Day Traders Diary

3/8/17

 Crude oil ($50.40/bbl) stole the spotlight on Wednesday, plunging 5.3%, after the latest Energy Information Administration (EIA) inventory report showed a much higher build than the consensus estimate (8.2 million vs 2.0 million est.). The major averages held their ground for some time amid the energy component's plummet, but succumbed to selling pressure in the final stretch. The Nasdaq (+0.1%) finished with a slim gain while the S&P 500 and the Dow closed with losses of 0.2% and 0.3%, respectively.

Unsurprisingly, the energy sector closed the day at the bottom of the leaderboard with a loss of 2.5%. The rate-sensitive utilities (-1.5%) and real estate (-1.5%) groups also finished solidly lower amid an increase in interest rates following a better than expected ADP National Employment Report, which clobbered the consensus estimate; the reading showed that a whopping 298,000 private-sector jobs were added in February (Briefing.com consensus 180,000).

In light of the ADP release, economists will be adjusting their estimates for nonfarm payroll gains (Briefing.com consensus 188,000) in Friday's Employment Situation Report for February, which is regarded as the last potential barrier for a rate hike in March. Following today's economic data, the CME Fed Watch Tool now assigns an implied probability of 90.8% to a March rate hike, up from 81.9% on Tuesday. Furthermore, the market expects to see another rate hike by the September meeting. The U.S. Dollar Index (102.04, +0.23) ticked up in tandem with rate hike expectations, adding 0.2%.

In the same breath, U.S. Treasuries finished the day in negative territory with the benchmark 10-yr yield closing four basis points higher at 2.55%.

At the top of the day's sector standings were the health care (+0.3%) and consumer discretionary (+0.3%) sectors with the latter space receiving a boost from retailers. The SPDR S&P Retail ETF (XRT 42.37, +0.43) added 1.0% after the latest batch of earnings reports, which included a stellar performance from The Children's Place (PLCE 118.15, +18.25). PLCE shares spiked 18.3% after the company reported better than expected earnings and issued upbeat guidance. In addition, The Children's Place also announced a new stock buyback and a dividend increase.

For the health care group, today's positive showing was more of a bounce-back performance following Tuesday's tumble, a day in which the sector saw selling pressure in response to the House Republicans' proposed Obamacare replacement.

The technology (+0.1%), financials (unch), and materials (+0.1%) sectors finished near their flat lines while the telecom services (-0.4%), consumer staples (-0.3%), and industrials (-0.4%) groups finished with modest losses.

Today's economic data included February ADP Employment Change, fourth quarter Productivity & Unit Labor Costs, January Wholesale Inventories, and the weekly MBA Mortgage Index:

The ADP National Employment Report showed an increase of 298,000 in February (Briefing.com consensus 180,000) while the January reading was revised to 261,000 from 246,000.

The ADP reading precedes Friday's more influential Employment Situation Report for February, which is widely considered the last potential barrier to a rate hike in March.

The unit labor costs were left unrevised during the fourth quarter, showing an increased 1.7%, which was higher than the 1.6% increase that had been anticipated by the Briefing.com consensus. The productivity reading was also left unrevised, showing an increase of 1.3%. The Briefing.com consensus expected an increase of 1.5%.

The key takeaway from the report is that productivity is low, with the average annual rate of productivity growth from 2011 to 2016 being 0.6% versus the long-term rate of 2.1% from 1947 to 2016. Low productivity gets in the way of a rising standard of living.

January Wholesale Inventories decreased 0.2%, while the Briefing.com consensus expected a downtick of 0.1%. The prior month's reading was left unrevised at +1.0%.

The market doesn't typically pay much attention to this release since the full business inventories report is usually released a few days later.

The weekly MBA Mortgage Applications Index increased 3.3% to follow last week's 5.8% uptick.

On Thursday, investors will receive February Challenger Job Cuts at 7:30 ET, with February Export/Import Prices and Initial Claims (Briefing.com consensus 240,000) following at 8:30 ET.

Nasdaq Composite +8.4% YTD

S&P 500 +5.6% YTD

Dow Jones Industrial Average +5.5% YTD

Russell 2000 +0.7% YTD