Day Traders Diary

7/20/17

 The major averages are little changed at midday following yesterday's run to record highs. The Nasdaq (+0.1%) and the S&P 500 (+0.1%) are sporting slim gains while the Dow Jones Industrial Average (-0.1%) hovers a tick below its unchanged mark. The small-cap Russell 2000 (+0.1%) trades in line with the benchmark index.

Today's session has had a risk-off tone thus far as countercyclical sectors outperform and U.S. Treasuries rally. The top three performing sectors--telecom services (+1.4%), health care (+0.8%), and utilities (+0.5%)--are all defensive-oriented while the weakest groups--materials (-0.8%), industrials (-0.5%), consumer discretionary (-0.2%), and financials (-0.1%)--are all growth-sensitive.

Within the financial sector, Dow components American Express (AXP 84.78, -1.15) and Travelers (TRV 124.31, -2.16) are among the weakest names, dropping 1.3% and 1.7%, respectively, following their latest earnings reports. AXP beat top and bottom line estimates, but reported a 33.0% decline in profit for the second quarter. Meanwhile, TRV missed bottom-line estimates.

In addition to earnings, a curve-flattening trade in the Treasury market has also weighed on the financial group. The 10-yr yield has dropped three basis points to 2.24% while the 2-yr yield has slipped only two basis points to 1.34%. Treasuries were hovering near their flat lines going into the European Central Bank's policy decision, which crossed the wires early this morning.

The ECB decided to keep its key interest rates and its asset-purchasing program unchanged, as expected. President Mario Draghi mentioned that the economy has continued to see an expansion, but underlying inflation remains subdued and a substantial degree of accommodation is still needed.

Still, despite Mr. Draghi's relatively dovish tone, the euro has rallied following his post-decision press conference; the single-currency is up 1.0% at 1.1629 against the U.S. dollar, pushing the U.S. Dollar Index (94.07, -0.57) to an 11-month low.

The Bank of Japan also decided to leave its policy stance as is, but the central bank did acknowledge that reaching its 2.0% inflation target will take at least until fiscal year 2019/20. Inflation during fiscal year 2017/18 is now expected to hit 1.1%, down from previous expectations for an increase of 1.4%.

Back to the equity market, the top-weighted technology sector (unch) is in danger of breaking its nine-session winning streak. Qualcomm (QCOM 53.56, -3.22) is one of the sector's weakest components, plunging 5.7%, after downbeat earnings guidance overshadowed better than expected earnings and revenues.

Elsewhere, transports have sent the Dow Jones Transportation Average 1.0% lower with C.H. Robinson (CHRW 64.87, -3.82) leading the retreat. CHRW shares are down 5.5% after the company missed bottom-line estimates. The transport-heavy industrial sector is lower by 0.5%.

It's also worth pointing out that Special Counsel Robert Mueller will be considering President Trump's business dealings in his investigation on Russia's involvement in the 2016 U.S. presidential election. The stock market slipped on the initial headline, but quickly reclaimed the move within 30 minutes.

Reviewing today's economic data, which included the July Philadelphia Fed Index, the weekly Initial Claims Report, and the June Leading Indicators Index:

The Philadelphia Fed Survey for July declined to 19.5 from an unrevised 27.6 in June while economists polled by Briefing.com had expected a reading of 22.0.

The key takeaway from the report is that the downturn was led by a sharp drop in new orders, which isn't the best preliminary signal for third quarter economic growth prospects.

The latest weekly initial jobless claims count totaled 233,000 while the Briefing.com consensus expected a reading of 245,000. Today's tally was below the revised prior week count of 248,000 (from 247,000). As for continuing claims, they rose to 1.977 million from the revised count of 1.949 million (from 1.945 million).

The report covered the period in which the survey for the July employment report was conducted; accordingly, the key takeaway is that it should feed expectations for another month of strong nonfarm payroll gains.

The Conference Board's Leading Indicators report for June increased 0.6% (Briefing.com consensus 0.4%) after moving higher by an unrevised 0.3% in May.