Day Traders Diary

6/29/17

 Thursday's session looked eerily similar to Tuesday's session as the top-weighted technology sector (-1.8%) led the S&P 500 (-0.9%) solidly lower, the financials (+0.7%) and energy (+0.1%) sectors outperformed, and Treasuries tumbled across the curve. The Dow (-0.8%) settled roughly in line with the benchmark index while the Nasdaq (-1.4%) underperformed. All three major averages closed in the middle of the day's trading range.

The S&P 500 opened Thursday's session with a slim gain, but immediately started trending downward as the bearish sentiment within the technology sector caught fire in the broader market. Only two sectors--financials and energy--were able to dodge the wave of selling pressure and finish the day in positive territory. As for the laggards, the technology space led the retreat with a big decline of 1.8% while the others settled with losses between 0.8% (industrials) and 1.2% (consumer staples).

There wasn't a specific reason for today's slide, but another quick jump in long-term rates certainly didn't help. Treasuries moved lower in a curve-steepening trade after inflation data from Germany came in stronger than expected; the 10-yr yield climbed four basis points to 2.27% and the 2-yr yield ticked up one basis point to 1.37%. The U.S. Dollar Index (95.34, -0.44) also finished solidly lower, dropping 0.5% to a nine-month low.

Technology components were hit hard virtually across the board with mega-cap names like Apple (AAPL 143.68, -2.15), Microsoft (MSFT 68.49, -1.31), Facebook (FB 151.04, -2.20), and Alphabet (GOOGL 937.82, -23.19) finishing with losses between 1.4% and 2.4%. Chipmakers were among the weakest performers, sending the PHLX Semiconductor Index lower by 2.5%. For the week, the tech group trades at the bottom of the sector standings with a loss of 2.8%.

Meanwhile, in the financial sector, banks moved solidly higher after the Federal Reserve approved the capital plans of all 34 firms required to partake in its annual stress test. In many instances, those plans included larger than expected dividend increases and/or share buyback programs. Influential names like Wells Fargo (WFC 55.78, +1.45), Citigroup (C 66.98, +1.80), Bank of America (BAC 24.32, +0.44), and JPMorgan Chase (JPM 91.15, +1.33) finished with gains between 1.5% and 2.8%.

Crude oil eked out a slim victory, its sixth in a row, which helped the energy sector fend off the bears throughout Thursday's session. WTI crude advanced 0.1% to a price of $44.76/bbl. However, the commodity's performance was somewhat disappointing considering it held a much more substantial gain of 1.5% early on Thursday morning.

In U.S. corporate news, Rite Aid (RAD 2.89, -1.04) and Walgreens Boot Alliance (WBA 78.37, +1.28) terminated their merger agreement and signed a new deal whereby Walgreens will acquire 2,186 RAD stores, related distribution assets, and inventory from Rite Aid for an all-cash purchase price of $5.175 billion. The divestiture agreement with Fred's (FRED 9.51, -2.81) was also terminated. FRED shares plunged 22.8% following the termination of the WBA/RAD deal, while RAD shares tumbled 26.5% and WBA shares added 1.7%.

It's also worth pointing out that the CBOE Volatility Index (VIX 11.56, +1.53, +15.3%), which is often referred to as the "investor fear gauge", spiked to its highest level in over five weeks.

Reviewing Thursday's economic data, which included Initial Claims and the third estimate of first quarter GDP:

The latest weekly initial jobless claims count totaled 244,000 while the Briefing.com consensus expected a reading of 241,000. Today's tally was above the revised prior week count of 242,000 (from 241,000). As for continuing claims, they rose to 1.948 million from the revised count of 1.942 million (from 1.944 million).

The key takeaway from the report is that it continues to support the notion that the labor market is tight, as employers appear reluctant to let employees go.

The third reading of first quarter GDP pointed to an expansion of 1.4%, while the Briefing.com consensus expected a reading of 1.2%. The third estimate of first quarter GDP Deflator came in at 1.9%, which is below the Briefing.com consensus of 2.2%.

The key takeaway is that first quarter GDP growth was better than expected, but as the report from the BEA itself says, "...the general picture of economic growth remains the same," which is to say it remains below potential.

On Friday, investors will receive several economic reports, including May Personal Income and Personal Spending (Briefing.com consensus 0.3%; 0.1%) at 8:30 ET, June Chicago PMI (Briefing.com consensus 57.8), and the final reading of the University of Michigan Consumer Sentiment Index for June (Briefing.com consensus 94.7) at 10:00 ET.

Nasdaq Composite +14.1% YTD

S&P 500 +8.1% YTD

Dow Jones Industrial Average +7.7% YTD

Russell 2000 +4.4% YTD