Day Traders Diary

2/8/18

Stocks closed sharply lower on Thursday, losing ground for the fifth time in six sessions.  The selling was broad-based and indiscriminate as all 11 S&P 500 sectors finished deep in red figures.  The losses for the sectors ranged from 1.2% (utilities) to 4.5% (financials).

The Dow Jones Industrial Average dropped 4.2%, the Nasdaq Composite tumbled 3.9%, and the S&P 500 declined 3.8%. 

The S&P 500 closed the day below Monday's intraday low, which technicians are apt to view as an adverse development that could invite further selling.  All three major indices settled at their session lows following another steep sell off in the final minutes.

Several factors precipitated Thursday's sell-off:

• Budding angst surrounding the reported two-year budget agreement in the Senate, which fueled concerns about the level of the budget deficit and national debt.  The 10-yr yield hit 2.88% today but settled up just one basis point at 2.85% for the session as the deficit concerns stood in the way of safe-haven flows related to the stock market losses.
• The lack of key sector leadership.  The financial (-4.5%), information technology (-4.2%), and consumer discretionary (-4.0%) sectors were today's biggest laggards.
• Comments from Fed heads, who continue to emphasize a likely path of gradual rate hikes and who have minimized recent market volatility.  That understanding provoked concerns about a possible policy mistake by the Fed, which was registered in the underperformance of the cyclical sectors today; and
• Following the trend of the tape, which has been biased downward at a time when many participants have been hoping for a rebound.  The continued downward bias shook out "weak-handed longs" who have been aiming to profit from a buy-the-dip trade.  Their selling presumably exacerbated today's losses.

Investors also kept an eye on Washington, where Congressional leaders are trying to pass a budget deal before tonight's spending deadline. The bill up for debate calls for an increase in spending caps and would raise defense and non-defense spending by approximately $160 billion and $130 billion, respectively, over the next two years. 

The bill is expected to pass in the Senate as both Senate Majority Leader Mitch McConnell (R-KY) and Senate Minority Leader Chuck Schumer (D-NY) have voiced their support for the measure, but it's fate in the House is less certain. Still, House Speaker Paul Ryan (R-WI) said in a morning interview that he believes the measure will pass.

The latest batch of Q4 earnings didn't have much impact on the broader market on Thursday, but it did prompt some interesting moves in individual stocks.

Most notably, Twitter (TWTR 30.18, +3.27) spiked 12.2% to its best level since mid-2015 after reporting better-than-expected earnings and revenues and achieving GAAP profitability for the first time ever. Meanwhile, Tesla (TSLA 315.23, -29.77) dropped 8.6% despite reporting above-consensus earnings and saying that it's on track to meet its goal of producing 5,000 Model 3 cars per week by the end of June.

Overseas, the major European bourses finished Thursday solidly lower. Germany's DAX dropped 2.6%, while France's CAC and the UK's FTSE lost 2.0% and 1.5%, respectively. The Bank of England unanimously voted to keep its key rate at 0.5% and its asset purchase program at GBP435 billion, as expected, while also laying the groundwork for future rate hikes.

In the Asia-Pacific region, equity indices ended Thursday on a mixed note, with Japan's Nikkei (+1.1%) and Hong Kong's Hang Seng (+0.4%) advancing while China's Shanghai Composite (-1.4%) declined. China reported a much smaller-than-expected trade surplus due to a spike in imports. However, demand associated with the upcoming Lunar New Year may have distorted the figures.

Reviewing Thursday's economic data, which was limited to the weekly Initial Claims report:

• The latest weekly initial jobless claims count totaled 221,000, while the Briefing.com consensus expected a reading of 234,000. Today's tally was below the unrevised prior week count of 230,000. As for continuing claims, they declined to 1.923 million from a revised count of 1.956 million (from 1.953 million).
  • The key takeaway from the initial claims report is that it provides a basis to keep the Treasury market on edge about future rate hikes.

On Friday, investors will receive just one economic report--December Wholesale Inventories (Briefing.com consensus 0.2%)--which will be released at 10:00 AM ET.

Headlines provided by Briefing.com