Day Traders Diary

11/3/17

Wall Street ended a busy week on a positive note as stocks climbed to new record highs on Friday. The tech-heavy Nasdaq Composite (+0.7%) led the rally following another upbeat earnings report from Apple (AAPL 172.50, +4.39), while the S&P 500 Index (+0.3%) and the Dow Jones Industrial Average (+0.1%) finished with modest gains. All three major indices closed at new all-time highs.

For the week, the Nasdaq, the S&P 500, and the Dow finished with gains of 0.9%, 0.3%, and 0.5%, respectively.

Apple set the stage for Friday's performance on Thursday evening, which is when it released its fiscal fourth quarter results. The tech giant climbed 2.6% after beating both earnings and revenue estimates, in addition to reaffirming its guidance for the fiscal first quarter, which will feature the mass production of its flagship product--iPhone X. Apple finished the week at a new record high, extending its 2017 gain to 48.9% and its market cap to $891 billion.

Elsewhere in the tech space, Qualcomm (QCOM 61.81, +6.97) surged 12.7% following reports that rival Broadcom (AVGO 273.63, +14.13) is considering a deal to acquire the chipmaker. Bloomberg reported that Broadcom's bid, which could come as early as this weekend, would be in the neighborhood of $70 per share and would include both cash and stock.

Underpinned by the aforementioned names, the S&P 500's technology sector settled at the top of the day's leaderboard with a gain of 0.9%. The health care group (+0.8%) also comfortably beat the broader market, with Aetna (AET 176.99, +4.67) adding 2.7% on reports that CVS Health (CVS 69.25, -0.13) is seeking to merge with the managed health care company.

On the downside, the S&P 500's financial sector (-0.4%) struggled throughout the session, keeping the broader market's gain in check due to its large size--the group comprises around 14.5% of the broader market. Within the group, insurance giant AIG (AIG 62.00, -2.98) dropped 4.6% after missing third quarter earnings estimates due to hurricane-related claims.

Investors received the Employment Situation Report for October on Friday morning, but the release came and went without much impact on the financial markets. In short, the report stayed true to the 'Goldilocks' narrative of being neither too hot nor too cold--showing economic growth without signals of increased inflation.

U.S. Treasuries traded flat throughout much of the session, but ended the day with modest gains. The yield on the benchmark 10-yr Treasury note slipped one basis point to 2.34%. The 2-yr yield also dropped one basis point, settling at 1.61%. Meanwhile, the U.S. Dollar Index climbed 0.2% to 94.84.

Also of note, WTI crude futures quietly climbed 2.1% to $55.66/bbl, settling at their best level since July 2015. The commodity benefited from the weekly Baker Hughes rig count, which showed that the total number of active rigs in the U.S. decreased by 11 last week to 898.

Reviewing Friday's economic data, which included the Employment Situation Report for October, the October ISM Services Index, the September Trade Balance, and September Factory Orders:

• October nonfarm payrolls increased by 261,000, while the Briefing.com consensus expected an increase of 300,000. Nonfarm private payrolls rose by 252,000, while the Briefing.com consensus expected an increase of 307,000. The unemployment rate fell to 4.1% from 4.2% (Briefing.com consensus 4.3%). Average hourly earnings were flat (Briefing.com consensus +0.1%). The average workweek was reported at 34.4 (Briefing.com consensus 34.4).
  • By and large, it is the type of report that the stock market should appreciate because it holds true to that Goldilocks theme of being neither too hot nor too cold. It was just right to ensure that the Fed will stick to its own theme of raising interest rates gradually--which is the key take away from the report.
• The ISM Services Index for October rose to 60.1 from an unrevised reading of 59.8 in September. The Briefing.com consensus expected a reading of 58.5.
  • October is the 94th consecutive month of growth for the non-manufacturing sector. According to the ISM, the October reading corresponds to a 4.3% increase in real GDP on an annualized basis.
• The September trade balance showed a deficit of $43.5 billion, which is in line with the Briefing.com consensus. The previous month's deficit was revised to $42.8 billion from $42.4 billion.
  • Notwithstanding the slight widening in the trade deficit in September, net exports should still remain a positive contributor to Q3 GDP growth with the second estimate as the third quarter average for the real trade deficit is still 0.5% less than the second quarter average.
• The Factory Orders Report for September showed an increase of 1.4% while the Briefing.com consensus expected a rise of 1.2%. The August reading was left at +1.2%.
  • The key takeaway from the report is that it will be additive to Q3 GDP expectations given the upward revision from the advanced durable goods orders report for shipments of nondefense capital goods orders excluding aircraft.

• Nasdaq Composite +25.7% YTD
• Dow Jones Industrial Average +19.1% YTD
• S&P 500 +15.6% YTD
• Russell 2000 +10.2% YTD

Week In Review: Bulls Hurdle a Heap of Headlines

The equity market moved higher once again this week, with all three major indices settling at fresh record highs. The tech-heavy Nasdaq led the charge, adding 0.9%, while the Dow and the S&P 500 climbed 0.5% and 0.3%, respectively. Small caps underperformed, sending the Russell 2000 lower by 0.9%.

Some of the week's most notable headlines came out of the nation's capital, including details on the House's tax reform bill, which were released on Thursday. Highlights of the bill include an immediate--and permanent--reduction in the corporate tax rate from 35.0% to 20.0%, a repeal of state and local tax deductions--with the exception of a $10,000 limit for property taxes, a limit for mortgage interest deductions on new home loans of less than $500,000 (adjusted from $1,000,000), and no major changes to 401(k) tax laws.

Stocks initially sold off in reaction to the bill, but quickly bounced back.

Elsewhere in Washington, President Trump nominated Fed Governor Jerome Powell for the position of Fed Chair, and the Federal Open Market Committee unanimously voted to leave the fed funds target range at 1.00%-1.25%, as expected. The U.S. central bank reiterated its belief that the economy will continue to expand at a moderate pace and said nothing to alter the market's expectation for a rate hike in December; the CME FedWatch Tool places the chances of a December rate hike at 100.0%, up slightly from 99.9% last week.

The Employment Situation Report for October crossed the wires on Friday, showing below-consensus nonfarm payrolls (+261,000 actual vs +300,000 Briefing.com consensus), nonfarm private payrolls (+252,000 actual vs +307,000 Briefing.com consensus), and average hourly earnings (0.0% actual vs +0.1% Briefing.com consensus). Still, the market took the report in stride as it confirmed that the labor market is still strong, but that strength hasn't resulted in a pick up in wages--and thereby inflation.

As for earnings, several tech heavyweights reported their quarterly results this week, including Apple (AAPL) and Facebook (FB). The two companies finished the week higher, adding 5.8% and 0.6%, respectively, after both beat earnings and revenue estimates. The S&P 500's technology sector (+1.8%) finished at the top of the week's sector standings.

The energy sector (+1.7%) also outperformed, moving in tandem with the price of crude oil, which jumped 3.3% to $55.66/bbl--marking its highest close since July 2015.

On the downside, the consumer discretionary, health care, industrials, and materials sectors struggled, losing between 0.5% and 0.8%. Within the industrial group, transports showed particular weakness, sending the Dow Jones Transportation Average lower by 1.8%. The telecom services group (-2.6%) finished at the very bottom of the leaderboard once again, extending its 2017 loss to 17.4%.