Day Traders Diary

5/12/17

The Nasdaq (+0.1%) escaped Friday's session with a win as Apple (AAPL 156.10, +2.15) and Amazon.com (AMZN 961.35, +13.73) climbed to fresh record highs. Meanwhile, the Dow (-0.1%) and the S&P 500 (-0.2%) settled with modest losses. For the week, the S&P 500 declined 0.4%.

U.S. Treasuries finished solidly higher across the board on Friday following the release of the Retail Sales and CPI reports for April, which tempered concerns about the Fed potentially needing to walk an aggressive rate-hike path.

Dovish comments from Chicago Fed President Charles Evans (FOMC voter) also helped Treasuries. Mr. Evans said two more rate hikes this year may not be necessary if there is rising uncertainty about the inflation outlook. However, it's worth noting that Philadelphia Fed President Patrick Harker (FOMC voter) expressed his view that two additional rate hikes this year are appropriate.

The CPI report came in roughly as expected with total CPI rising 0.2% (Briefing.com consensus 0.2%) and core CPI, which excludes food and energy, increasing 0.1% (Briefing.com consensus 0.2%). Meanwhile, April retail sales missed expectations (0.4% actual vs. 0.6% Briefing.com consensus), yet that miss was mitigated somewhat by an upward revision for March (to 0.1% from -0.3%).

The 2yr-10yr spread narrowed as the back end of the curve received more buying interest than the front end. The 10-yr yield (2.33%) settled six basis points lower while the 2-yr yield (1.29%) declined by four basis points. This didn't help the financial sector (-0.5%), which settled with the industrial sector (-0.7%) at the bottom of the sector standings. General Electric (GE 28.27, -0.60) weighed on the industrial sector throughout Friday's session, losing 2.1%, after the company's shares were downgraded to 'Sell' from 'Hold' at Deutsche Bank. The loss left GE at a fresh 15-month low.

Conversely, Apple jumped 1.4% after analysts at Goldman Sachs and Bank of America/Merrill Lynch raised their target prices for the stock on Friday morning. The company's positive performance underpinned the top-weighted technology sector (+0.3%), which was one of only two sectors to close the day in positive territory.  The lightly-weighted utilities group (+0.5%) was the other winner. For the week, the technology sector added 1.1%, extending its year-to-date gain to 17.8%.

The energy sector (-0.3%) was the only other group to end the week higher (+0.4%). However, the sector struggled on Friday as crude oil spent most of the day under water following a rally over the prior two sessions that was good for a 4.3% gain. WTI crude bounced back a bit in the afternoon session, settling 0.1% higher at $47.84/bbl.

After taking it to the chin on Thursday, retailers got hit again on Friday following the latest batch of earnings reports.

Nordstrom (JWN 41.20, -5.01) lost 10.8% after a 0.8% decline in same-store sales overshadowed better than expected earnings. Meanwhile, J.C. Penney (JCP 4.55, -0.74) tumbled 14.0% after missing top-line estimates and reporting a 3.5% decline in same-store sales. The SPDR S&P Retail ETF (XRT 42.13, -0.78) settled lower by 1.8%. However, Amazon's strength provided some offsetting support for the consumer discretionary sector (-0.2%), which traded in-line with the broader market.

On the data front, investors received March Business Inventories and the preliminary reading of the University of Michigan Consumer Sentiment Survey for May in addition to the April CPI and Retail Sales reports:

Total CPI rose 0.2% (Briefing.com consensus 0.2%) in April while core CPI, which excludes food and energy, increased 0.1% (Briefing.com consensus +0.2%). On a year-over-year basis, total CPI is up 2.2% and core CPI has increased 1.9%.

The key takeaway from the CPI report is that consumer inflation pressures moderated a bit in April. That won't change the thinking that the Fed will raise rates at its June meeting, yet it will temper concerns about the Fed possibly needing to be more aggressive with its rate hikes.

April retail sales increased 0.4%, which is below the Briefing.com consensus of 0.6%. The prior month's reading was revised higher to 0.1% from -0.3%. Excluding autos, retail sales rose 0.3% while the Briefing.com consensus expected an increase of 0.5%. The prior month's reading was revised higher to 0.3% from 0.2%.

The key takeaway from this report is that it puts consumer spending on a path toward being a much better contributor to second quarter real GDP growth than it was in the first quarter.

Business Inventories rose 0.2% in March while the Briefing.com consensus expected an uptick of 0.1%. The prior month's reading was revised to 0.2% from 0.3%.

The key takeaway from the report is that business inventories remain elevated relative to sales, which is standing in the way of restoring pricing power.

The preliminary reading of the University of Michigan Consumer Sentiment Index for May rose to 97.7 (Briefing.com consensus 96.5) from 97.0 in April.

The key takeaway from the report is that consumers had some of the most favorable real income expectations in a dozen years, yet their buying plans were reportedly mixed. That disconnect seems to fit with the divide that has been seen between "soft" data, like this survey, and "hard" data like the personal spending report.

On Monday, investors will receive two economic reports--May Empire Manufacturing (Briefing.com consensus 7.5) and May Net Long-Term TIC Flows. The reports will be released at 8:30 ET and 16:00 ET, respectively.

Nasdaq Composite +13.7% YTD

S&P 500 +6.8% YTD

Dow Jones Industrial Average +5.7% YTD

Russell 2000 +1.9% YTD