Day Traders Diary

4/18/17

 The bears took game two in this week's series after the latest batch of earnings reports failed to generate much conviction among the bulls. The Dow got hit the hardest, losing 0.6%, while the S&P 500 (-0.3%) and the Nasdaq (-0.1%) experienced more modest declines.

Equities opened Tuesday in negative territory with the health care sector (-1.0%) leading the retreat. UnitedHealth (UNH 168.59, +1.41) beat top and bottom line estimates, but it wasn't enough to overcome Johnson & Johnson's (JNJ 121.82, -3.90) miss on revenues. JNJ, the health care sector's largest component by market cap, ended the day lower by 3.1%.

However, the real bearish signal came from the financial sector (-0.8%), which failed, yet again, to capitalize on some positive earnings news. Bank of America (BAC 22.71, -0.10) reported upbeat earnings and revenues in its latest earnings report, but the positive momentum was hijacked by Goldman Sachs (GS 215.59, -10.67), which failed to meet top and bottom line expectations.

The results were eerily similar to last Thursday's activity in which the financial sector stumbled after Wells Fargo (WFC 52.45, -0.27) missed revenue expectations, but JPMorgan Chase (JPM 85.16, -0.70) and Citigroup (C 58.42, -0.57) beat on the top and bottom lines. The flops have been felt throughout the market as the financial sector, which, in many ways, has come to symbolize the stock market's post-election rally, struggles to find more room to run.

Activity in the Treasury market certainly didn't help the financial sector find its footing as unequally distributed buying interest flattened the yield curve. The 10-yr yield (2.17%) closed eight basis points lower while the 2-yr yield (1.15%) lost only five basis points. Nonetheless, it's important to note the risk-off tone that fueled the move higher for U.S. sovereign debt. That risk-off tone contributed to resilience in gold, which rose 0.2% to $1293.90/ozt after being down roughly 1.0% in the morning.

As one might expect, countercyclical groups generally outperformed their cyclical peers with the consumer staples (+0.5%), utilities (+0.2%), and telecom services (+0.2%) spaces profiting from investors' defensive mindset. Conversely, the energy sector (-0.9%) was the worst-performing cyclical group with crude oil closing 0.3% lower at $52.47/bbl.

Investor participation was a bit below average as 890 million shares changed hands at the NYSE floor.

On the data front, investors received the March Housing Starts and March Industrial Production reports:

Housing starts decreased to a seasonally adjusted annualized rate of 1.215 million units in March, down from a revised 1.303 million units in February (from 1.288 million). The Briefing.com consensus expected starts to decrease to 1.256 million units. Building permits increased to a seasonally adjusted 1.260 million in March from a revised 1.216 million for February (from 1.213 million). The Briefing.com consensus expected a reading of 1.240 million.

The key takeaway from the report is that single-family permits fell 1.1% to 823,000, which is a discouraging indicator for a housing market very much in need of new supply at lower price points.

Industrial Production increased 0.5% in March (Briefing.com consensus 0.4%) while Capacity Utilization rose to 76.1% (Briefing.com consensus 76.2%) from a revised reading of 75.7% in February (from 75.9%). The Industrial Production reading for February was revised to 0.1% from 0.0%.

The key takeaway from the report -- and the main source of disappointment -- is that manufacturing output declined 0.4% in March, paced by a big step-down in the production of motor vehicles and parts, but even if that factor is excluded, manufacturing output still declined 0.2%. Furthermore, revisions left the manufacturing output gains for January and February smaller than previously stated.

Tomorrow, investors will receive the MBA Mortgage Applications Index at 7:00 ET and the Fed's Beige Book for April at 14:00 ET.

Nasdaq Composite +8.7% YTD

S&P 500 +4.6% YTD

Dow Jones Industrial Average +3.9% YTD

Russell 2000 +0.4% YTD