Day Traders Diary



U.S. equities ticked lower on Wednesday as investors contemplated their next move following the passage of tax reform.

The S&P 500 (-0.1%), the Nasdaq Composite (unch), and the Dow Jones Industrial Average (-0.1%) each finished a tick below their flat lines. Small caps outperformed, evidenced by the Russell 2000, which ended the day higher by 0.2%.

The Senate passed the GOP's tax reform bill shortly after midnight, giving equities a boost at Wednesday's opening bell. However, the early gains didn't last for long as the technology sector (-0.1%) began trending downwards, with Red Hat (RHT 122.00, -6.86) pacing the retreat. RHT finished lower by 5.3% despite reporting above-consensus earnings and revenues.

Technology shares eventually trimmed their losses a bit, thanks in large part to the outperformance of chipmakers, which pushed the PHLX Semiconductor Index higher by 0.7%. Micron (MU 45.75, +1.77) led the semiconductor rally, adding 4.0%, after beating both profit and sales estimates and issuing upbeat guidance for the current quarter.

Congress came back into focus in the early afternoon as the House of Representatives took up tax reform, once again, as procedural rules in the Senate forced minor changes to the bill, nullifying yesterday's passage in the House. The measure was approved, as expected, sending the bill to the White House for a final endorsement.

President Trump likely won't sign the bill into law before the new year as the White House's review process typically takes about seven business days to complete. Regardless, tax reform, which has been a significant factor in this year's equity rally, is essentially a done deal.

Back on Wall Street, the energy sector (+1.4%) had a positive showing, extending its week-to-date gain to 2.2%. West Texas Intermediate crude futures advanced 0.9% to $58.08 per barrel, helping to fuel the energy rally, after the Energy Information Administration reported a draw of 6.5 million barrels for the week ended December 15.

The energy space's advance more than doubled the gain of the second-best performing group--telecom services (+0.6%). AT&T (T 38.55, +0.50) carried the lightly-weighted telecom group, adding 1.3%, after reaffirming its plans to invest an additional $1 billion in the U.S. next year in light of the new tax code.

The industrial space (+0.3%) also outperformed, underpinned by transports, which rallied around FedEx's (FDX 251.07, +8.53) better-than-expected earnings report and upbeat guidance. FDX shares added 3.5%, settling at a new all-time high, while the Dow Jones Transportation Average advanced 0.9%--also finishing at a new record.

On the flip side, the utilities and real estate sectors were the weakest groups, losing 0.8% and 1.1%, respectively. No other sector lost more than 0.4%.

In the bond market, U.S. Treasuries finished mostly lower in a curve-steepening trade that pushed the 2yr-10yr spread higher by five basis points. The yield on the benchmark 10-yr Treasury note climbed four basis points to 2.50%, which marks a nine-month high, while the 2-yr yield slipped one basis point to 1.85%.

Elsewhere, equity indices in the Asia-Pacific region finished Wednesday little changed, while the Euro Stoxx 50 settled with a loss of 0.9%.

Reviewing Wednesday's economic data, which included November Existing Home Sales and the weekly MBA Mortgage Applications Index:

  • Existing home sales increased 5.6% in November to an annualized rate of 5.81 million units ( consensus 5.56 million). The October reading was revised to 5.50 million from 5.48 million.
    • The key takeaway from the report is that notable supply constraints remain, which will continue to act as a drag on overall sales due to the limited inventory and the high prices on available inventory that is crimping affordability, particularly for first-time buyers.
  • The weekly MBA Mortgage Applications Index decreased 4.9% to follow last week's 2.3% decline.

On Thursday, investors will receive the third estimate of third quarter GDP ( consensus +3.3%), the Philadelphia Fed Index for December ( consensus 21.0), and weekly Initial Claims ( consensus 236K) at 8:30 ET, followed by the October FHFA Housing Price Index ( consensus +0.4%) and the November Leading Economic Index ( consensus +0.4%), which will cross the wires at 9:00 ET and 10:00 ET, respectively.

  • Nasdaq Composite +29.3% YTD
  • Dow Jones Industrial Average +25.1% YTD
  • S&P 500 +19.7% YTD
  • Russell 2000 +13.5% YTD

All comments contained herein are for informational purposes only, and should not be considered as a solicitation to buy or sell any security. The firm does not guarantee the accuracy or completeness of the information or make any warranties regarding results from it's usage.