Day Traders Diary

2/1/18

U.S. equities had a mixed outing on Thursday as investors watched yields rise to multi-year highs, digested a tech-heavy batch of fourth quarter earnings, and looked ahead to Friday's release of the Employment Situation report for January. After opening lower, the market struggled for direction, rotating between modest gains and losses.

At its best mark of the day, the S&P 500 was up 0.4% and, at its worst, was down 0.4%. The benchmark index ended just a tick lower, losing 0.1%, while the Dow Jones Industrial Average advanced 0.1% and the Nasdaq Composite shed 0.4%. Small caps outperformed, pushing the Russell 2000 higher by 0.3%.

Equities soared through the first four weeks of 2018, hitting record after record, but investors have decided to pull back this week. The major averages hold week-to-date losses between 1.6% and 1.8% going into Friday's session, but still hold year-to-date gains between 5.6% and 7.0%.

The most recent batch of Q4 earnings included technology heavyweights Microsoft (MSFT 94.26, -0.75) and Facebook (FB 193.09, +6.20), less influential tech names like PayPal (PYPL 78.40, -6.92) and eBay (EBAY 46.19, +5.61), wireless giant AT&T (T 39.16, +1.71), chemical mammoth DowDuPont (DWDP 73.50, -2.08), and package deliverer UPS (UPS 119.51, -7.81). Six of the seven companies beat both earnings and revenue estimates (eBay's results were in line with estimates), but only three advanced on Thursday.

Facebook climbed 3.3% to a new all-time high after reassuring investors that its ad business would remain highly profitable despite changes to its news feed, which have prompted users to spend less time on the site--about 50 million hours less per day in aggregate. Meanwhile, eBay spiked 13.8% to a new record after announcing plans to take over crucial payment processing duties from PayPal, which tumbled 8.1% in reaction.

As for the others, AT&T soared 4.6% after raising its profit guidance for fiscal year 2018, while DowDuPont and UPS dropped 2.8% and 6.1%, respectively. UPS fell after announcing plans to upgrade its delivery network, which struggled to fulfill a high volume of orders during the holiday season.

Declining issues outnumbered advancers 1.2 to 1 at the New York Stock Exchange on Thursday. Energy shares showed relative strength, pushing the S&P 500's energy sector higher by 1.1%, as the price of crude oil climbed for the second day in a row; West Texas Intermediate crude futures advanced 1.6% to $65.76 per barrel. Financial stocks also outperformed, thanks in large part to an increase in Treasury yields, which touched new multi-year highs.

The yield on the benchmark 10-yr Treasury note jumped five basis points to 2.77%, its highest level since April 2014, and the 2-yr yield advanced two basis points to 2.16%, its highest mark in over a decade--dating back to the financial crisis. The recent rise in Treasury yields--the 10-yr yield has climbed 42 basis points in seven weeks--is seen by some as a positive sign for economic growth, but it could also be a headwind for equities, which are trading at high valuations.

Elsewhere, equity indices in the Asia-Pacific region finished Thursday on a mixed note; Japan's Nikkei added 1.6%, breaking a six-session losing streak, while Hong Kong's Hang Seng and China's Shanghai Composite lost 0.8% and 1.0%, respectively.

In Europe, Germany's DAX (-1.4%), the UK's FTSE (-0.6%), and France's CAC (-0.5%) tumbled as the euro climbed 0.8% against the U.S. dollar to 1.2517--a three-year high. The pound also advanced against the greenback, jumping 0.6% to 1.4274, while the Japanese yen finished roughly flat (109.27).

Reviewing Thursday's batch of economic data, which included the ISM Manufacturing Index for January, the preliminary readings for fourth quarter Productivity and Unit Labor Costs, weekly Initial Claims, and Construction Spending for December:

• The ISM Index for January declined to 59.1 from a revised reading of 59.3 in December (from 59.7), while the Briefing.com consensus expected a reading of 58.5.
  • The key takeaway from the report is that the manufacturing sector is still expanding at a solid clip, driven by an ongoing expansion in new order and production activity.
• The preliminary unit labor costs rose 2.0% during the fourth quarter, while the Briefing.com consensus expected an increase of 1.0%. The preliminary productivity reading showed a decrease of 0.1%, while the Briefing.com consensus expected an increase of 1.0%.
  • The key takeaway from this report is that it will feed into the market's burgeoning concerns about rising inflation and it will trigger some added concerns about economic growth not living up to the market's high expectations.
• The latest weekly initial jobless claims count totaled 230,000, while the Briefing.com consensus expected a reading of 238,000. Today's tally was below the revised prior week count of 231,000 (from 233,000). As for continuing claims, they rose to 1.953 million from a revised count of 1.940 million (from 1.937 million).
  • The latest week marked the 152nd week that initial claims have been below 300,000
• The Construction Spending report for December increased 0.7% (Briefing.com consensus +0.3%). The prior month's increase was lowered to 0.6% from 0.8%.
  • The key takeaway from the report is that construction spending growth continues to run at a relatively slow pace.

On Friday, investors will receive the Employment Situation report for January at 8:30 AM ET. The Briefing.com consensus expects the report will show the addition of 180,000 nonfarm payrolls (prior 148,000), a 0.3% increase in average hourly earnings (prior +0.3%), and an unemployment rate of 4.1% (prior 4.1%).

In addition, the final reading of the University of Michigan Consumer Sentiment Index for January (Briefing.com consensus 95.0) and Factory Orders for December (Briefing.com consensus +1.3%) will both cross the wires at 10:00 AM ET.

• Nasdaq Composite: +7.0% YTD
• Dow Jones Industrial Average: +5.9% YTD
• S&P 500: +5.6% YTD
• Russell 2000: +2.9% YTD

Headlines provided by Briefing.com