Day Traders Diary

10/31/17

Equities ticked higher on Tuesday, ending the session near their opening marks. The Nasdaq (+0.4%) outperformed both the S&P 500 (+0.1%) and the Dow (+0.1%), finishing at a new record high. Meanwhile, small caps did even better, sending the Russell 2000 higher by 0.8%.

The S&P 500's consumer staples sector (+0.8%) paced Tuesday's advance, thanks in large part to Mondelez International (MDLZ 41.43, +2.13)--the owner of brands like Oreo, Trident, and Chips Ahoy!--and Kellogg (K 62.53, +3.66)--which houses brands like Froot Loops and Pringles. The two companies jumped 5.4% and 6.2%, respectively, after reporting better-than-expected earnings and revenues.

Within the Dow Jones Industrial Average, Intel (INTC 45.49, +1.12) was the strongest component, adding 2.5%, following a Wall Street Journal report that Apple (AAPL 169.04, +2.32) could use the chipmaker's hardware, instead of Qualcomm's (QCOM 51.01, -3.65), in future iPhones and iPads. QCOM shares moved in the opposite direction, losing 6.7%.

As a reminder, Apple and Qualcomm are currently in a legal battle, with Apple alleging that Qualcomm has unfairly used its monopoly position as a manufacturer of baseband processors.

The price of crude oil climbed on Tuesday, helping the S&P 500's energy sector (+0.4%) finish near the top of the sector standings. WTI crude futures finished the session higher by 0.4%, at a price of $54.35/bbl--which marks the commodity's best close since late February. Over the last three weeks, WTI crude has climbed more than 10.0%.

Conversely, health care stocks struggled, with Mylan (MYL 35.71, -2.53) leading the retreat. The pharmaceutical company plunged 6.6% after Bloomberg reported that executive Rajiv Malik is the target of a multi-state investigation into generic drug price collusion. Pfizer (PFE 35.06, -0.09) also underperformed, slipping 0.3%, despite reporting above-consensus third quarter earnings.

The heavily-weighted financial sector (-0.3%) also moved lower, as did the industrials (-0.4%) and consumer discretionary (-0.1%) groups. Within the consumer discretionary space, Under Armour (UAA 12.52, -3.89) was by far the weakest performer, plunging 23.7%, after cutting its outlook for the full year and reporting its first quarterly fall in revenue since going public back in 2005.

Outside the equity market, U.S. Treasuries finished modestly lower, with shorter-dated issues showing particular weakness; the yield on the benchmark 10-yr Treasury note climbed one basis point to 2.38%, while the 2-yr yield jumped three basis points to 1.59%. Meanwhile, the U.S. Dollar Index climbed 0.1% to 94.44.

The Federal Open Market Committee began a two-day policy meeting on Tuesday, but its latest policy directive--which will be released on Wednesday afternoon--is not expected to do much more than set the stage for a December rate hike. The CME FedWatch Tool currently places the chances of a December rate hike at 99.5%.

Reviewing Tuesday's economic data, which included the third quarter Employment Cost Index, the October Chicago PMI, October Consumer Confidence, and the August S&P Case-Shiller Home Price Index:

• The third quarter Employment Cost Index rose 0.7%, while the Briefing.com consensus expected an increase of 0.6%.
  • The key takeaway is that there was a slight pickup in compensation costs in the third quarter, but not enough to trigger any undue inflation alarm.
• Chicago PMI for October hit 66.2 (Briefing.com consensus 61.0), up from 65.2 in September.
  • The key takeaway from the report is that manufacturing conditions are strong in the Chicago Fed region, underscored by the New Orders Index hitting its highest level (69.9) since June and the second highest since May 2014.
• The consumer confidence reading for October increased to 125.9 from the prior month's revised reading of 120.6 (from 119.8). The Briefing.com consensus expected the survey to hit 121.5.
  • The key takeaway from the report is that upbeat attitudes about the current job market factored prominently in the elevated reading, which is a hopeful indication for stronger consumer spending activity.
• The Case-Shiller 20-city Index increased 5.9% in August.

On Wednesday, investors will receive the weekly MBA Mortgage Applications Index at 7:00 ET, the October ADP Employment Change Report (Briefing.com consensus 215K) at 8:15 ET, the October ISM Index (Briefing.com consensus 59.0) at 10:00 ET, September Construction Spending (Briefing.com consensus -0.2%) also at 10:00 ET, and the latest FOMC policy decision at 14:00 ET.

In addition, auto and truck sales for the month of October will be released throughout the day, and the House is scheduled to release its tax reform bill.

• Nasdaq Composite +25.0% YTD
• Dow Jones Industrial Average +18.3% YTD
• S&P 500 +15.0% YTD
• Russell 2000 +10.7% YTD