Day Traders Diary

5/19/17

After posting its worst one-day loss in eight months on Wednesday (-1.8%), the stock market ended the week with two bounce-back performances that left the S&P 500 with just a modest loss for the week (-0.4%). The benchmark index challenged its flat line for the week at the peak of Friday's slow and steady climb, but couldn't hold its session high into the closing bell. The major averages settled in the middle of the day's trading range with the S&P 500 and the Dow adding 0.7% apiece. The Nasdaq (+0.5%) settled just a tick below its peers.

Thursday's positive sentiment lingered in the stock market on Friday morning, granting the major averages modest gains at the opening bell. From there, the industrials (+1.4%), energy (+1.2%), and financials (+0.8%) groups led the stock market in a slow and steady climb. The industrial sector rallied around Deere's (DE 120.90, +8.23) stronger than expected earnings and upbeat guidance. DE shares jumped 7.3% while peer Caterpillar (CAT 102.43, +2.21) also profited from the positive sentiment, adding 2.2%.

Crude oil underpinned the energy sector's positive performance, jumping 2.0% to $50.33/bbl, after reports that an OPEC panel is considering the possibility of not only extending its deal to cut oil production, which Russia and Saudi Arabia spoke in favor of earlier in the week, but also increasing the size of the production cut. For the week, the energy component added 5.2%.

The financial sector held strong into the final hour of action but lost some of its vigor following a Washington Post report that claims a White House official is a person of interest in the investigation on Russia's influence in the U.S. presidential election. The broader market was in the midst of challenging last Friday's closing level before the report was released, but ticked down with the financial sector in the aftermath.

All eleven sectors ended the day in the green, but some groups showed relative weakness with the top-weighted technology sector (+0.5%) being the most notable laggard. The tech group failed to capitalize on chipmakers' relatively upbeat performance, evidenced by the 1.1% increase in the PHLX Semiconductor Index, as mega-cap names like Apple (AAPL 153.06, +0.52) and Microsoft (MSFT 67.69, -0.02) weighed. Salesforce.com (CRM 87.40, -0.35) also underperformed despite beating top and bottom line estimates.

In the currency market, the euro (1.1202) added 0.9% against the U.S. dollar after European Central Bank President Mario Draghi said late on Thursday that the eurozone crisis is now in the past and that the recovery was resilient and increasingly broad-based. The euro/dollar pair settled at a seven-month high while the U.S. Dollar Index (97.03, -0.74) finished at its lowest level since early November.

U.S. Treasuries saw some selling pressure amid the stock market's rebound performance, leaving the benchmark 10-yr yield one basis point higher at 2.23%. However, the CBOE Volatility Index (VIX 12.18, -2.48, -16.9%) better captured the day's risk-on tone, dropping over two points.

Investors did not receive any economic data on Friday. Monday's economic calendar is also blank.

Nasdaq Composite +13.0% YTD

S&P 500 +6.4% YTD

Dow Jones Industrial Average +5.3% YTD

Russell 2000 +0.8% YTD

Week In Review: Buy the Dip

After opening the week with a record-high close, equities took a hit in the midweek session after an article in the New York Times highlighted a potential obstruction of justice move by President Trump. However, the bulk of Wednesday's loss was retraced in the second half of the week as a 'buy the dip' mentality set in. The S&P 500 ended the week lower by 0.4%.

Crude oil was a focal point on Monday, jumping 2.1% to $48.86/bbl, on news that the world's top two oil producers--Saudi Arabia and Russia--are in favor of extending the original OPEC/non-OPEC supply cut agreement, which is currently scheduled to end in June, by another nine months. The commodity's positive performance helped the benchmark index climb 0.5% to a fresh all-time high.

The major averages ended the second session of the week little changed, but a solid performance from mega-cap names like Microsoft (MSFT) and Amazon (AMZN) pushed the Nasdaq to another record high. Led by NVIDIA (NVDA), chipmakers also underpinned the tech-heavy Nasdaq with the PHLX Semiconductor Index adding 1.5% for the second day in a row.

On Wednesday, equities suffered their worst one-day decline since September following a New York Times article that claimed President Trump asked former FBI Director James Comey to shut down the Bureau's investigation of former National Security adviser Michael Flynn. If true, some legal experts believe the alleged incident would qualify as obstruction of justice, which is an impeachable offense.

The allegation forced Wall Street to come to a quick realization 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 or perhaps not at all. The S&P 500 settled Wednesday's session with a loss of 1.8%. However, the bearish sentiment didn't last long as investors 'bought the dip' on Thursday.

Underpinned by the semiconductor and biotechnology industries, the S&P 500 advanced 0.4% on Thursday in the face of a Reuters report that the Trump campaign might have had at least 18 undisclosed contacts with Russian officials and others with Kremlin ties leading up to, and after, the U.S. presidential election. The potentially concerning report helped keep the S&P 500 below its 50-day simple moving average, but the key technical level was no match for the bulls on Friday.

The major U.S. indices ended the week on a positive note with the S&P 500 adding 0.7%. The Friday session had a risk-on feel to it with cyclical sectors showing relative strength, Treasuries ticking down, and the CBOE Volatility Index (VIX) dropping over two points. Crude oil came back into focus once again, jumping 2.0% to $50.33/bbl, following reports that top oil producers will consider increasing the size of the OPEC/non-OPEC production cut when they meet on May 25.

The fed funds futures market still points to the June FOMC meeting as the most likely time for the next rate-hike announcement with an implied probability of 78.5%, unchanged from last week's 78.5%.