Day Traders Diary

5/30/17

Investors lacked conviction in the first session of the abbreviated week, which made for flat, range-bound action in the stock market on Tuesday. The major U.S. indices settled just a tick below their unchanged marks with the S&P 500 and the Nasdaq slipping 0.1% apiece and the Dow losing 0.2%. However, the domestically-oriented Russell 2000 suffered a more substantial loss, dropping 0.8%.

Seven of the eleven sectors finished in negative territory with the energy (-1.3%) and financials (-0.8%) groups leading the retreat. Crude oil weighed on the energy sector early, opening Tuesday's session with a loss of over 1.0%. However, the commodity rallied in the afternoon to settle lower by just 0.3% ($49.63/bbl). For financials, banks finished lower across the board with Goldman Sachs (GS 218.42, -4.36) showing relative weakness (-2.0%).

The health care sector (-0.2%) also finished in negative territory, but held up relatively well considering the biotechnology industry's negative performance; the iShares Nasdaq Biotechnology ETF (IBB 284.30, -3.92) dropped 1.4%. The remaining laggards--industrials (-0.1%), materials (-0.1%), consumer staples (unch), and real estate (-0.3%)--settled just a step below their unchanged marks.

On the flip side, the telecom services sector (+1.4%) led Tuesday's session from start to finish with the group's top components by market cap--AT&T (T 38.55, +0.43) and Verizon (VZ 46.20, +0.88)--adding 1.1% and 1.9%, respectively. Verizon's strength followed positive commentary from BTIG Research while AT&T's positive performance was prompted by analysts at MoffettNathanson, who upgraded T shares to 'Neutral' from 'Sell'.

The top-weighted technology sector (+0.3%) was underpinned by chipmakers, which pushed the PHLX Semiconductor Index higher by 0.6%, while the utilities group (+0.3%) outperformed amid broad strength. The last advancer--consumer discretionary (unch)--eked out a slim victory.

In the bond market, U.S. Treasuries moved higher in a curve-flattening trade as Core PCE inflation fell to a 1.5% year-on-year pace in April. Fed Governor Lael Brainard came out later in the session and said that another rate hike would likely be appropriate soon. The 10-yr yield (2.21%) dropped four basis points while the 2-yr yield (1.28%) lost two basis points.

The fed funds futures market continues to sit on the expectation that the Fed will raise the fed funds rate again at the June 13-14 FOMC meeting, but then hold off on another rate hike until 2018. The CME's FedWatch Tool shows only a 45.3% probability of a subsequent rate hike at the December meeting, down from 53.5% a week ago.

Today's participation was a bit light following the extended holiday weekend; 770.4 million shares changed hands at the NYSE floor (50-day simple moving average: 1.0 billion).

Investors received several economic reports on Tuesday, including April Personal Income and Personal Spending, the May Consumer Confidence Index, and the March Case-Shiller 20-City Index:

Personal income and personal spending were both up 0.4% for the month of April, which was in-line with the Briefing.com consensus estimates. The PCE Price Index was up 0.2%, as was the core-PCE Price Index, which excludes food and energy (Briefing.com consensus +0.1%), and the personal savings rate as a percentage of disposable income held steady at 5.3%.

The key takeaway from the report is the year-over-year changes for the PCE Price Index (1.7% from 1.9% in March) and the core-PCE Price Index (1.5% from 1.6% in March) decelerated from the prior month. That is unlikely to alter the prevailing view that the Fed will raise the target range for the fed funds rate at its June meeting, although it will stir some belief that another rate hike this year may not happen.

The consumer confidence reading for May fell to 117.9 from the prior month's revised reading of 119.4 (from 120.3). The Briefing.com consensus expected the survey to hit 119.5.

The key takeaway from the report is that a downshift in consumers' view of the short-term outlook triggered the lower overall reading for April.

The March Case-Shiller 20-city Index hit 5.9% to follow last month's unrevised 5.9% increase.

Tomorrow, investors will receive the weekly MBA Mortgage Applications Index at 7:00 ET, May Chicago PMI (Briefing.com consensus 57.3) at 9:45 ET, April Pending Home Sales (Briefing.com consensus 0.8%) at 10:00 ET, and the Fed's Beige Book for May at 14:00 ET.