Day Traders Diary

12/15/16

The stock market avoided its second consecutive decline, but not before seeing some afternoon selling that may have startled investors who have gotten accustomed to the near-daily ascent to new record highs. The S&P 500 gained 0.4%, erasing roughly half of its post-FOMC decline.

Equities started Thursday on an upbeat note with heavily-weighted sectors like financials (+1.0%), technology (+0.4%), and health care (+0.6%) pacing the opening move. The three largest sectors by weight started in the green and their strength helped most other groups erase their opening losses. The S&P 500 hit a session high shortly before 10:30 ET and spent the early afternoon in a slow retreat from that mark. The retreat accelerated as the session wore on, but the S&P 500 still registered an eight-point gain. Small caps had a strong showing after a couple days of underperformance, evidenced by a 0.8% gain in the Russell 2000.

The focus may remain on the small cap index in the upcoming days, considering one school of thought would suggest that if the overall market pulls back, the index which has paced the rally should be at the forefront of the selling. However, another line of thinking could fuel an argument that domestically-oriented small caps are poised to outperform as participants shift into those names from large multinational corporations whose earnings prospects will be hampered by the latest wave of dollar strength.

The dollar rallied after yesterday's rate hike, continuing its advance into today's session. Greenback strength sent the euro (1.0410) and the Dollar Index (103.12, +1.35) to levels not seen since early 2003.

Nine sectors registered gains with financials (+1.0%) spending the day in the lead. The sector returned to little changed for the week, extending its December gain to 5.3%. Bank shares rallied even though the Federal Reserve said that top U.S. banks have a $70 billion total loss absorbing capacity shortfall. The market took solace in the fact that this is down from a 2015 estimate of $120 billion and banks have been given time until 2019 to address the situation. Bank of America (BAC 23.16, +0.49) was a standout among the majors, jumping 2.2%.

Two other top-weighted sectors—technology (+0.4%) and health care (+0.6%)—registered gains as strength in high-beta names overshadowed a mixed showing from larger components. Health care received a boost from biotechnology as the iShares Nasdaq Biotechnology ETF (IBB 271.94, +2.52) climbed 0.9%. For its part, the tech space was underpinned by chipmakers, sending the PHLX Semiconductor Index higher by 1.8%. The industry group benefited from broad strength with Xilinx (XLNX 60.18, +3.45) pacing the rally after receiving an upgrade. As for sector heavyweights, Apple (AAPL 115.82, +0.63) gained 0.6%, Microsoft (MSFT 62.58, -0.10) shed 0.2%, and Oracle (ORCL 40.86, -0.02) slipped 0.1% ahead of its quarterly report.

Another influential group—industrials (unch)—slipped into the close, masking strength among transport stocks. The Dow Jones Transportation Average gained 0.4% thanks to strength in airlines after Delta Airlines (DAL 50.50, +0.68) boosted its fourth-quarter guidance. The stock gained 1.4% while Alaska Air (ALK 90.12, +3.74) led with a 4.3% spike.

Treasuries began the day in mixed fashion and ended on a similar note. The 30-yr bond and the 2-yr note posted gains while the 5- and 10-yr notes retreated. The benchmark 10-yr yield rose two basis points to 2.59% while the 5-yr yield increased four basis points to 2.09%. The 2-yr yield slipped two basis points to 1.26% and the 30-yr yield fell three basis points to 3.15%.

Today's participation was above average as nearly 1.2 billion shares changed hands at the NYSE floor.

Economic data included initial claims, CPI, Philadelphia Fed, Empire Manufacturing, Current Account Balance, and NAHB Housing Market Index:

• Initial claims for the week ending December 10 decreased by 4,000 to 254,000 (Briefing.com consensus 256,000), marking the 93rd consecutive week that claims have been below 300,000
  • Continuing claims for the week ending December 3 increased by 11,000 to 2.018 million from an upwardly revised 2.007 million (from 2.005 mln) in the prior week.
• Total CPI increased 0.2% in November and so did core CPI, which excludes food and energy. Those increases were in-line with the Briefing.com consensus estimates
• The Philadelphia Fed Index checked in at 21.5 (Briefing.com consensus 9.0) for December, up sharply from the 7.6 reading registered in November
• The December Empire Manufacturing report increased to 9.0 from 1.5 that was reported in November (Briefing.com consensus 3.5)
• The December NAHB Housing Market Index rose to 70 from 63 (Briefing.com consensus 63)
• The Current Account deficit for the third quarter narrowed to $113.00 billion from $118.30 billion in the second quarter, while the Briefing.com consensus expected a deficit of $111.60 billion

Tomorrow's economic data will be limited to the 8:30 ET release of November Housing Starts (Briefing.com consensus 1225K) and Building Permits (Briefing.com consensus 1236K).

• Russell 2000 +20.2% YTD
• Dow Jones Industrial Average +13.9% YTD
• S&P 500 +10.7% YTD
• Nasdaq Composite +9.0% YTD