Day Traders Diary

2/22/17

Investors tapped the brakes on Wednesday, displaying slight caution amid a wave of potentially influential economic reports. The Nasdaq (-0.1%) closed in line with the S&P 500 (-0.1%) while the Dow outperformed (+0.2%), recording its ninth consecutive gain.

The major averages started today's session with modest losses, but they ticked up following Existing Home Sales for January. The report came in better than expected, showing an annualized rate of 5.69 million units while the Briefing.com consensus expected a reading of 5.57 million.

Equity indices then slid slowly into the next event on Wednesday's calendar, a speech from Fed Governor Jerome Powell. However, the speech turned out to be a non-event as Mr. Powell provided little to no new information, stating that a gradual tightening of policy is appropriate as long as the economy continues to behave roughly as expected.

Finally, the last major event on the calendar, the FOMC Minutes, was met with a muted response from investors. The minutes showed that many FOMC members see a rate hike "fairly soon if incoming information on the labor market and inflation was in line with or stronger than their current expectations."

And while recent hotter than expected ISM Index, Nonfarm Payrolls, PPI, CPI, Retail Sales, Housing Starts, and Existing Home Sales readings met the rate hike prerequisite, the statement's vague "fairly soon" clause gives little indication as to the timeline of said rate hike.

In summary, after all the noise, the fed funds futures market now points to May as the most likely time for the next rate hike to be announced with an implied probability of 52.1%, up from 45.9% yesterday. The implied probability of a March rate hike increased to 22.1% from yesterday's 17.7%.

On the earnings front, Toll Brothers (TOL 33.93, +1.94) spiked 6.1% after the luxury homebuilder reported better than expected top and bottom lines and issued upbeat delivery guidance. More notably, Toll Brothers' bullish disposition lifted the iShares U.S. Home Construction ETF (ITB 30.04, +0.12) to its highest level in over a decade. The consumer discretionary sector (unch) capitalized on hombuilders' solid showing, outperforming the benchmark index.

Financials (+0.1%) and telecom services (+0.1%) closed in line with the consumer discretionary sector while technology (+0.2%), materials (+0.3%), and utilities (+0.4%) performed a bit better.

Energy (-1.6%) led the five remaining sectors lower, succumbing to a 1.4% loss in crude oil. The energy component trades in the red for the week after squandering all of Tuesday's gain in Wednesday's session. WTI crude closed its trading day at $53.59/bbl.

Treasuries closed Wednesday's session slightly higher. The benchmark 10-yr yield finished one basis point lower at 2.42%.

Today's economic data included January Existing Home Sales and the MBA Mortgage Index:

Existing home sales for January increased 3.3% from December to an annualized rate of 5.69 million units while the Briefing.com consensus expected a reading of 5.57 million.

The key takeaway from the report is that high prices and limited inventory continue to compress the affordability factor for prospective buyers, and have prevented existing home sales from being even stronger.

The weekly MBA Mortgage Index decreased 2.0% to follow last week's 3.7% decline.

Tomorrow's economic data will include Initial Claims (Briefing.com consensus 242,000) and December FHFA Housing Price Index (Briefing.com consensus 0.4%). The two reports will cross the wires at 8:30 am ET and 9:00 am ET, respectively.

Nasdaq Composite +8.9% YTD

S&P 500 +5.5% YTD

Dow Jones Industrial Average +5.1% YTD

Russell 2000 +3.4% YTD