Day Traders Diary

2/9/17

 Stagnant no more, the major averages finished Thursday's session at fresh record highs. The S&P 500, Nasdaq, and the Dow closed with gains of 0.6%, while the small-cap Russell 2000 (+1.4%) outperformed.

Visions of tax reform drove today's advance after President Trump promised to make a "phenomenal" tax-related announcement in the coming weeks. There are no details as of yet regarding what the plan will look like, so it is impossible to say for certain which stocks/industry groups will be winners and losers. The positive response today was grounded more in psychology than economics because, again, there were no details given.

Equity indices remained near their highs, shrugging off comments from Chicago Fed President Charles Evans, who reiterated that three rate hikes in 2017 may be reasonable. Mr. Evans is a voting member on this year's FOMC.

Treasuries didn't have a strong reaction to Mr. Evan's speech. However, the risk-on sentiment did help steepen the yield curve as long-term Treasuries fell under heavy selling pressure relative to shorter-dated issues. The benchmark 10-yr yield finished seven basis points higher at 2.40% while the 2-yr yield closed three basis points higher at 1.18%.

Capitalizing on the steeper yield curve, financials (+1.4%) provided strong sector leadership throughout Thursday's session. Financial components showed broad strength with JPMorgan Chase (JPM 87.20, +1.24), Goldman Sachs (GS 241.55, +3.82), MetLife (MET 52.58, +1.19), and Prudential (PRU 108.39, +3.17) gaining between 1.4% and 3.0%. Prudential's uptick took place in reaction to better than expected earnings.

The consumer staples space (+0.4%) was also represented on the earnings front with Coca-Cola (KO 41.25, -0.77), CVS Health (CVS 77.31, +0.28), and Kellogg (K 76.44, +2.95) reporting results before this morning's open. The results were mixed as KO finished 1.8% lower after below-consensus guidance overshadowed better than expected revenues. Separately, CVS and K posted respective gains of 0.3% and 4.0% after beating earnings estimates.

Energy (+0.9%) also outpaced the benchmark index thanks in part to an uptick in crude oil. The energy component closed 1.2% higher at $52.98/bbl following yesterday's surprising gains in the face of Energy Information Administration (EIA) data which showed a 13.8 million barrel build in oil inventories. Short positions being squeezed out most likely contributed to the counter-intuitive advance.

Utilities (-0.8%) and materials (unch) were the only two spaces to finish Thursday lower. Higher market rates weighed on the rate-sensitive utilities sector while Sealed Air (SEE 47.14, -3.08) had its hand in pushing the materials space lower. The company plunged 6.1% in reaction to the disappointing guidance and lower than expected revenues.

Nine of eleven spaces are higher for the week going into Friday's session with materials and energy showing week-to-date losses of 0.9% and 1.4%, respectively.

Today's economic data included Initial Claims and December Wholesale Inventories:

The latest weekly initial jobless claims count totaled 234,000 while the Briefing.com consensus expected a reading of 250,000. Today's tally was below the unrevised prior week count of 246,000. As for continuing claims, they rose to 2.078 million from the revised count of 2.063 million (from 2.064 million).

The key takeaway from the report is that employers appear reluctant to trim their payrolls, which is a reflection of the tightness in the labor market and the difficulty in finding new employees with the right skill set.

December Wholesale Inventories increased 1.0%, which was in line with the Briefing.com consensus. The prior month's reading was left unrevised at 1.0%.

December marked the second straight month that wholesale inventories increased 1.0%, helping to explain the positive contribution the change in inventories made to Q4 GDP growth.

Friday's economic data will include January Export/Import Prices at 8:30 am ET, February Michigan Sentiment Index (Briefing.com consensus 97.9), and January Treasury Budget at 2:00 pm ET.

Nasdaq Composite +6.2% YTD

S&P 500 +3.1% YTD

Dow Jones Industrial Average +2.1% YTD

Russell 2000 +1.6% YTD