Day Traders Diary

8/25/17

Stocks declined for the second time in three sessions on Wednesday, but an afternoon rally left the major indices a ways above their session lows. The Dow (-0.5%) and the Nasdaq (-0.5%) finished roughly in line with the S&P 500, which lost 0.5%. The benchmark index traded within a wide range, holding a loss between 0.1% and 1.0% throughout the session.

The S&P 500's telecom services sector led the retreat, finishing with a loss of 2.3%, after AT&T (T 33.49, -1.37) reported worse-than-expected earnings and revenues for the third quarter; AT&T shares lost 3.9%. Industrials also showed relative weakness, losing 1.0%. Within the group, Boeing (BA 258.42, -7.58) was among the weakest performers, shedding 2.9%, despite beating profit estimates.

As for the other sectors, most finished roughly in line with the broader market. The top-weighted technology space (-0.3%) outperformed slightly, thanks in part to Visa (V 109.49, +1.08), which added 1.0% on better-than-expected earnings and revenues. Alphabet (GOOGL 991.46, +2.97) also showed relative strength ahead of Thursday evening's earnings release.

However, the tech sector's semiconductor components struggled after Advanced Micro (AMD 12.33, -1.92) forecasted a decline in revenue for the fourth quarter. The PHLX Semiconductor Index dropped 1.3%, while AMD shares plunged 13.5%.

Chipotle Mexican Grill (CMG 277.01, -47.29) also dropped significantly on Wednesday, losing 14.6%, after posting a big miss on earnings and lowering its comparable sales guidance. However, the consumer discretionary sector (-0.4%) still beat the broader market, thanks in large part to Nike (NKE 54.94, +1.52), which jumped 2.9% after providing a solid five-year outlook at its investor day.

Dow component Coca-Cola (KO 46.05, -0.13) also reported earnings on Wednesday, beating both top and bottom line estimates, but slipped 0.3% nonetheless.

U.S. Treasuries ended on a lower note, sending yields higher across the curve; the benchmark 10-yr yield climbed four basis points to 2.44%. Speculation that Stanford University economist John Taylor, who is considered relatively hawkish, is likely to become the next Fed Chair helped fuel the sell off. 

Reviewing Wednesday's batch of economic data, which included September New Home Sales, September Durable Orders, the August FHFA Housing Price Index, and the weekly MBA Mortgage Applications Index:

• New Home Sales in September hit an annualized rate of 667,000, which is above the revised August rate of 561,000 (from 560,000), and higher than the Briefing.com consensus of 555,000.
  • The key takeaway from the report is that the sales increases were broad-based, underscoring the point that the rebound in new home sales, which are counted when a contract is signed, was not just a function of a rebound from the depressed activity in the South due to the hurricanes.
• September durable goods orders rose 2.2%, which is more than the 1.3% increase expected by the Briefing.com consensus. The prior month's reading was revised to +2.0% (from +1.7%). Excluding transportation, durable orders increased 0.7% (Briefing.com consensus +0.5%) to follow the prior month's revised uptick of 0.7% (from +0.2%).
  • The key takeaway from the report is that it is hard data that corroborates the upbeat readings in the soft manufacturing surveys; moreover, it is going to lead to stronger Q3 GDP forecasts given the 0.7% increase in shipments of nondefense capital goods excluding aircraft, which followed an upwardly revised 1.2% increase (from +0.7%) for August.
• The FHFA Housing Price Index rose 0.7% in August (Briefing.com consensus 0.4%), while the July reading was revised to 0.4% from 0.2%.
• The weekly MBA Mortgage Applications Index decreased 4.6% to follow last week's 3.6% increase.

On Thursday, investors will receive just two economic reports--weekly Initial Claims (Briefing.com consensus 235K) and September Pending Home Sales. The two pieces of data will cross the wires at 8:30 ET and 10:00 ET, respectively.

• Nasdaq Composite +21.9% YTD
• Dow Jones Industrial Average +18.1% YTD
• S&P 500 +14.2% YTD
• Russell 2000 +10.1% YTD