Day Traders Diary

4/20/17

Investors turned things around on Thursday to break the stock market out of its two-day slump. The Nasdaq and the Dow settled in line with one another, adding 0.9% apiece. The S&P 500 (+0.8%) also finished solidly higher, but a small slip in the final minutes of action left the benchmark index below its 50-day moving average (2357), yet again.

Thursday's bullish mentality was helped by the latest reports from Washington, which suggested that the Freedom Caucus, the group credited with blocking the GOP's first attempt at health care reform, is now on the same page with Republican leadership in repealing and replacing the Affordable Care Act. This is positive news for investors as progress on health care reform equates to progress on tax reform with President Trump making it clear that the two pieces of legislation will be done in that order. In addition, Treasury Secretary Steven Mnuchin said that the White House will release a major tax reform plan "very soon."

The health care sector (+0.6%) finished behind the broader market, however, it performed significantly better than its countercyclical peers. The consumer staples (-0.3%), utilities (-0.4%), and telecom services (-0.3%) groups all finished in negative territory.

The outflows from defensively-oriented groups found their way into cyclical sectors, which generally do well when the market feels good about the economic outlook. The financial sector (+1.6%) was pivotal on Thursday, finally registering a solid gain. Recently, the financial group has shrugged off upbeat earnings reports from a handful of its most influential components, posing a dichotomy for investors, and the broader market, who hopped on the back of the sector during the stock market's post-election run.

American Express (AXP 80.02, +4.47) helped fuel the positive sentiment in the financial sector, jumping 5.9%, after reporting better than expected earnings and revenues. However, its wasn't all sunshine and rainbows for the group, evidenced by Travelers' (TRV 118.88, -1.52) 1.3% decline, which was a response to the company's miss on the top and bottom lines.

The consumer discretionary (+1.0%), industrials (+1.1%), materials (+1.1%), and technology (+1.0%) sectors all finished above the benchmark index, however, the bearish sentiment surrounding crude oil's 0.4% decline, eventually seeped into the energy sector (+0.4%). The energy space is the worst-performing group of the week, down 1.7%, going into Friday's session.

On the countercyclical side, the telecom services group settled with the utilities space at the bottom of the day's leaderboard as Verizon (VZ 48.41, -0.53) weighed. The wireless giant dropped 1.1% after missing earnings and revenue estimates.

In the bond market, Treasuries backed up the risk-on narrative, finishing Thursday's session lower across the board. The benchmark 10-yr yield (2.24%) and the 2-yr yield (1.20%) settled higher by two basis points each. Also of note, the CBOE Volatility Index (14.01, -0.92, -6.2%) ticked down from its recent five-month high.

Currently the week is split--two wins for the bulls, two wins for the bears. However, the bulls have been more dominating in their victories, leaving the S&P 500 with a week-to-date gain of 1.2% going into Friday's session.

On the data front, investors received several economic reports today, including Initial Claims, the Philadelphia Fed Survey for April, and March Leading Indicators:

The latest weekly initial jobless claims count totaled 244,000 while the Briefing.com consensus expected a reading of 242,000. Today's tally was above the unrevised prior week count of 234,000. As for continuing claims, they declined to 1.979 million from the unrevised count of 2.028 million.

The key takeaway from the report is that it will drive expectations for a solid increase in nonfarm payrolls for April.

The Philadelphia Fed Survey for April declined to 22.0 from an unrevised 32.8 in March while economists polled by Briefing.com had expected a reading of 23.7.

The key takeaway from the report is that manufacturing activity slowed in April, but even so, it remains at a relatively high level.

The Conference Board's Leading Indicators report for March increased 0.4% (Briefing.com consensus 0.3%) after moving higher by a revised 0.5% in February (from 0.6%).

The key takeaway from the report is that the strength among the leading indicators has become very widespread.

On Friday, investors will receive March Existing Home Sales (Briefing.com consensus 5.58 million) at 10:00 ET.

Nasdaq Composite +9.9% YTD

S&P 500 +5.2% YTD

Dow Jones Industrial Average +4.1% YTD

Russell 2000 +2.0% YTD