Day Traders Diary

1/31/17

 Investors continued hedging their investment risk on Tuesday, choosing to play it safe in the wake of last week's record high levels and amid a week full of influential reports on both the earnings and economic fronts. However, an afternoon rally helped the major averages finish at their highest levels of the day. The S&P 500 shed 0.1% after being down more than 0.5% in the early going.

The health care sector assumed a leadership position in today's market, underpinned by the outperformance of the drug and biotech stocks. Those issues rallied on the other side of a meeting President Trump had with industry executives. While the president pressed his case for lowering drug prices, market participants were heartened by his added belief that regulations should be reduced and that the drug approval process should be sped up. Those declarations lent some relief to investors, who appeared heartened by the notion that the meeting with the president was better than feared.

A host of health care names kicked off today's trading session by reporting quarterly results before the opening bell including Pfizer (PFE 31.73, +0.42), Eli Lilly (LLY 77.03, +2.33), Thermo Fisher Scientific (TMO 152.39, +9.10), and Aetna (AET 118.61, +1.90). The results were mixed, but the four names added between 1.3% and 6.4% after President Trump met with CEOs from top U.S. drugmakers on Tuesday morning. Biotechnology stood out with the iShares Nasdaq Biotechnology ETF (IBB 278.07, +7.68) spiking 2.8%.

On the cyclical side, Exxon Mobil (XOM 83.89, -0.97) also reported earnings this morning. The reaction to the report was negative, pushing the company and the energy space lower by 1.1% and 0.1%, respectively. However, the energy sector's loss was capped by crude oil, which finished its trading day 0.3% higher at $52.81/bbl. The energy component's gain came amid a downtick in the U.S. Dollar Index (99.60, -0.82), which finished Tuesday 0.8% lower.

The remaining cyclical sectors fell as cautious sentiment lingered throughout the day. Industrials (-0.9%) closed at the bottom of the leaderboard following United Parcel Service's (UPS 109.13, -7.90) disappointing fourth quarter earnings report and relative weakness in airline names. The top-weighted technology sector also underperformed the benchmark index, thanks in part to a poor showing from chipmakers. The PHLX Semiconductor Index finished Tuesday lower by 1.3%. In the broader tech sector, Apple (AAPL 121.29, -0.34) shed 0.3% ahead of its earnings report.

Conversely, countercyclical spaces and Treasuries thrived on wary investors' actions; all five defensive spaces finished higher while the benchmark 10-yr yield closed five basis points lower at 2.44%. The utilities sector (+1.6%) was the day's top performer, while telecom services (+0.1%) eked out a small gain.

Today's economic data included fourth quarter Employment Cost Index, November Case-Shiller Home Price Index, January Chicago PMI, and January Consumer Confidence:

The fourth quarter Employment Cost Index rose 0.5%, while the Briefing.com consensus expected an uptick of 0.6%.

The key takeaway from the report is that compensation costs did move higher in 2016, which creates some profit margin constraints while at the same time lending employees some increased spending potential.

The Case-Shiller 20-city Home Price Index for November rose 5.3%, which was above the Briefing.com consensus of 5.0%. This followed the previous month's unrevised reading of 5.1%.

Chicago PMI for January decreased to 50.3 from 54.6 in December while the Briefing.com consensus expected a reading of 55.0.

The key takeaway from this report is that it's a first quarter report, and with the pullback to a level that is just above a contraction reading, it will serve perhaps to temper some of the market's heightened optimism surrounding economic growth prospects.

The consumer confidence reading for January declined to 111.8 from the prior month's revised reading of 113.3 (from 113.7). The Briefing.com consensus expected the survey to hit 112.5.

The key takeaway from the report is that consumer confidence is still at relatively high levels, although consumers' outlook was reined in a bit following the post-election surge.

Tomorrow will see a full slate of economic reports including MBA Mortgage Applications Index at 7:00 am ET, January ADP Employment Change (Briefing.com consensus 165k) at 8:15 am ET, January ISM Index (Briefing.com consensus 55.0) at 10:00 am ET, December Construction Spending (Briefing.com consensus 0.2%), February FOMC Rate Decision (Briefing.com consensus 0.625%) at 2:00 pm ET, and January Auto & Truck Sales at 2:00 pm ET. 

Russell 2000 +0.3% YTD

Dow Jones Industrial Average +0.5% YTD

S&P 500 1.8% YTD

Nasdaq Composite 4.3% YTD