Day Traders Diary

1/6/17

The stock market closed the week on a higher note, with the S&P 500 and the Nasdaq finishing Friday's session higher by 0.4% and 0.6%, respectively. The Dow (+0.3%) finished the day 34 points shy of the elusive 20k mark after coming within one point of the milestone early Friday afternoon.

Equity indices started the day flat after the December Employment Situation report was met with a muted reaction from investors. The stock market picked up the pace about an hour into the session, trending upwards to a record intraday high where it remained until the closing bell.

Friday's release of the December Employment Situation report alluded to the fact that the labor market is approaching full employment; job growth is slowing, while wages are ticking up. Time will tell if the Fed sticks to their proposed rate-hike schedule, which calls for three rate hikes in 2017, but the Employment Situation report certainly didn't reveal anything that would suggest a change of plans.

Today's rally was led by the technology sector (+1.0%), which was aided by chipmakers and large cap components. For instance, Apple (AAPL 117.91, +1.30), Microsoft (MSFT 62.84, +0.54), Facebook (FB 123.41, +2.74), Alphabet (GOOGL 825.21, +12.19), and Visa (V 82.21, +1.12) all added between 0.9% and 2.3%, while the PHLX Semiconductor Index finished higher by 0.8%.

Cyclical sectors did slightly better than their defensive counterparts, with three of the six growth-sensitive sectors beating the benchmark index. Utilities (+0.3%) and health care (+0.3%) were the only non-cyclical sectors to perform in line with the broader market. Health care capitalized on the biotech industry's solid showing, evidenced by the 0.9% increase in the iShares Nasdaq Biotechnology ETF (IBB 280.65, +2.54). Telecom services (-2.7%) and real estate (unch) were the only sectors to finish in the red.

Standings for the week look much the same as ten out of eleven sectors finished the week higher, with telecom services (-1.2%) bucking the trend. The week's top performer was health care (+2.9%), followed closely by real estate (+2.2%), technology (+2.4%), and consumer discretionary (+2.3%). The consumer discretionary sector's gain was particularly impressive as the sector had to overcome a poor week from retailers. The SPDR S&P 500 Retail ETF (XRT 43.76, -0.26) finished the first week of 2017 lower by 0.7% after some of its components reported disappointing holiday sales.

Conversely, small caps ended the week on a down note as the Russell 2000 fell 0.4% in Friday's session. On the week, the small-cap index added 0.7%, but underperformed relative to the S&P 500's and the Nasdaq's respective, 1.7% and 2.6% week-to-date gains. Given that the domestically-focused Russell 2000 set the pace for the post-election rally, investors may be concerned about the index's recent struggle.

The Treasury market saw stepped-up selling pressure after the 8:30 ET release of the Employment Situation report for December, but cooled off afterwards. The 10-yr yield closed the day seven basis points higher at 2.42%.

Reviewing today's economic data:

Employment Situation Report

December nonfarm payrolls came in at 156,000 while the Briefing.com consensus expected a reading of 175,000. The prior month's reading was revised to 204,000 from 178,000. Nonfarm private payrolls added 144,000 while the Briefing.com consensus expected an increase of 170,000. The unemployment rate held at 4.7% (Briefing.com consensus 4.7%).

Average hourly earnings increased 0.4% (Briefing.com consensus +0.3%). The average workweek was reported at 34.3 while the Briefing.com consensus expected a reading of 34.4.

The key takeaway from the December employment report is that job growth is slowing while wages are rising, which are offshoots of a labor market running near full employment.

November trade balance showed a deficit of $45.2 billion while the Briefing.com consensus expected the deficit to hit $42.2 billion. The previous month's deficit was revised to $42.4 billion from $42.6 billion.

The key takeaway from the report is that the widening deficit will be a drag on fourth quarter GDP, as the fourth quarter average of $61.9 billion for the real trade deficit is 9.4% higher than the third quarter average.

The Factory Orders Report for November showed a decrease of 2.4% while the Briefing.com consensus expected a decrease of 2.1%. The October reading was revised up to 2.8% from 2.7%.

The key takeaway from the report is that the drop in manufacturing orders was owed predominately to a large retreat in orders for the volatile nondefense aircraft and parts component. Excluding transportation, orders were up 0.1%.

Monday's economic data will be limited to the November Consumer Credit report, which will be released at 3:00 pm ET.

Nasdaq Composite +2.6% YTD

S&P 500 +1.7% YTD

Dow Jones Industrial Average +1.0% YTD

Russell 2000 +0.6% YTD

Week in Review: 2017 Begins on Higher Note

The stock market enjoyed an upbeat start to 2017, as the S&P 500 gained 1.7% during the abbreviated first week of the year. The Nasdaq Composite (+2.6%) outperformed while the Dow Jones Industrial Average (+1.0%) lagged.

The first two sessions of the week featured a steady advance, which placed the S&P 500 just below its record high from December. The two days of gains were followed by an intraday pullback on Thursday, but the brief slip became a distant memory by day's end. However, it is worth noting that the weak spell was brought on by cautious guidance from Kohl's (KSS) and Macy's (M). The two names registered respective losses of 19.0% and 13.9%, while most other apparel names also struggled. Conversely, a daylong rally in Amazon (AMZN) returned the discretionary sector to little changed by Thursday's close.

On Friday, investors received the December Employment Situation Report. The report fit pretty well into the market's view of things, as the headline disappointment (156,000; Briefing.com consensus 175,000) was offset by a sizable revision to the November reading (to 204,000 from 178,000). Average hourly earnings rose 0.4% (Briefing.com consensus 0.3%) after declining 0.1% in November. November average workweek was revised down to 34.3 from 34.4 and the December reading remained at 34.3 (Briefing.com consensus 34.4).

Equity indices advanced to new record highs after the December jobs report while Treasuries retreated, erasing a large portion of their gains from earlier in the week. Despite the pullback, the benchmark 10-yr note eked out its third consecutive weekly gain, pressuring its yield to 2.42% from last week's 2.45%.

The December jobs report gave a boost to the greenback, but the U.S. Dollar Index could not avoid a lower close for the week, shedding 0.1%, despite setting a fresh 14-year high on Tuesday.

There was no significant shift in rate hike expectations during the past week. The fed funds futures market ended the week showing a 69.0% implied likelihood of a rate hike in June.