Day Traders Diary

9/5/17

The major indices closed off their lows of the session, yet it is fair to say they struggled all day to overcome a panoply of issues that kept buyers mostly sidelined.  The losses were broad based as the major indices closed the day down between 0.8% and 1.1%.

The ostensible trigger for Tuesday's bearish bias was North Korea's nuclear test over the weekend, yet it quickly morphed into more than that as the media intensified its coverage of Hurricane Irma, which was upgraded to a category 5 storm that is tracking toward the Caribbean and could very well hit the continental U.S., namely Florida, by the weekend or early next week.

The governors of Florida and Puerto Rico have already declared a state of emergency and the Florida Keys have a mandatory evacuation order. 

Fittingly, investors were evacuating themselves from the insurance, reinsurance, and cruise line stocks on Tuesday as their businesses are expected to be adversely impacted in the near term by the hurricane.  Conversely, home improvement retailers Home Depot (HD 152.93, +2.20, +1.5%) and Lowe's (LOW 75.68, +1.07, +1.4%), as well as companies like Generac Holdings (GNRC 42.05, +1.39, +3.4%), a manufacturer of power generators, outperformed as potential beneficiaries of the looming natural disaster.

Still, there was a political cloud hanging over the market all day, too, that rained down on investor sentiment. 

North Korea's provocative act got things rolling, yet there was also a domestically-rooted concern that a budget resolution and debt limit increase won't be achieved as readily, or as agreeably, as last week's market participants thought they would in the wake of Hurricane Harvey.

Those concerns festered on the back of reports that the Republican Freedom Caucus is opposed to attaching a funding request for Hurricane Harvey aid to a debt limit increase and on the news that President Trump ended the Deferred Action for Childhood Arrivals (DACA) program.

The confluence of concerns related to North Korea, Hurricane Irma, and domestic politics came together in a Treasury market rally that saw the 10-yr note jump nearly a point and its yield drop nine basis points to 2.07%.  That move was billed as a safe-haven bid, which was also evident in rising gold prices ($1347.10, +16.70, +1.3%) and a huge move in the CBOE Volatility Index (12.52, +2.39, +23.6%).  Separately, the U.S. Dollar Index declined 0.4% to 92.24.

Today's corporate news mostly took a backseat to the macro concerns, yet it wasn't overshadowed altogether as a driver of things. 

United Technologies (UTX 111.19, -6.73, -5.7%) paced the Dow's decline after announcing a deal to acquire Rockwell Collins (COL 130.87, +0.26, +0.2%) for $30 billion, or $140.00 per share, in cash and stock.  Rumors had been circulating for several weeks that such a deal could come to fruition, helping to drive up shares of COL, so their was little movement today in the acquisition target following the actual news.

Travelers (TRV 115.47, -4.43, -3.7%) was the next weakest component in the Dow, as it tracked lower with other insurers.  That group weighed heavily on the financial sector (-2.2%), which was the worst-performing sector on Tuesday. Notable weakness in the bank stocks, which got clipped on concerns about net interest margin pressures related to the flattening yield curve, also factored significantly into the sector's weakness.

Another weak spot of note was the airlines, as they got grounded following third quarter passenger unit revenue warnings from Delta Air Lines (DAL 45.84, -1.67, -3.5%) and Spirit Airlines (SAVE 32.51, -1.52, -4.5%)

Those sectors that bucked the broader trend included the defensive-oriented utilities (+0.3%) and consumer staples (+0.2%) sectors, as well as the energy sector (+0.6%), which followed crude prices ($48.64, +1.34, +2.8%) higher.  The latter move was based on an outlook of improved demand for oil as refineries in Texas come back online.

The lone economic release today was the Factory Orders report for July.  It showed orders fell 3.3% in July (Briefing.com consensus -3.2%) on the back of weakness in transportation equipment orders.  The report was quickly glossed over by traders, though, since it was largely in-line with expectations.

Wednesday's economic calendar features the MBA Mortgage Applications Index for the week of September 2, the Trade Balance report for July (Briefing.com consensus -$44.6 bln), the ISM Services report for August (Briefing.com consensus 55.2), and the Fed's Beige Book report.

Nasdaq Composite +18.4% YTD

Dow Jones Industrial Average +10.2%

S&P 500 +9.7% YTD

S&P Midcap 400 Index +3.5%

Russell 2000 +3.3%