Day Traders Diary

1/18/17

 Wednesday's trading session closed in the neighborhood of where it opened as investors generally elected to watch rather than act amid a batch of economic data and a slew of corporate news. The major averages finished mixed with the S&P 500 and the Nasdaq adding 0.2% and 0.3%, respectively, while the Dow fell 0.1%.  A late burst of buying interest led by the financial sector, however, left each of the major average at, or near, their best levels of the day when the closing bell rang.

Frankly, there wasn't a lot of trading excitement throughout the session.  The major indices all held to tight trading ranges, reined in by a lack of any meaningful sector leadership, a stark jump in long-term rates, and an awareness that Fed Chair Yellen was going to be speaking at 3:00 p.m. ET on the goals of monetary policy.

Ms. Yellen's speech, as it turned out, was mostly an academic exercise.  She didn't provide any "new" information for the market per se, yet her reminder that interest rates are apt to creep higher provided some verbal reassurance that facilitated the positive finish for today's market.

Her speech followed a mixed batch of economic data this morning, which featured a stronger than expected Industrial Production report for December, a weaker than expected NAHB Housing Market Index for January, and the highest year-over-year increase in the Consumer Price Index (+2.1%) since June 2014.

In aggregate, Ms. Yellen's remarks and today's data didn't alter the view that the Fed will continue to abide by its projection for three rate hikes in 2017.

The financial sector (+0.8%) had a slow-developing rally today, but eventually got it in gear toward the end of the session and finished at its highs for the day.  A lackluster response to better-than-expected earnings news from Goldman Sachs (GS 234.29, -1.45), Citigroup (C 57.39, -0.99), and U.S. Bancorp (USB 50.56, +0.25) kept a lid on things, yet there was underlying strength in other components that proved to be an effective offset and a driver of today's gains.

Thus far, the financial sector has been fairly slow to respond to better-than-expected earnings reports as it continues to digest a huge move following the election, which produced a 20.5% gain for the sector in the fourth quarter. 

In other corporate news, Target (TGT 66.85, -4.09) lowered its Q4 guidance following disappointing holiday sales. The news had a ripple effect on other retailers, which led to a 0.3% decline in the SPDR S&P Retail ETF (XRT 44.25, -0.11, -0.39). Naturally, the consumer discretionary sector (-0.2%) felt the pressure and closed near the bottom of today's leaderboard.

The energy sector (-0.3%) also posted a lackluster performance, falling in tandem with crude oil. The commodity's downtick was forced by some renewed strength in the dollar and expectations that U.S. producers will boost output in response to the higher prices. The U.S. Dollar Index (101.25, +0.92) finished 0.9% higher while gold closed down 0.1% at $1,212.10/ozt.

The top-weighted technology sector outperformed the broader market with a 0.3% increase. The sector was driven primarily by a bullish performance from chipmakers, which rebounded from Tuesday's selling and drove a 1.4 gain in the PHLX Semiconductor Index.

The U.S. Treasury market came under selling pressure in the overnight trade -- pressure which never relented much during the regular session.  Securities across the curve were on the defensive, with the belly and back end of the curve getting hit the hardest.  The yield on the 5-yr note jumped 10 basis points to 2.23%.  The yield on the 10-yr note, meanwhile, also increased 10 basis points to 2.42%

Reviewing today's economic data:

Total CPI rose 0.3% (Briefing.com consensus +0.3%) in December while core CPI, which excludes food and energy, increased 0.2% (Briefing.com consensus +0.2%). On a year-over-year basis, total CPI is up 2.1% and core CPI has increased 2.2%.

The key takeaway from this report is that the consumer inflation rate is steadily rising, which is supporting the Federal Reserve's tightening bias at this juncture.

December Industrial Production increased 0.8% (Briefing.com consensus +0.6%) while Capacity Utilization rose to 75.5% (Briefing.com consensus 75.4%).

The key takeaway from the report is that overall industrial production remains soft, having slipped at an annual rate of 0.6% in the fourth quarter and increasing just 0.5% year-over-year.

The NAHB Housing Market Index for January fell to 67 from a revised 69 in December (from 70).

Tomorrow's economic data will include Initial Claims (Briefing.com consensus 252,000), Housing Starts (1.193 million), and Philadelphia Fed (briefing.com consensus 15.3). All reports will be released at 8:30 a.m. ET.