Day Traders Diary

8/15/17

Wall Street followed up Monday's rally with a rather dull, range-bound session on Tuesday that left the major averages little changed. The Dow (unch) eked out a narrow victory while the S&P 500 (-0.1%) and the Nasdaq (-0.1%) each settled just a tick below their unchanged marks. Small caps underperformed, sending the Russell 2000 lower by 0.8%.

Investors rolled into pre-market action on Tuesday with a boost of confidence following news that North Korea's Supreme leader Kim Jong-un has decided against launching missiles towards the U.S. territory of Guam, which he threatened to do last week. However, he did warn that he could change his mind "if the Yankees persist in their extremely dangerous reckless actions."

A hotter than expected July Retail Sales Report (+0.6% actual vs +0.3% Briefing.com consensus) tempered the upbeat sentiment, though, forcing investors to rethink their rate-hike expectations. At the closing bell, the fed funds futures market assigned an implied probability of 55.2% to a December rate hike, up from 37.4% on Monday.

U.S. Treasuries slid to new lows following the retail sales release, pushing the benchmark 10-yr yield as high as 2.28%. In the end, the 10-yr yield finished five basis points higher at 2.27% and the 2-yr yield finished four basis points higher at 1.35%. Underpinned by the increase in interest rates, the U.S. Dollar Index (93.72, +0.38) advanced 0.4%.

The most influential sectors--technology (+0.2%) and financials (+0.2%)--exhibited relative strength throughout the session, helping to keep losses in check. The financial space opened with a gain of around 1.0%, but began fading almost immediately. The technology group was underpinned by yet another positive performance from Apple (AAPL 161.60, +1.75), which climbed 1.1% to a new all-time high.

In addition to technology and financials, the utilities (+0.5%), consumer staples (+0.5%), and materials (unch) sectors finished in positive territory. On the flip side, the consumer discretionary (-0.9%), industrials (-0.2%), energy (-0.4%), health care (unch), telecom services (-1.0%), and real estate (-0.3%) groups closed in the red.

Retailers headlined earnings news after names like Home Depot (HD 150.17, -4.09), TJX (TJX 70.16, +0.54), Coach (COH 40.64, -7.28), Advance Auto (AAP 87.08, -22.24), and Dick's Sporting Goods (DKS 26.87, -8.04) delivered their quarterly results. The reactions were largely negative as four of the five aforementioned companies finished in negative territory.

Dick's Sporting Goods, Advanced Auto, and Coach plunged 23.0%, 20.3%, and 15.2%, respectively, after all three companies lowered their outlooks for the fiscal year. AAP and DKS also missed earnings estimates while COH came up short on revenue expectations. Meanwhile, Home Depot dropped 2.7% despite beating bottom-line estimates and raising its guidance.

TJX was the lone advancer, climbing 0.8%, in reaction to better than expected earnings. The SPDR S&P Retail ETF (XRT 38.59, -1.07) dropped 2.7% to close at its worst level since February 2016.

Reviewing Tuesday's big batch of economic data, which included July Retail Sales, July Import/Export Prices, June Business Inventories, August Empire Manufacturing, and the August NAHB Housing Market Index:

• July retail sales increased 0.6%, which is above the Briefing.com consensus of +0.3%. The prior month's reading was revised to +0.3% from -0.2%. Excluding autos, retail sales increased 0.5% while the Briefing.com consensus expected an increase of 0.3%. The prior month's reading was revised to +0.1% from -0.2%. Core retail sales, which exclude auto, gasoline station, building materials, and food services & drinking places sales, increased 0.5% and the June decline of 0.1% was revised to an uptick of 0.1%.
  • Core retail sales is the component that factors into the PCE goods component of the GDP report, so the key takeaway from the retail sales data is that it points to a rebound in spending on consumer goods in July after a weak finish to the second quarter. This should be a positive input for Q2 GDP models.
• Import prices excluding oil declined 0.1% in July after rising 0.1% in June. Export prices excluding agriculture increased 0.3% in July after finishing flat in June.
  • The key takeaway from the report is that inflation readings remain low, but there are some hints of a possible turn in the near future.
• Business Inventories rose 0.5% in June, which is above the Briefing.com consensus of 0.4%. The prior month's reading was left unrevised at +0.3%.
  • The key takeaway from the report is that while sales have increased, the pace of growth was below that of inventories. This means there are still some hurdles in the way of restoration of pricing power.
• The Empire Manufacturing Survey for August rose to 25.2 from the prior month's reading of 9.8. The Briefing.com consensus estimate was pegged at 13.0.
• The NAHB Housing Market Index for August rose to 68 (Briefing.com consensus 65) from an unrevised reading of 64 in July.

On Wednesday, investors will receive just two pieces of economic data--the weekly MBA Mortgage Applications Index and July Housing Starts (Briefing.com consensus 1.217 million). The two reports will be released at 7:00 ET and 8:30 ET, respectively.

Also of note, the minutes from the July 25-26 FOMC meeting will be released at 14:00 ET.

• Nasdaq Composite +17.7% YTD
• Dow Jones Industrial Average +11.3% YTD
• S&P 500 +10.1% YTD
• Russell 2000 +1.9% YTD