Day Traders Diary

9/22/17

Friday was another quiet day on Wall Street as the major U.S. indices hovered near their flat lines from start to finish. The S&P 500 (+0.1%) finished just a tick above its unchanged mark, as did the Nasdaq (+0.1%), thanks to a late-afternoon rally that left the benchmark index at its best level of the day. Meanwhile, the Dow (unch) settled with a slim loss and the Russell 2000 (+0.5%) outperformed, settling at a new all-time high. 

The telecom services sector (+1.4%) rallied on Friday following a Reuters report that Sprint (S 8.52, +0.49) and T-Mobile US (TMUS 64.06, +0.67) are nearing a merger deal following months of on-again, off-again talks. The two wireless names jumped 6.1% and 1.1%, respectively, in reaction to the report.

Apple (AAPL 151.89, -1.50) tumbled for the third day in a row, losing 1.0%, amid reports of shorter-than-expected lines for Friday's iPhone 8 launch. However, the top-weighted technology sector (+0.1%) held up relatively well, thanks in part to chipmakers, which pushed the PHLX Semiconductor Index higher by 0.5%.

On the earnings front, Finish Line (FINL 9.73, +0.51) jumped 5.5% after its better-than-expected earnings overshadowed its worse-than-expected revenues. Similarly, CarMax (KMX 74.19, +5.35) climbed 7.8%, hitting its best mark since April 2015, after beating both top and bottom line estimates.

The health care sector (+0.1%) traded behind the broader market for the majority of Friday's session, but moved sharply higher after Senator John McCain (R-AZ) said he cannot support the Graham-Cassidy bill, which is the GOP's latest attempt at replacing the Affordable Care Act.

Mr. McCain's decision puts the bill on the ropes as Republicans can only afford to lose two votes in the Senate and Senator Rand Paul (R-KY) has already voiced his opposition. Senator Susan Collins (R-ME) said she is leaning towards voting against the bill as well.

Elsewhere on the political front, North Korea threatened to test a hydrogen bomb in the Pacific Ocean and released a statement from its Supreme Leader Kim Jong-un, in which he criticizes President Trump's Tuesday speech at the United Nations.

In the bond market, U.S. Treasuries settled Friday's session mixed; the 2-yr yield climbed one basis point to 1.44% while the 10-yr yield dropped two basis points to 2.26%.

Also of note, major oil producers wrapped up a Friday meeting in Vienna without reaching an agreement on whether they should extend, and/or deepen, the current production-cut deal between OPEC and non-OPEC nations. Crude oil held steady following the meeting's conclusion, settling higher by 0.2% at $50.66/bbl.

Investors did not receive any economic data on Friday, nor will they receive any economic data on Monday.

• Nasdaq Composite +19.4% YTD
• Dow Jones Industrial Average +13.1% YTD
• S&P 500 +11.8% YTD
• Russell 2000 +6.9% YTD

Week In Review: Holding Steady

Equities held steady this week as investors digested the latest FOMC policy directive, which was released on Wednesday afternoon. The major indices ticked up to new record highs in the first half of the week, but faltered a bit on the back nine. The S&P 500 ticked up 0.1% while the Dow (+0.4%) did a little better and the Nasdaq (-0.3%) did a little worse.

The Fed's latest policy directive came in pretty much as expected. The FOMC unanimously voted to leave the fed funds target range at 1.00%-1.25% and announced that it will start its balance sheet normalization process in October. Meanwhile, the Fed's so-called "dot plot" was unchanged from the one released in June, showing that the median FOMC member still anticipates an additional rate hike in 2017 and three rate hikes in 2018.

Accordingly, investors upwardly adjusted their rate-hike expectations, evidenced by the fed funds futures market, which now places the chances of a December rate hike at 72.8%--up from 57.8% last week and 31.9% the week before that. Bonds sold off for the second week in a row following the FOMC announcement, sending yields higher across the curve. The 2-yr yield climbed six basis points to 1.44%, hitting its highest level in nearly nine years, while the benchmark 10-yr yield also jumped six basis points to 2.26%. 

Within the equity market, the heavily-weighted financial sector (+2.7%) finished near the top of the sector standings, benefiting from the prospect of heightened interest rates and some sector rotation. The financial group has trailed the broader market for much of the year, but has been making a come back over the last two weeks; the sector has added 6.9% since September 7.

The telecom services group (+3.8%) also put together a solid performance this week, trimming its year-to-date loss to 8.5%, amid reports that Sprint (S) and T-Mobile US (TMUS) are nearing a merger deal after more than four months of on-and-off talks. The two companies settled the week with gains of 10.8% and 4.7%, respectively.

On the flip side, the top-weighted technology sector (-0.7%) underperformed, thanks in large part to Apple (AAPL), which dropped 5.0%. There were rumors of softer-than-expected demand for the new iPhone 8, which hit stores on Friday, but this week's slide was also likely due to some end-of-quarter profit taking following yet another solid three-month stretch for the company. AAPL shares will enter Monday's session with a quarter-to-date gain of 5.5% and a year-to-date gain of 31.1%.

Countercyclical groups like health care (-1.2%), consumer staples (-2.3%), and utilities (2.8%) also struggled this week while cyclical groups like materials (+1.0%), industrials (+2.0%), and energy (+2.0%) finished with sizable gains. Meanwhile, the growth-sensitive consumer discretionary and real estate groups lost 0.1% and 2.8%, respectively.

In politics, President Trump made his United Nations debut on Tuesday, taking a hard stance against North Korea. The hermit nation later criticized the president for his comments and threatened to test a hydrogen bomb in the Pacific Ocean.

Meanwhile, a new health-care bill written by Senators Lindsey Graham (R-SC) and Bill Cassidy (R-LA) gained support within the GOP this week, but its passage looks unlikely after Senators Rand Paul (R-KY) and John McCain (R-AZ) voiced their opposition and Senator Susan Collins (R-ME) said she is leaning towards voting 'no.' The GOP can only afford to lose two votes in the Senate, assuming Vice President Mike Pence votes in favor of the bill in the event of a tie.