Day Traders Diary

1/11/18

Stocks rallied to new records on Thursday as investors geared up for the fourth quarter earnings season, which will begin on Friday.

The small-cap Russell 2000 set the pace, jumping 1.7% to 1585.63. The Nasdaq Composite climbed 0.8% to 7211.78, the Dow Jones Industrial Average increased 0.8% to 25574.73, and the S&P 500 rose 0.7% to 2767.56. All four indices finished at new all-time highs.

'Buy the dip' was the name of the game on Thursday; the major stock indices opened with modest gains after registering slim losses in the prior session. Wednesday's downtick marked the first losses of the year for both the S&P 500 and the Nasdaq and just the second for the Dow.

Buying picked up throughout Thursday's session, especially in the final minutes, leaving the major indices at their session highs. Eight of eleven sectors advanced with the energy (+2.0%), consumer discretionary (+1.6%), industrials (+1.3%), and materials (+1.3%) groups being the top performers.

The energy sector was up as much as 2.4% thanks to a crude oil rally, which saw West Texas Intermediate crude futures jump 1.9% to $64.35 per barrel--their best level since December 2014. However, energy shares trimmed gains in the afternoon when WTI crude gave back much of its advance, settling higher by just 0.4% at $63.79 per barrel.

Meanwhile, in the industrial sector, heavyweights like Boeing (BA 328.12, +7.86) and Caterpillar (CAT 169.20, +3.33) climbed to new record highs, adding 2.5% and 2.0%, respectively. Transports also outperformed, pushing the Dow Jones Transportation Average (+2.3%) to a new record.

Within the DJTA, Delta Air Lines (DAL 58.52, +2.66) showed particular strength, adding 4.8%, after reporting better-than-expected earnings and revenues for the fourth quarter and raising its profit guidance for 2018. DAL shares finished at a new all-time high.

Retailers set the pace in the consumer discretionary sector, sending the SPDR S&P Retail ETF (XRT 47.28, +1.14) higher by 2.5%. Retailers picked up steam following news that Wal-Mart (WMT 100.02, +0.35) will be closing a series of Sam's Club stores. Costco (COST 189.38, +3.96), Sam's Club's main rival, added 2.1%.

Wal-Mart also made headlines after announcing that it will raise wages for hourly employees, expand maternity and parental leave benefits, and provide one-time cash bonuses of up to $1,000. The world's largest retailer said the recent tax overhaul fueled its decision.

On the downside, the consumer staples (-0.1%), utilities (-0.4%), and real estate (-0.7%) sectors declined on Thursday, extending their year-to-date losses to 0.4%, 4.0%, and 4.6%, respectively. For comparison, the S&P 500 has added 3.5% year to date.

In the bond market, U.S. Treasuries rallied in a curve-flattening trade that pushed the benchmark 10-yr yield lower by two basis points to 2.53% and left the 2-yr yield flat at 1.96%. Chinese officials denied the Wednesday report that China may slow or halt its purchases of U.S. Treasuries.

Elsewhere, the major European stock indices finished Thursday mixed after the European Central Bank released the minutes from its last meeting, which noted that the ECB could begin preparing investors for the end of its bond-buying program early this year. The euro jumped following the minutes, climbing 0.7% against the U.S. dollar to 1.2032.

In Asia, equity indices finished mostly higher, but reports that the South Korean government is seeking to ban all cryptocurrency trading weighed on Bitcoin, which tumbled 7.2% to $13,451.

Reviewing Thursday's economic data, which included the Producer Price Index for December, the weekly Initial Claims report, and the Treasury Budget for December:

• Producer prices declined 0.1% in December (Briefing.com consensus +0.2%) and core producer prices also decreased 0.1% (Briefing.com consensus +0.2%). Year-over-year, producer prices are up 2.6% (down from 3.1% in November) and core producer prices have risen 2.3% (down from 2.4% in November).
  • The key takeaway from the report is that there was a deceleration in the Producer Price Index, which will temper concerns about potential pass-through effects to the consumer and perhaps quell some of the budding inflation concerns that have contributed to some of the weakness in longer-dated Treasury securities to begin the year.
• The latest weekly initial jobless claims count totaled 261,000, while the Briefing.com consensus expected a reading of 248,000. Today's tally was above the unrevised prior week count of 250,000. As for continuing claims, they declined to 1.867 million from a revised count of 1.902 million (from 1.914 million).
  • Initial claims have picked up the last few weeks, yet the streak below 300,000 has stretched to 149 straight weeks, serving as a reminder that labor market conditions continue to be favorable.
• The Treasury Budget for December showed a deficit of $23.2 billion (Briefing.com consensus -$47.5 billion) versus a deficit of $27.3 billion for December 2016.
  • The Treasury Budget data is not seasonally adjusted, so the December deficit cannot be compared to the $138.5 billion deficit registered in November.

On Friday, investors will receive the Consumer Price Index for December (Briefing.com consensus +0.2%) at 8:30 AM ET, Retail Sales for December (Briefing.com consensus +0.4%) also at 8:30 AM ET, and Business Inventories for November (Briefing.com consensus +0.3%) at 10:00 AM ET.

JPMorgan Chase (JPM 110.84, +0.59) and Wells Fargo (WFC 63.01, -0.11) will report earnings on Friday morning, unofficially marking the start of the Q4 earnings season.

• Nasdaq Composite: +4.5% YTD
• S&P 500: +3.5% YTD
• Dow Jones Industrial Average: +3.5% YTD
• Russell 2000: +3.3% YTD