Day Traders Diary

6/28/17

Wall Street registered a solid win on Wednesday as the top-weighted financials (+1.6%) and technology (+1.3%) sectors carried the S&P 500 (+0.9%) back to its flat line for the week. The Nasdaq (+1.4%) outperformed the benchmark index while the Dow (+0.7%) lagged, but all three major averages settled near the top of the day's trading range. The small-cap Russell 2000 added 1.5%.

The heavily-weighted financial sector (+1.6%) led Wednesday's session from start to finish, extending its week-to-date gain to 2.7%, which was undoubtedly a positive for investor sentiment considering the group's important role in driving economic activity. However, the bounce-back performance of the top-weighted information technology sector (+1.3%), which suffered back-to-back losses on Monday and Tuesday, was just as important in fueling the stock market's advance.

Tech stocks were lagging in pre-market action, but then showed signs of life after the European Central Bank said that the market misjudged yesterday's remarks from ECB President Mario Draghi, which were originally deemed as hawkish. The tech-heavy Nasdaq tested its 50-day simple moving average (6,234) in the opening minutes and then quickly moved higher, most likely on the back of some short-covering activity, after the key technical level held.

Most other cyclical groups also finished solidly higher, including consumer discretionary (+1.0%), industrials (+0.9%), energy (+0.6%), and materials (+0.8%). The consumer discretionary space benefited from broad strength, but homebuilders showed particular resolve after KB Home (KBH 24.06, +1.24) beat both top and bottom line estimates and issued upbeat guidance. The iShares U.S. Home Construction ETF (ITB 34.05, +0.56) added 1.7%.

Transports helped underpin the industrial sector, sending the Dow Jones Transportation Average higher by 1.4%. Industrial heavyweight Caterpillar (CAT 106.45, +2.52) also pitched in, adding 2.4%.

For the energy sector, the bullish bias stemmed from the crude oil futures market, which advanced for the fifth session in a row after the Department of Energy reported that U.S. crude inventories increased by 0.1 million barrels (consensus -2.6 million barrels) and gasoline stockpiles decreased by 0.9 million barrels for the week ended June 23. WTI crude recovered the last leg of last week's swoon, climbing 1.1% to $44.73/bbl.

Meanwhile, on the countercyclical side, the influential health care sector (+0.5%) struggled to keep pace with the broader market as some of its top components by market cap, including Johnson & Johnson (JNJ 133.82, -1.19) and Pfizer (PFE 33.75, -0.02), weighed. However, most components finished in the green. Biotech stocks bounced back from their two-day swoon, sending the iShares Nasdaq Biotechnology ETF (IBB 316.88, +5.99) higher by 1.9%.

Like health care, the consumer staples (+0.4%) and telecom services (+0.4%) groups underperformed, but still finished in the green. Meanwhile, the real estate group finished just a tick below its unchanged mark while the utilities space settled lower by 1.0%.

Outside of the equity market, the U.S. Dollar Index (95.72, -0.46) slipped for the second day in a row, losing 0.5%, as the euro (1.1383) added 0.4% on the greenback. The British pound (1.2929) did even better, adding 0.9% against the U.S. dollar, after Bank of England Governor Mark Carney noted that the time for removing some stimulus may be close at hand.

U.S. Treasuries settled mixed in a curve-steepening trade, which helped underpin the financial sector. The 10-yr yield climbed one basis point to 2.22% while the 2-yr yield slipped two basis points to 1.36%. For the week, the 2yr-10yr spread has increased by five basis points to 86 basis points.

Reviewing today's economic data, which included May Pending Home Sales, the Advance Report for International Trade in Goods for May, and the weekly MBA Mortgage Applications Index:

Pending Home Sales for May declined 0.8% (Briefing.com consensus +0.5%). Today's reading follows a revised 1.7% decrease in April (from -1.3%).

The Advance Report for International Trade in Goods for May showed a deficit of $65.9 billion, down from a revised deficit of $67.1 billion for April (from -$67.6 billion).

The weekly MBA Mortgage Applications Index declined 6.2% to follow last week's 0.6% increase.

On Thursday, investors will receive Initial Claims (Briefing.com consensus 241,000) and the third estimate of first quarter GDP (Briefing.com consensus 1.2%). Both reports will be released at 8:30 ET.

Nasdaq Composite +15.8% YTD

S&P 500 +9.0% YTD

Dow Jones Industrial Average +8.6% YTD

Russell 2000 +5.0% YTD