Day Traders Diary

6/5/17

 Investors played it safe on Monday following back-to-back record closes for the stock market at the end of last week. Action was range-bound from start to finish with the S&P 500 (-0.1%) staying true to a five-point range. The Nasdaq (-0.2%) and the Dow (-0.1%) settled roughly in line with the benchmark index.

The financial sector (+0.1%) held the top spot in the sector standings for most of Monday's session, which was an encouraging sign for investors in light of the sector's recent struggles. As a reminder, the financial group paced the stock market's post-election rally on promises of tax reform and deregulation, but the sector has lagged in recent months as the implementation of those pro-growth promises has come into question. However, some selling in late-afternoon action left the sector a ways below its session high (+0.7%).

In a similar fashion, the technology group (+0.1%) used its influence to keep a lid on the broader market's loss. The tech sector, which is the only group larger than the financial sector by market cap, benefited from broad strength. However, the technology sector's heaviest component by market cap, Apple (AAPL 153.93, -1.52), struggled despite the buzz surrounding its closely-followed Developers Conference. AAPL shares lost 1.0% after being downgraded to 'Sector Weight' from 'Overweight' at Pacific Crest on Monday morning.

The energy sector (+0.2%) claimed the top spot on the day's leaderboard following an afternoon rally in the crude oil futures market. However, WTI crude still settled in negative territory, slipping 0.5% to $47.40/bbl, following news that several Arab nations have cut diplomatic ties with Qatar, accusing the country of supporting terrorism. Some market participants believe that the development could hamper the global production cut agreement between OPEC and non-OPEC nations.

Like the aforementioned groups, the consumer staples sector (+0.1%) also settled in positive territory with Wal-Mart (WMT 80.26, +0.64) showing relative strength (+0.8%), but the seven remaining spaces finished with losses between 0.1% and 0.5%. The lightly-weighted materials (-0.5%) and utilities (-0.5%) groups ended the day at the bottom of the sector standings while the health care group (-0.3%) also showed relative weakness as biotech names weighed; the iShares Nasdaq Biotechnology ETF (IBB 294.15, -1.64) dropped 0.6%.

It's also worth noting that the Russell 2000 (-0.6%) and the Dow Jones Transportation Average (-0.3%), both leading indicators that do well (or poorly) when it's thought that economic activity is picking up (or slowing down), finished below the broader market. However, the CBOE Volatility Index (VIX 9.77, +0.02, +0.2%) remained below the historically-low 10.00 mark, indicating a complacency within the market regarding near-term risks.

U.S. Treasuries settled modestly lower across the board with the benchmark 10-yr yield climbing two basis points to 2.18%. Meanwhile, the U.S. Dollar Index (96.77, +0.16) added 0.2% with the greenback adding 0.2% and 0.1%, respectively, against the euro (1.1256) and the Japanese yen (110.50).

Reviewing today's economic data, which included the May ISM Services Index, April Factory Orders, and the revised readings of first quarter productivity and unit labor costs:

The ISM Services Index for May declined to 56.9 from an unrevised reading of 57.5 in April. The Briefing.com consensus expected a reading of 57.0.

The key takeaway from the report is that prices paid by non-manufacturing organizations for materials and services decreased for the first time in 13 months, underscoring how inflation pressures remain in check despite the tight labor market.

The Factory Orders Report for April showed a decrease of 0.2%, which is in line with the Briefing.com consensus. The March reading was revised to 1.0% (from 0.2%).

The key takeaway from the report is that order and shipments activity for manufactured goods in April were subdued and will limit the expected contribution to Q2 GDP growth forecasts.

The first quarter unit labor costs were revised to +2.2% (Briefing.com consensus +2.4%) from +3.0% in the preliminary reading. Meanwhile, the first quarter productivity reading was revised to 0.0% (Briefing.com consensus -0.2%) from -0.6% in the preliminary reading.

The key takeaway from the report is that productivity is still weak despite the upward revision. From the first quarter of 2016 to the first quarter of 2017, productivity increased 1.2%.

Tomorrow, investors will receive just one economic report--April JOLTS--which will cross the wires at 10:00 ET.

Nasdaq Composite +17.0% YTD

S&P 500 +8.8% YTD

Dow Jones Industrial Average +7.2% YTD

Russell 2000 +2.9% YTD