Day Traders Diary

5/18/17

The major U.S. indices have overcome this morning's bearish tone as investors attempt to 'buy the dip' following yesterday's sell-off. The Nasdaq (+0.5%) and the Dow (+0.2%) trade on opposite sides of the benchmark S&P 500 (+0.3%).

Today's uptick comes in the face of new developments surrounding the investigation into Russia's alleged interference with the 2016 election, including the appointment of a special counsel to investigate the matter and a Reuters article noting that Trump campaign officials might have had at least 18 undisclosed contacts with Russian officials leading up to, and after, the election (though it was also reported that there have been no findings of wrongdoing with those contacts thus far).

The headline, paired with yesterday's New York Times article, which highlighted a potential obstruction of justice move by President Trump, pushed equity futures below fair value in pre-market action. However, investors quickly reverted to the buy-the-dip response that has frequently kicked in over the course of the last eight years or so. As a result, the major indices reclaimed their opening losses in the first half hour of trading and have pretty much remained in the green since. 

To be clear, the real concern for investors isn't so much the headlines themselves, rather, it's the notion that President Trump's pro-growth agenda items (i.e. tax reform, deregulation, and infrastructure spending) might not come to fruition as quickly as envisioned (i.e. before the end of the year) or perhaps at all.

Treasury Secretary Steven Mnuchin also made his way into today's news flow, stating that the Trump administration did not support the break up of big banks. President Trump has floated the idea of reinstating a "21st Century" version of the Glass-Steagall Act, which was aimed at separating commercial and investment banking, in the past. However, the president has not made a clear, concrete decision.

After showing early strength, the financial sector (unch) moved to the bottom of the day's leaderboard in the wake of Mr. Mnuchin's comments. Activity in the Treasury market has also contributed to the financial sector's underperformance as increased buying interest in longer-dated issues has flattened the yield curve a bit. The 10-yr yield is down one basis point at 2.22% while the 2-yr yield is flat at 1.25%.

The energy (unch), materials (-0.2%), consumer staples (-0.1%), and real estate (-0.1%) sectors underperform like the financial group while the consumer discretionary (+0.4%), technology (+0.3%), health care (+0.3%) and telecom services (+1.1%) spaces trade ahead of the benchmark index.

Semiconductor and biotech names show relative strength, evidenced by the 1.2% increase in the PHLX Semiconductor Index and the 0.8% increase in the iShares Nasdaq Biotechnology ETF (IBB 290.89, +2.30). These industries will be watched carefully as a gauge of trading sentiment since they often exhibit leadership in up markets given their growth characteristics. If either of these groups were to roll over (or both), it would be regarded as a disappointing development that would weigh on the conviction of broader buy-the-dip efforts.

On the data front, investors received several economic reports on Thursday, including Initial Claims, the Philadelphia Fed Index for May, and April Leading Indicators:

The latest weekly initial jobless claims count totaled 232,000 while the Briefing.com consensus expected a reading of 240,000. Today's tally was below the unrevised prior week count of 236,000. As for continuing claims, they declined to 1.898 million from the revised count of 1.920 million (from 1.918 million).

The key takeaway from this report is that it covered the period in which the employment survey was conducted for the May employment report, so it will foster an expectation for another month of strong nonfarm payrolls growth.

The Philadelphia Fed Survey for May rose to 38.8 from an unrevised 22.0 in April while economists polled by Briefing.com had expected a reading of 18.5.

The key takeaway from the report is that firms continue to expect growth, yet the optimism surrounding that growth outlook has faded, evidenced by the drop in the diffusion index for future general activity from 45.4 to 38.4, which was the second consecutive decline.

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

The key takeaway from the report is that the strengths among the leading indicators have remained widespread.