Day Traders Diary

2/2/17

Investors held their ground again on Thursday, as the major averages failed to deviate from their flat lines in range-bound action. The S&P 500 (+0.1%) finished just above its flat line, while the Nasdaq (-0.1%) closed just a tick lower. The sideways action took place ahead of tomorrow's release of the Employment Situation report for January (Briefing.com consensus 170k).

On the political front, House Speaker Paul Ryan announced on Thursday that tax reform and infrastructure bills, two key policies that fueled the post-election rally, will have to wait until the spring due to budgetary restrictions. For now, the new administration's focus will be health care reform.

The news did not invite an immediate response from the market, but it could lead to some anxiety as it appears that traders will have to wait a little while longer for validation of the post-election rally.

Facebook (FB 130.84, -1.41) was the focal point of today's earnings news after the company reported above-consensus earnings and revenue after yesterday's close. However, the stock finished Thursday lower by 1.8% on possible concerns surrounding the company's year-over-year revenue growth, which slowed down for the third consecutive quarter. Additionally, the stock entered today's session with a 16.0% year-to-date gain, so a muted response to the report wasn't necessarily unexpected.

Apple (AAPL 128.52, -0.23) and Microsoft (MSFT 63.17, -0.41) also had a rough day, losing 0.2% and 0.6%, respectively. Unsurprisingly, the tech sector (+0.1%) never got going on Thursday, but still finished in line with the S&P 500. Elsewhere among influential groups, the financial struggled amid relative weakness in large cap names. The space closed the day 0.4% lower.

Merck (MRK 64.18, +2.08) was the only Dow component to report earnings results on Thursday. The company missed revenue estimates and issued below-consensus guidance before the opening bell. However Merck shares jumped 3.4% as investors appeared more focused on the upcoming milestones for KEYTRUDA, the company's experimental lung cancer treatment. In addition, President Trump's expressed desire to cut industry regulation and speed up the drug approval process has been viewed as a positive for the industry. Merck CEO Kenneth Frazier was among the executives who attended Tuesday's meeting with President Trump at the White House.

On the upside, consumer staples (+0.8%) finished near the top of the leaderboard. The sector profited from positive reactions to quarterly reports from Estee Lauder (EL 82.00, +2.08) and Philip Morris (PM 98.84, +2.89) in addition to a 21.4% spike in the shares of Mead Johnson Nutrition (MJN 84.38, +14.88). The company's huge day came after confirming discussions with Reckitt Benckiser (RBGLY 18.16, +0.64) with respect to its proposal to acquire MJN for $90 per share in cash.

The lightly-weighted utilities (+1.0%) and real estate (+1.3%) sectors neighbored consumer staples at the top of the day's standings. However, the two spaces will enter Friday as the only countercyclical sectors holding week-to-date losses.

U.S. Treasuries held solid gains on Thursday morning, only to squandered them all by the day's close. The benchmark 10-yr yield finished its trading session unchanged at 2.47%.

Today's economic data included Initial Claims and fourth quarter Productivity & Unit Labor:

The latest weekly initial jobless claims count totaled 246,000 while the Briefing.com consensus expected a reading of 250,000. Today's tally was below the revised prior week count of 260,000 (from 259,000). As for continuing claims, they declined to 2.064 million from the revised count of 2.103 million (from 2.100 million).

The key takeaway from this report is that initial claims continue to run at low levels, as employers appear reluctant to cut their payrolls.

Unit labor costs increased 1.7% during the fourth quarter, which was lower than the 1.9% increase that had been anticipated by the Briefing.com consensus. The preliminary productivity reading showed an increase of 1.3%. The Briefing.com consensus expected an increase of 1.0%.

The key takeaway from the report is that productivity is low, with the average annual rate of productivity growth from 2007 to 2016 being 1.1% versus the long-term rate of 2.1% from 1947 to 2016. For all of 2016, nonfarm business sector productivity increased 0.2%. Low productivity gets in the way of a rising standard of living.

Tomorrow's economic data will include the Employment Situation report for January (Briefing.com consensus 170k) at 8:30 am ET, while December Factory Orders (Briefing.com consensus 1.4%) and ISM Services (Briefing.com consensus 57.0) will cross the wires at 10:00 am ET.

Nasdaq Composite 4.7% YTD

S&P 500 1.9% YTD

Dow Jones Industrial Average +0.6% YTD

Russell 2000 UNCH YTD