Day Traders Diary

1/10/18

Stocks slipped from record highs on Wednesday with the S&P 500 and the Nasdaq registering their first losses of 2018. All three major U.S. indices--the S&P 500, the Nasdaq, and the Dow Jones Industrial Average--lost 0.1% while the small-cap Russell 2000 finished flat.

A Bloomberg report that China may trim or halt its purchases of U.S. Treasuries prompted overnight selling in the Treasury market, sending the yield on the benchmark 10-yr Treasury note to its highest level since March 2017. The higher yields pushed equity investors to take some profits at the start of Wednesday's session.

The Dow, the S&P 500, and the Nasdaq hit their worst marks of the day shortly after the opening bell, holding losses between 0.5% and 0.7%.

However, investors quickly bought the dip thanks in part to a CNBC interview with legendary investor Warren Buffett, who stated that he remains a net buyer of stocks, citing low interest rates and the recently passed tax reform legislation.

Equities eventually reached their flat lines in the afternoon but slid back into the red following a Reuters report that Canada believes that U.S. President Donald Trump will soon pull the United States out of the North American Free Trade Agreement (NAFTA). General Motors (GM 43.00, -1.05), which was flat ahead of the report, finished lower by 2.4%.

The market made one last run in the final minutes, but ended just short of its unchanged mark. Nine of eleven sectors finished in negative territory with the financials (+0.9%) and industrials (+0.1%) groups being the two advancers.

The financial sector, which is the second heaviest group by weight, advanced at the opening bell due to the increase in Treasury yields and managed to keep the bulk of its gain even though yields returned to their flat lines following a $20 billion 10-yr note reopening that was met with strong demand. The benchmark 10-yr yield settled unchanged at 2.55% after trading as high as 2.59%.

As for the other sectors, losses ranged from less than 0.1% (consumer discretionary) to 1.5% (real estate). The top-weighted technology sector (-0.3%) underperformed with chipmakers showing particular weakness; the Philadelphia Semiconductor Index dropped 1.2%.

Meanwhile, West Texas Intermediate crude futures advanced 0.7% to $63.39 per barrel, a three-year high, after the Department of Energy said U.S. crude inventories declined for the eighth week in a row last week, dropping by 4.9 million barrels. The energy sector, which typically moves in tandem with oil prices, lost 0.1%.

Elsewhere, equity indices in the Asia-Pacific region finished Wednesday on a mixed note with Japan's Nikkei (-0.3%) slipping from a 26-year high. In Europe, the UK's FTSE added 0.2%, but the Euro Stoxx 50 lost 0.4%, breaking its five session winning streak.

Reviewing Wednesday's economic data, which included Import/Export Prices for December, Wholesale Inventories for November, and the weekly MBA Mortgage Applications Index:

• Import prices increased 0.1% in December, but were down 0.1% excluding fuel. Export prices, meanwhile, decreased 0.1% and were flat excluding agriculture.
  • The key takeaway from the report is that it will continue to foment budding inflation concerns, especially since the dollar is weakening, labor markets are tightening, and global growth is improving.
• Wholesale inventories increased 0.8% in November (Briefing.com consensus 0.7%) following an upwardly revised 0.4% decline (from -0.5%) in October. Wholesale sales jumped 1.5% in November on top of an upwardly revised 0.8% increase (from 0.7%) in October.
  • The key takeaway from the report is that the sales increase outpaced the inventory increase by a sizable margin, which is a step in the right direction for wholesalers trying to regain some pricing power.
• The weekly MBA Mortgage Applications Index increased 8.3% to follow last week's 2.8% decline.

On Thursday, investors will receive both the Producer Price Index for December (Briefing.com consensus +0.2%) and the weekly Initial Claims report (Briefing.com consensus +248K) at 8:30 AM ET. The December Treasury Budget (Briefing.com consensus -$47.5 billion) will be released at 2:00 PM ET.

• Nasdaq Composite: +3.6% YTD
• S&P 500: +2.8% YTD
• Dow Jones Industrial Average: +2.6% YTD
• Russell 2000: +1.6% YTD