Day Traders Diary

3/15/17

As expected, the Federal Open Market Committee voted to raise the fed funds target range by 25 basis points to 0.75%-1.00% on Wednesday. More notably, the Fed still believes that three rate hikes are appropriate for 2017, relieving investors' fears that the central bank could begin setting the groundwork for a fourth hike. The major averages started the day in the green thanks to a bullish sentiment in the crude oil market and climbed to new session highs in the afternoon following the FOMC decision. The S&P 500 and the Nasdaq finished higher by 0.8% and 0.7%, respectively, while the Dow (+0.5%) struggled to keep pace with its peers. Also of note, small-caps surged on Wednesday with the Russell 2000 jumping 1.6%.

U.S. Treasuries spiked across the board in the wake of the FOMC's decision to tighten monetary policy. The benchmark 10-yr yield, which moves inversely to the price of the 10-yr Treasury note, finished ten basis points lower at 2.51%. Meanwhile, the 2-yr yield, which is more vulnerable to short-term interest rate hikes, lost seven basis points to finish at 1.31%.

In the same breath, the U.S. Dollar Index (100.69, -0.93) plunged 0.9% lower, ultimately aiding crude oil in its already solid performance.

Crude oil set today's bullish tone in pre-market action after the API reported encouraging inventory data on Tuesday evening. The EIA validated those positive numbers this morning, showing a draw of 200,000 barrels (+3.7 million barrels consensus). The reading prompted WTI crude to finish the day 2.1% higher at $48.71/bbl.

As one might expect, the energy sector (+2.1%) rode the commodity's performance to the top spot on today's leaderboard. The rate-sensitive utilities (+1.6%) and real estate (+1.9%) spaces closed in the same neighborhood as the energy sector, profiting from the slip in interest rates within the Treasury market, while the financial group (-0.1%) reacted in opposite fashion as the decline in yields weighed.

Meanwhile, the top-weighted technology sector (+0.6%) underperformed as semiconductor giant Intel (INTC 35.10, -0.08) continued to see weakness in the wake of its acquisition of Mobileye (MBLY 60.77, -0.19), which was announced on Monday. The two names lost 0.2% and 0.3% on the day, respectively.

Like technology, the consumer discretionary group (+0.5%) also struggled as large-cap names like Amazon (AMZN 852.97, +0.44), Walt Disney (DIS 111.87, -0.44), McDonald's (MCD 127.88, +0.08), and Target (TGT 54.57, -0.18) underperformed, among others.

Wednesday saw a slew of economic data, including February CPI, February Retail Sales, March Empire Manufacturing, March NAHB Housing Market Index, January Business Inventories, and the weekly MBA Mortgage Applications Index, but it was largely overshadowed by the Fed's rate decision:

Total CPI rose 0.1% (Briefing.com consensus +0.1%) in February while core CPI, which excludes food and energy, increased 0.2% (Briefing.com consensus +0.2%). On a year-over-year basis, total CPI is up 2.7% and core CPI has increased 2.2%.

The key takeaway from the report is that consumer inflation is certainly firming and offering a data-based rationale for the Fed to move on rates.

February retail sales increased 0.1%, which is in line with the Briefing.com consensus. The prior month's reading was revised higher to 0.6% from 0.4%. Excluding autos, retail sales rose 0.2% while the consensus expected an uptick of 0.1%. The prior month's reading was revised higher to 1.2% from 0.8%.

The key takeaway from the February report is that retail sales activity didn't necessarily corroborate the high readings seen for consumer confidence, exposing some of the disconnect between "soft" survey data and the "hard" data.

The Empire Manufacturing Survey for March rose to 16.4 from the prior month's reading of 18.7. The Briefing.com consensus estimate was pegged at 14.5.

The NAHB Housing Market Index for March rose to 71 (Briefing.com consensus 65) from an unrevised reading of 65 in February.

Business Inventories rose 0.3% in January, which is in line with the Briefing.com consensus. The prior month's reading was left unrevised at 0.4%.

The key takeaway from the report is that the inventory-to-sales ratio is at its lowest point since December 2014. That's elevated from pre-financial crisis levels, when it was below 1.30, yet a further downtrend could restore some much needed pricing power.

The weekly MBA Mortgage Applications Index increased 3.1% to follow last week's 3.3% uptick.

Tomorrow's economic data will include February Housing Starts (Briefing.com consensus 1.260 million), Initial Claims (Briefing.com consensus 242,000), and March Philadelphia Fed (Briefing.com consensus 25.0) at 8:30 ET, while January JOLTS will cross the wires at 10:00 ET.

Nasdaq Composite +9.6% YTD

S&P 500 +6.5% YTD

Dow Jones Industrial Average +6.0% YTD

Russell 2000 +2.0% YTD