Day Traders Diary

3/3/17

The major averages finished Friday's session near their unchanged marks as investors digested the latest remarks from Fed Chair Janet Yellen. The Nasdaq (+0.2%) outperformed while the S&P 500 (+0.1%) finished with a slim gain. The Dow closed the day unchanged.

According to the Fed funds futures market, it appears that a March rate hike is on after Fed Chair Yellen said nothing to upset that notion on Friday afternoon. Ms. Yellen expressed her belief that a March rate hike is indeed appropriate as long as the economy evolves as expected. The CME Fed Watch Tool now assigns an implied probability of 81.9% to a March rate hike, up slightly from yesterday's 77.5%.

The U.S. dollar retreated in the wake of Ms. Yellen's comments, nearly doubling its earlier loss. The U.S. Dollar Index (101.35, -0.81) finished Friday lower by 0.8%.

Conversely, Treasuries climbed back towards their flat lines after holding losses going into Ms. Yellen's speech. The benchmark 10-yr yield finished one basis point higher at 2.48% while the 2-yr yield closed two basis points lower at 1.29%.

The financial sector (+0.4%) profited from the steepening of the Treasury yield curve, closing the day with the health care sector (+0.4%) at the top of the leaderboard. The biotechnology industry had a hand in the health care group's positive performance, evidenced by the 0.9% increase in the iShares Nasdaq Biotechnology ETF (IBB 302.49, +2.70).

Conversely, consumer staples closed Friday near the bottom of the leaderboard following Costco's (COST 170.26, -7.72) most recent earnings report. The wholesale retailer tumbled 4.3% after reporting worse than expected earnings per share results after Thursday's close.

Costco's performance also negatively influenced retailers, evidenced by the 1.4% decline in the SPDR S&P 500 Retail ETF (XRT 42.72, -0.62). The consumer discretionary sector, which comprises many retailers, also underperformed, closing lower by 0.2%.

Crude oil finished the day 1.4% higher at $53.33/bbl, but the energy group (-0.4%) still had trouble keeping pace with the broader market.

Also of note, Snap (SNAP 27.09, +2.61) followed up Thursday's IPO with a 10.7% spike in Friday's session. The social media company had an IPO price of $17.00 per share, but opened for trading late on Thursday morning at $24.00 per share.

Today's lone economic report was February ISM Services:

The ISM Services Index for February increased to 57.6 while the Briefing.com consensus expected reading of 56.5. The prior month's reading was left unchanged at 56.5.

Monday's lone economic report, January Factory Orders (Briefing.com consensus 1.0%), will cross the wires at 10:00 ET.

Nasdaq Composite +9.1% YTD

S&P 500 +6.4% YTD

Dow Jones Industrial Average +6.3% YTD

Russell 2000 +2.7% YTD

Week In Review: Dow 21,000 and Beyond

The stock market continued its relentless push higher, which resulted in the sixth consecutive weekly advance for the S&P 500 and the Dow Jones Industrial Average cruising past 21,000. The benchmark index gained 0.7% for the week, extending its first quarter advance to 6.4%. The Nasdaq underperformed during the week (+0.4%), but remains ahead so far in 2017 (+9.1%).

The first two days of the week were highlighted by sideways action as most participants sat on their hands ahead of President Donald Trump's first address to Congress, which took place on Tuesday evening. There was some profit taking ahead of the evening address on Tuesday, but not only was the selling limited, it took place after a strong run in February that ended with the S&P 500 gaining 3.7% for the month.

Tuesday's modest downtick was wiped out in short order as equity indices charged out of the gate on Wednesday, jumping to new record highs. The upbeat disposition was attributed to President Donald Trump's address, which was free of surprises and deemed 'presidential' by pundits. President Trump reiterated his commitment to a $1 trillion infrastructure plan and made another mention of a big tax reform plan on the horizon. Details, however, remain to be seen.

However, it wasn't all President Trump as investors received some positive news from the global economic front on Thursday. China's Manufacturing PMI for February (51.6; expected 51.1) beat expectations while eurozone Manufacturing PMI (55.4; expected 55.5) ticked down slightly, but remained in expansion.

On the domestic data front, fourth quarter GDP was left unrevised at 1.9% in the second estimate, while more recent data like February Chicago PMI (57.4; Briefing.com consensus 53.0), February Consumer Confidence (114.8; Briefing.com consensus 111.5), and February ISM Index (57.7%; Briefing.com consensus 56.1%) beat expectations. That combination, and some hawkish comments from Fed officials, contributed to a notable shift in rate hike expectations.

The fed funds futures market ended the week showing a 79.9% implied probability of a rate hike in March, indicating a prevailing belief that the Federal Reserve is likely to raise the target range for the fed funds rate at its March 14-15 FOMC meeting. Fed Chair Yellen herself contributed to those increased expectations with a speech on Friday in which she indicated a further adjustment in the fed funds rate would likely be appropriate at the March meeting if the FOMC's evaluation of matters concludes that employment and inflation are continuing to evolve in line with its expectations.

This week also featured the widely-hyped, and closely-followed, IPO of social media company Snap (SNAP) on Thursday. The IPO priced at $17, yet the stock snapped higher when it first opened for trading, hitting the $24.00 mark before closing the session at $24.48 and finishing the week at $27.08.

The featured item in the coming week will be the February Employment Situation Report. The latter will be released on Friday. The nonfarm payrolls number and unemployment rate will capture most of the general media's attention, yet market participants will be focusing more intently on the average hourly earnings figure and the implications it could hold for future inflation, consumer spending, and monetary policy decisions.