Day Traders Diary

2/16/17

 Investors took a breather on Thursday, pulling the S&P 500 and Nasdaq away from their freshly-minted record highs after seven consecutive advances. The pullback was modest in scope, leaving the S&P 500 and the Nasdaq lower by 0.2% while the Dow (unch) resisted, eking out a slight gain.

The Treasury market, which had posted six consecutive losses coming into Thursday, also reversed its recent ways. Treasuries finished higher across the board with shorter-dated issues showing relative strength in a yield-curve steepening trade. The benchmark 10-yr yield closed five basis points lower at 2.45% while the 2-yr yield finished lower by seven basis points at 1.20%.

The recent losing streak aside, the Treasuries' uptick was somewhat surprising given today's strong economic data; Housing Starts (1246K; Briefing.com consensus 1220K), Initial Claims (239K; Briefing.com consensus 245K), and the Philadelphia Fed Index (43.3; Briefing.com consensus 17.5) all surpassed estimates.

However, the hotter than expected readings turned out to be a non-event, at least for now, considering the market's updated rate hike expectations. The fed funds futures market is once again pointing to June as the most likely time for the next hike to be announced. The implied probability of a June hike sits at 73.9%, down from yesterday's 76.2% while the implied likelihood of a hike in May is down to 47.1%.

Earnings news was relatively quiet today as nearly 80.0% of S&P 500 components have already reported their results. However, Cisco Systems (CSCO 33.60, +0.78) did make a splash with its latest report. CSCO shares jumped 2.4% after the company raised its dividend and reported better than expected earnings.

Cisco's upbeat performance supported a modest gain in the technology sector (+0.2%), which finished with industrials (unch) as the only cyclical spaces to close in the green.

Utilities (+1.0%) closed at the top of the leaderboard, thanks to the downtick in Treasury yields and a positive reaction to Duke Energy's (DUK 78.90, +2.12) latest earnings report. Shares of DUK climbed 2.8% despite the company's earnings per share miss.

Real estate (+0.4%), telecom services (+0.5%), and consumer staples (+0.1%) also finished higher, while health care (-0.1%) could not keep up with its countercyclical peers.

The remaining sectors—financials, consumer discretionary, materials, and energy—finished with losses between 0.1% (materials) and 1.4% (energy).

The energy space's slip came despite crude oil's 0.6% advance. The commodity closed at $53.41/bbl after news that OPEC is mulling a production cut extension & could potentially cut more than previously expected.

Today's economic data included January Housing Starts, Initial Claims, and the Philadelphia Fed Index for February:

Housing starts decreased to a seasonally adjusted annualized rate of 1.246 million units in January, down from a revised 1.279 million units in December (from 1.226 million). The Briefing.com consensus expected starts to decrease to 1.220 million units. Building permits increased to a seasonally adjusted 1.285 million in January from a revised 1.228 million (from 1.210 million) for December. The Briefing.com consensus expected a reading of 1.230 million.

The key takeaway is that, absent the December revision, starts would have increased month-over-month, which is to say the headline decline isn't as disappointing as it might sound at first blush.

The latest weekly initial jobless claims count totaled 239,000 while the Briefing.com consensus expected a reading of 245,000. Today's tally was above the unrevised prior week count of 234,000. As for continuing claims, they declined to 2.076 million from the revised count of 2.079 million (from 2.078 million).

The key takeaway from the report is that initial claims continue to be stuck at low levels historically, which is a good portent for nonfarm payroll growth.

The Philadelphia Fed Survey for February rose to 43.3 from an unrevised 23.6 in January while economists polled by Briefing.com had expected a reading of 17.5.

The key takeaway from the report is that manufacturing activity is proceeding at a healthy pace in the Philadelphia Fed region.

Friday's lone economic report, January Leading Indicators (Briefing.com consensus 0.5%), will be released at 10:00 am ET.

Nasdaq Composite +8.0% YTD

S&P 500 +4.8% YTD

Dow Jones Industrial Average +4.3% YTD

Russell 2000 +3.1% YTD