Day Traders Diary

4/5/17

Stocks started strong out of the gate following an upbeat ADP Employment Change Report on Wednesday morning, but the hawkish tone of the FOMC Minutes prompted an afternoon retreat. The S&P 500 settled lower by 0.3% while the Dow (-0.2%) performed slightly better and the Nasdaq (-0.6%) finished slightly worse.

The ADP National Employment Report, which showed an increase of 263,000 in March (Briefing.com consensus 175,000), provided an encouraging signal for the domestic labor market and future economic growth. However, the domestically-oriented Russell 2000 (-1.0%), which is closely tied to the performance of the U.S. economy, struggled to keep pace with the broader market. The lack of buying conviction among small caps pointed to the fact that not all market participants bought into the positive narrative attached to the better than expected ADP reading.

That narrative was tested during the afternoon session with the release of the FOMC Minutes from the March meeting. In the report, the committee revealed that it would like to start reducing the Fed's balance sheet later in the year. In addition, the Minutes showed that some Fed officials are worried about high equity valuations. Stocks held steady immediately following the report, but the hawkish tone eventually seeped in, sending the cash market into the red.

It's also important to note that investors have been on edge all week amid a cloud of uncertainty; it's unclear what will come from President Trump's upcoming meeting with Chinese President Xi Jinping, what the resurgence of health care reform will mean for tax reform, and how the U.S. will deal with the ongoing tensions in Syria and North Korea, among a host of other concerns. With all of these narratives playing in the background, it would be unfair to attribute today's slip to any one factor.

On that note, House Speaker Paul Ryan added to the market's anxiety on Wednesday afternoon, acknowledging that tax reform will take longer than repealing and replacing the Affordable Care Act. Mr. Ryan said that the House currently has a tax reform plan, but the Senate is still working on its version.

Most sectors finished today's session in negative territory with only a couple countercyclical groups--utilities (+0.5%) and real estate (+0.2%)--escaping with wins. The financial sector (-0.7%) settled at the bottom of the day's leaderboard with the remaining sectors closing modest lower with losses no greater than 0.4%.

It's worth pointing out that crude oil settled 0.3% higher at $51.14/bbl despite a bearish inventory report from the Energy Information Administration. The EIA reading showed a build of 1.6 million barrels while the consensus called for a modest draw. Nonetheless, the energy sector (-0.3%) performed in line with its cyclical peers throughout the majority of today's action.

In the Treasury market, Treasuries experienced increased demand in the wake of the FOMC Minutes. The benchmark 10-yr yield finished four basis points lower at 2.33%.

On the data front, investors received March ADP Employment Change, March ISM Services, and the weekly MBA Mortgage Applications Index:

The ADP National Employment Report showed an increase of 263,000 in March (Briefing.com consensus 175,000) while the February reading was revised lower to 245,000 from 298,000.

The ADP reading precedes Friday's more influential Employment Situation Report for March, which the Briefing.com consensus expects will show the addition of 180,000 nonfarm payrolls. The Employment Situation Report for February indicated that nonfarm payrolls increased by 235,000.

The ISM Services Index for March declined to 55.2 from an unrevised reading of 57.6 in February while the Briefing.com consensus expected a downtick to 57.0.

The key takeaway from the report is that growth in the services sector, which accounts for a much bigger slice of economic activity than the manufacturing sector does, persisted for the 87th straight month.

The weekly MBA Mortgage Applications Index decreased 1.6% to follow last week's 0.8% decline.

Tomorrow, March Challenger Job Cuts will be released at 7:30 ET while Initial Claims (Briefing.com consensus 245,000) will cross the wires at 8:30 ET.

Nasdaq Composite +8.9% YTD

S&P 500 +5.1% YTD

Dow Jones Industrial Average +4.5% YTD

Russell 2000 -0.4% YTD