (from 0.0%) in October. Taking the revision into account, the decline in November was largely in-line with the Briefing.com consensus estimate that called for a 0.3% decline

Business inventories declined 0.2% in October (Briefing.com consensus -0.1%) versus a downwardly revised unchanged reading (from +0.1%) for September

Sales increased 0.8% on top of an upwardly revised 0.8% increase (from +0.7%) for September

The weekly MBA Mortgage Index fell 4.0% to follow last week's 0.7% decline

Tomorrow will also be pretty busy on the economic front with weekly initial claims (Briefing.com consensus 256K), November CPI (Briefing.com consensus 0.2%), December Philadelphia Fed (Briefing.com consensus 9.0), December Empire Manufacturing (Briefing.com consensus 3.0), and Q3 Current Account Balance (Briefing.com consensus -$111.60 billion) all set to be released at 8:30 ET. The December NAHB Housing Market Index (Briefing.com consensus 63) will be reported at 10:00 ET.

Russell 2000 +19.5% YTD
Dow Jones Industrial Average +13.6% YTD
S&P 500 +10.2% YTD
Nasdaq Composite +8.6% YTD