Day Traders Diary

01/12/17

Equity indices finished Thursday's session lower amid a cautious tone on all fronts. The Dow led the retreat with a loss of 0.3%, while the benchmark S&P 500 index (-0.2%) registered a slimmer loss.

The risk-off trade began with heavy selling pressure that pushed the stock market into negative territory at the opening bell. The U.S. dollar followed suit, while the Treasury market benefited from the defensive posturing. The stock market did eventually tick up, but ended the day after trending sideways at its eventual closing level all afternoon. Since President-elect Donald Trump was short on detail regarding his policy proposals at yesterday's news conference, the downside bias may have had something to do with misgivings about the actual policies living up to the pre-inauguration hype.

Financials led today's retreat, closing lower by 0.7%. The sector also sits in the red for the week (-0.7%), but will have an opportunity to change that tomorrow as a batch of banks will be reporting their quarterly results before the opening bell, including JPMorgan Chase (JPM 86.24, -0.84), Wells Fargo (WFC 54.50, -0.30), and Bank of America (BAC 22.92, -0.15). The three names surrendered between 0.6% and 1.0% on Thursday.

The technology sector (-0.3%) fared only slightly better, thanks in part to tumbling chipmakers who dragged the PHLX Semiconductor Index down 0.9%. The four remaining cyclical sectors also finished in the red with energy sliding 0.5% despite crude oil's positive performance. The commodity finished its trading day higher for the second session in a row, up 1.4% at $53.03/bbl.

On the countercyclical side, four out of five sectors finished in the green, including health care (+0.1%). The space received a boost from the biotech industry, evidenced by the 0.4% increase in the iShares Nasdaq Biotechnology ETF (IBB 279.04, +1.19). Biotechnology's gain came after the ETF tumbled 3.0% yesterday after Mr. Trump expressed a desire to bring back pharmaceutical operations to the United States and voiced support for competitive drug price bidding. Telecom services (+0.6%) finished at the top of leaderboard, while real estate (+0.4%), and utilities (+0.1%) also finished in positive territory.

In corporate news, Fiat Chrysler (FCAU 9.95, -1.14) ended lower by 10.3% after the Environmental Protection Agency accused the automaker of violating the Clean Air Act by installing and failing to disclose "engine management software in light-duty model year 2014, 2015, and 2016 Jeep Grand Cherokees and Dodge Ram 1500 trucks with 3.0 liter diesel engines sold in the United States." The accusations are reminiscent of the 2015 Volkswagen case, which resulted in a $4.3 billion settlement with US regulators.

U.S. Treasuries traded with gains for most of today's session but declined following the $12 bln 30-year Treasury auction and closed well off their intraday highs. The 10-yr yield finished lower by two basis points at 2.36%.

Economic data included Import/Export Prices, Initial Claims, and Treasury Budget:

• Import prices excluding oil declined 0.2% in December after ticking down 0.1% in November. Export prices excluding agriculture increased 0.4% in December after declining 0.1% in November (revised from +0.2%).
  • The Import/Export Price Index report for December fit within the scope of the reflation trade that has been driving the stock market.
• The latest weekly initial jobless claims count totaled 247,000 while the Briefing.com consensus expected a reading of 255,000. Today's tally was above the revised prior week count of 237,000 (from 235,000). As for continuing claims, they declined to 2.087 million from the revised count of 2.116 million (from 2.112 million).
  • The latest initial claims report won't diminish any confidence in the state of the labor market, which continues to be solid. Initial jobless claims held below 300,000 for the 97th straight week -- the longest streak since 1970.
• The Treasury Budget for December showed a deficit of $27.5 billion versus a deficit of $14.4 billion for December 2015.
  • The Treasury Budget data is not seasonally adjusted, so the December deficit cannot be compared to the $136.7 billion deficit registered in November.

Tomorrow's economic data will include December PPI and Retail Sales at 8:30 am ET while November Business Inventories and the Michigan Sentiment Index will cross the wires at 10:00 am ET.

• Russell 2000 +0.3% YTD
• Dow Jones Industrial Average +0.7% YTD
• S&P 500 +1.4% YTD
• Nasdaq Composite +3.1% YTD