Day Traders Diary

9/29/17

 Equities ended the week, and the quarter, on a positive note, sending the S&P 500 (+0.4%) higher for the fourth session in a row. The benchmark index finished at a new record high, as did the Nasdaq (+0.7%) and the Russell 2000 (+0.1%), while the Dow (+0.1%) settled about eight points short of its record mark. For the week, the S&P 500 added 0.7%.

Technology stocks were in demand on Friday, with chipmakers showing particular strength; the PHLX Semiconductor Index climbed 0.9%. Semiconductor giant NVIDIA (NVDA 178.77, +3.09) advanced 1.8% after Citigroup raised its target price to $210 from $185 while Micron Technology (MU 39.33, +1.37) did even better (+3.6%), extending its three-day post earnings gain to 15.1%.

Mega-cap tech names like Facebook (FB 170.81, +2.08) and Alphabet (GOOGL 973.72, +8.91) also outperformed, settling with respective gains of 1.2% and 0.9%.

The S&P 500's technology sector (+0.8%), which is the largest sector by weight, finished at the top of Friday's sector standings, followed closely by the also influential health care space (+0.6%). On the flip side, the energy sector (unch) showed relative weakness, but it did manage to settle at the top of the week's leaderboard with a weekly gain of 1.9%.

In corporate news, KB Home (KBH 24.12, +1.90) jumped 8.6% after reporting better-than-expected earnings and revenues for its fiscal third quarter. Similarly, Tyson Foods (TSN 70.45, +5.00) climbed 7.6% to an 11-month high after raising its guidance for the fiscal year, citing better-than-expected earnings in the beef segment of its business.

The core PCE Price Index--which is the Fed's preferred gauge of inflation--came in below expectations, showing a month-over-month increase of 0.1% in August (Briefing.com consensus +0.2%). On a year-over-year basis, the index is up 1.3%, down from 1.4% in the prior reading, and still a ways below the Fed's target of 2.0%.

Despite the cooler-than-expected PCE reading, investors did not adjust their rate-hike expectations; the fed funds futures market still points to the December FOMC meeting as the most likely time for the next rate-hike announcement with an implied probability of 77.9%, up slightly from Thursday's 77.5%.

U.S. Treasuries sold off on Friday, securing their third-consecutive weekly decline. The yield on the benchmark 10-yr Treasury note climbed two basis points to 2.33%. Meanwhile, the U.S. Dollar Index settled a tick below its flat line at 92.89 to finish the week with a gain of 1.0%.

In Washington, President Trump said he plans to make a decision on who will become the next Fed Chair sometime in the next 2-3 weeks. Reports indicate that current Fed Chair Janet Yellen and former Fed Governor Kevin Warsh are the front runners for the appointment.

Also of note, the Catalan independence referendum remains scheduled for Sunday despite stern opposition from the Spanish central government.

Reviewing Friday's economic data, which included August Personal Income, Personal Spending, and core PCE Prices, September Chicago PMI, and the final reading of the University of Michigan Consumer Sentiment Index for September:

Personal income ticked up 0.2% in August (Briefing.com consensus +0.2%) after a revised reading of 0.3% for July (from 0.4%). Personal spending rose 0.1% (Briefing.com consensus +0.1%), while the prior month's reading was left unrevised at 0.3%. The core PCE Price Index, which excludes food and energy, increased 0.1% (Briefing.com consensus +0.2%). Year-over-year, the core PCE Price Index is up 1.3%.

The key takeaway from the report is that it was more of the same: weak income growth, disappointing spending growth, and continued "lowflation."

Chicago PMI for September hit 65.2 (Briefing.com consensus 58.0), up from 58.9 in August.

The key takeaway from the report is that the Order Backlogs Index hit a 29-year high, suggesting production levels should remain robust barring a marked increase in order cancellation rates.

The final reading of the University of Michigan Consumer Sentiment Index for September remained at 95.1 (Briefing.com consensus 95.4), unchanged from the preliminary reading.

The key takeaway from the report is that consumer sentiment held up despite rising (geo)political uncertainty and the impact of the hurricanes that hit Texas and Florida.

On Monday, investors will receive two pieces of economic data--the September ISM Index (Briefing.com consensus 57.8) and August Construction Spending (Briefing.com consensus 0.2%). Both reports will be released at 10:00 ET.

Nasdaq Composite +20.7% YTD

Dow Jones Industrial Average +13.4% YTD

S&P 500 +12.5% YTD

Russell 2000 +9.9% YTD

Week In Review: Reflation Trade Returns

Enticed by the idea of a tax overhaul, investors pushed equities higher once again this week, sending the S&P 500 (+0.7%), the Nasdaq (+1.1%), and the small-cap Russell 2000 (+2.8%) to new record highs. The Dow lagged this week, but still managed to eke out a modest gain (+0.3%). The S&P 500 finished the third quarter with a gain of 4.0%.

Technology stocks weighed on the broader market on Monday as investors engaged in a sector rotation trade that left the S&P 500's technology sector lower by 1.4%. Technology names were weak from the jump, but selling accelerated following comments from North Korea's foreign minister, who said that President Trump effectively declared war against North Korea in his U.N. speech last week and, therefore, Pyongyang has the right to take countermeasures against the U.S.--including shooting down U.S. strategic bombers, even if they're not in North Korean airspace.

Investors turned their attention to Fed Chair Janet Yellen on Tuesday as she gave a speech entitled "Inflation, Uncertainty, and Monetary Policy" at the NABE's annual meeting. Ms. Yellen defended a gradual path of rate hikes despite continued uncertainty in the area of inflation, but her comments didn't move the financial markets; equities finished the session flat.

Things turned around for the equity market on Wednesday as investors cheered the GOP's tax reform outline, sending equities into positive territory for the week. Some of the most notable highlights of the plan include cutting the corporate tax rate to 20% from 35%, doubling the standard deduction, and reducing the number of tax brackets to three from seven. The plan calls for trimming the highest tax rate to 35.0% from 39.6%, but Congress will have the option to add a fourth bracket for the very top earners.

Details on how the government will make up for the immediate loss in tax revenue were limited. This topic will likely be an area of contention for the GOP going forward as many conservatives are opposed to the idea of driving up the federal deficit, which would probably be necessary to fund the tax overhaul--at least in the short term.

Market-moving headlines were scarce on Thursday, but that didn't prevent the S&P 500 from ticking up and registering a new record close. Roku (ROKU) opened for trading on the Nasdaq exchange on Thursday and had a solid first day, settling 67.9% above its IPO price of $14.00 per share.

Investors pushed stocks higher once again on Friday after the core PCE Price Index--the Fed's preferred gauge for inflation--for August came in below expectations, showing a month-over-month increase of 0.1% (Briefing.com consensus +0.2%). On a year-over-year basis, the core PCE Price Index is up 1.3%, down from 1.4% in the prior reading, and still a ways below the Fed's target of 2.0%.

Still, the fed funds futures market projects that the next rate hike will occur at the December FOMC meeting with an implied probability of 77.9%, up from 72.8% last week.