Day Traders Diary

2/1/17

Pockets of strength kept the S&P 500 near its flat line on Wednesday despite investors' lack of buying conviction. The S&P 500 finished flat while the Nasdaq (+0.5%) and Dow Jones industrial Average (+0.1%) ended modestly higher thanks to a huge move in shares of Apple (AAPL 129.92, +8.57, +7.1%) following its fiscal first quarter earnings report, which was replete with record revenues, earnings, and iPhone sales.

Wednesday's session opened with a lot of optimism as market participants reacted favorably to Apple's earnings results; however, investors soon lost conviction and the major indices soon relinquished most, if not all, of their opening gains.

The inability to maintain a bullish bias in the wake of Apple's report was regarded as a disappointing development that weighed on investor sentiment.  At the same time, market participants were grappling with some inflation concerns and some rate-hike edginess in front of the FOMC policy decision at 2:00 p.m. ET after the ADP Employment Change and Manufacturing ISM Index reports for January checked in stronger than expected.

The aforementioned reports supported the notion that economic growth looks poised to accelerate in 2017 -- a view that in turn fueled a belief that higher inflation will accompany that growth.  That outlook manifested itself in a weak Treasury market and a strengthening dollar, yet those respective moves were tempered following the release of the FOMC's policy directive.

The FOMC voted unanimously to maintain the current fed funds target range at 0.50%-0.75%, as expected.  By and large, there was little change in the wording of the directive from the December meeting.  There was some concern ahead of its release that it might have a hawkish-sounding angle to it, but the fact that it was little changed took a little of the rate-hike edge off the market.

That edge was rooted in the thinking that the directive's language might contain some signaling that the FOMC is leaning to a rate hike in March, which the fed funds futures market currently does not expect.

In any event, buying efforts in the dollar subsided and selling efforts in the Treasury market tapered off after the release of the directive.  The 2-yr note yield, which is sensitive to changes in the fed funds rate, dropped from 1.25% to 1.21% after the FOMC decision.  The benchmark 10-yr yield for its part closed relatively flat, up one basis point at 2.48%.

For sector standings, technology finished near the top of the day's leaderboard amid the spike in Apple's stock and a positive showing from chipmakers. The PHLX Semiconductor Index finished 1.7% higher following Advanced Micro Devices's (AMD 12.06, +1.69) upbeat earning report. The company closed Wednesday's session 16.3% higher.

The heavily-weighted financial sector (unch) also closed the day higher, along with materials (+0.6%), and health care (+0.7%). The health care space rallied on Anthem's (ANTM 160.79, +6.65) better than expected quarterly earnings report and an uptick from the biotechnology industry. The iShares Nasdaq Biotechnology ETF (IBB 280.42, +2.35) finished higher for the second day in a row, adding 0.9%.

At the bottom of the leaderboard was utilities (-1.7%), which suffered from the uptick in interest rates and the negative response to the earnings report from Dominion Resources (D 71.85, -4.43, -5.8%). The lightly-weighted telecom services (-0.7%) and real estate (-1.1%) sectors also finished lower, extending their losses for the week to 1.1% and 0.9%, respectively.

Today's economic data included the FOMC Rate Decision, January ISM Index, January ADP Employment Change, December Construction Spending, and the weekly MBA Mortgage Index:

The FOMC voted unanimously to maintain the fed funds target range at 0.50%-0.75%.

The ISM Index for January rose to 56.0 from a revised reading of 54.5 in December (from 54.7) while the Briefing.com consensus expected an uptick to 55.0.

The key takeaway from the report is that helps validates the market's upbeat assumptions about economic growth accelerating in 2017.

The ADP National Employment Report showed an increase of 246,000 in January (Briefing.com consensus 165,000) while the December reading was revised lower to 151,000 from 153,000.

The Construction Spending report for December showed a 0.2% decrease while the Briefing.com consensus expected an increase of 0.2%.

The key takeaway from the report is that private construction spending was up for the third straight month. The value of this report for the market, though, is negligible since it is a dated report, the output of which was already imputed in the fourth quarter GDP report last week.

The weekly MBA Mortgage Index declined 3.2% to follow last week's 4.0% increase.

Tomorrow's economic data will include January Challenger Job Cuts at 7:30 am ET, Initial Claims (Briefing.com consensus 250k) at 8:30 am ET, and fourth quarter Productivity (Briefing.com consensus 1.0%) also at 8:30 am. 

Russell 2000 +0.2% YTD

Dow Jones Industrial Average +0.7% YTD

S&P 500 1.8% YTD

Nasdaq Composite 4.8% YTD