Day Traders Diary

7/31/17

The equity market registered a modest win on Tuesday as the Dow Jones Industrial Average (+0.3%) climbed to another record close, its fifth in a row. Trading was fairly tight, leaving the S&P 500 (+0.2%) within a seven-point range from start to finish. The Nasdaq (+0.2%) also finished in the green, but stopped short of reclaiming all of Monday's decline.

Eight of eleven sectors managed to settle in positive territory. The top-weighted financials (+0.8%) and technology (+0.5%) spaces exhibited relative strength with financials extending its week-to-date advance to 1.4%. The technology sector's most influential component--Apple (AAPL 150.05, +1.32)--moved sharply higher in the final minutes, adding 0.9%, ahead of its afternoon earnings release.

Sprint (S 8.87, +0.89) led the telecom services space (+0.3%) to another win, its fifth in six sessions, after beating bottom-line estimates and raising its profit guidance. It's also worth noting that the company believes an M&A announcement will come "in the near future." S shares settled higher by 11.2%.

American automakers tumbled on Tuesday following some disappointing sales figures for the month of July. General Motors (GM 34.76, -1.22) dropped 3.4% after reporting a 15.0% year-over-year decline in total U.S. sales. Meanwhile, Ford Motor (F 10.95, -0.27) slipped 2.4% after reporting a year-over-year decline of 7.5%.

The U.S. auto market has struggled so far in 2017 following seven straight years of growth. Today's slide leaves Ford shares and GM shares with year-to-date losses of 9.7% and 0.2%, respectively.

Still, despite automakers' tumble, the consumer discretionary space (+0.2%) settled in line with the broader market. Under Armour (UAA 18.30, -1.72) was the sector's weakest component, dropping 8.6% to its lowest level in nearly four years, after announcing a restructuring plan and lowering its guidance for the fiscal year.

The energy sector (+0.1%) managed to eke out a victory despite crude oil's negative performance; the commodity dropped 2.0% to $49.19/bbl, ending its six-session winning streak. The downward move came on the heels of a Bloomberg survey that suggested OPEC crude output rose by 210,000 barrels per day in July.

As for the three sectors to finish in the red--industrials (-0.2%), health care (-0.2%), and consumer staples (-0.1%)--losses were relatively modest. Within the industrial space, Cummins (CMI 157.48, -10.42) was the weakest performer, dropping 6.2%, after missing bottom-line estimates. 

Biotechnology names weighed on the health care sector, evidenced by the 1.0% decrease in the iShares Nasdaq Biotechnology ETF (IBB 315.77, -3.32). Meanwhile, Dow component Pfizer (PFE 33.08, -0.08) registered a modest loss of 0.2% following a mixed earnings report; PFE beat earnings estimates but fell short of revenue expectations.

In Washington, Senate Majority Leader Mitch McConnell (R-KY) announced that Congress plans to take up tax reform following its August recess, which concludes on September 4.

U.S. Treasuries rallied in a curve-flattening trade on Tuesday after June Personal Income and June Construction Spending both came in short of estimates; the benchmark 10-yr yield dropped four basis points to 2.25% while the 2-yr yield surrendered just one basis point, settling at 1.35%.

Reviewing Tuesday's economic data, which included June Personal Income and Personal Spending, June Construction Spending, and the July ISM Index:

• Personal income was unchanged in June (Briefing.com consensus +0.3%) after a downwardly revised 0.3% increase for May (from 0.4%). Personal spending rose 0.1%, as expected, while the prior month's reading was revised to 0.2% from 0.1%. The core PCE Price Index, which excludes food and energy, increased 0.1%, as expected.
  • The key takeaway from the report is that the inflation data supported the market's preconception that the Fed is unlikely to raise the target range for the fed funds rate at its September meeting.
• The Construction Spending report for June declined 1.3% while the Briefing.com consensus expected an increase of 0.5%. The prior month's reading was revised to 0.3% from 0.0%.
  • The key takeaway from the report is that the 1.6% year-over-year growth rate in total construction spending is the second-lowest growth rate since 2011.
• The ISM Index for July declined to 56.3 from an unrevised reading of 57.8 in June while the Briefing.com consensus expected a downtick to 56.2.
  • The key takeaway from the report is that its core components all remain in a growth mode. According to the ISM, if the PMI for July is annualized, it corresponds to a 4.1% increase in real GDP annually.

On Wednesday, investors will receive just two pieces of economic data--the weekly MBA Mortgage Applications Index and the ADP Employment Change Report for July (Briefing.com consensus 187K). The two reports will be released at 7:00 ET and 8:15 ET, respectively.  

• Nasdaq Composite +18.2% YTD
• S&P 500 +10.6% YTD
• Dow Jones Industrial Average +11.1% YTD
• Russell 2000 +5.3% YTD