Day Traders Diary

7/17/18

• Today started with a whimper, but it eventually unfolded with a bang as the stock market overcame the shock of a reporting disappointment from growth-stock darling Netflix (NFLX 379.48, -21.00, -5.2%).  Remarkably, it was Netflix that helped turn the tide of negative sentiment and fostered a broad-based rebound effort that was led by the information technology (+0.8%), consumer staples (+0.8%), and health care (+0.5%) sectors.

  Overall gains were modest in scope, yet they were big with respect to engendering some confidence in the notion that the S&P 500 may be poised to take a run at the all-time high it hit in January (2872.87).

  The Nasdaq Composite increased 0.6% and closed at a new record high; the Russell 2000 and S&P Midcap 400 Index advanced 0.5%; the S&P 500 jumped 0.4%; and the Dow Jones Industrial Average added 0.2%.

  Netflix was the top story stock of the day.  It had been down as much as 14.1% after reporting disappointing subscriber growth for the second quarter and issuing disappointing third quarter guidance.  Shares of NFLX, however, started to rebound as quickly as they fell at the opening bell.

  That reversal was tied to some supportive remarks from analysts and a prevailing belief that the subscriber growth shortfall is likely to be a one-quarter issue; moreover, it was aided by a desire to own the stock at lower prices by investors who had missed the stock's run this year.  Prior to the company's report after Monday's close, shares of NFLX were up 109% in 2018.

  The turnaround in the broader market mirrored the intraday turnaround in NFLX, which cut its losses substantially by the closing bell.

  The buy-the-dip spirit soon spread to counterparts included in the "FAANG" cohort -- Facebook (FB 209.99, +2.76, +1.3%), Apple (AAPL 191.45, +0.54, +0.3%), Amazon.com (AMZN 1843.93, +21.44, +1.2%), and Alphabet (GOOG 1198.80, +14.94, +1.3%) -- which made a big difference for the tone in the broader market  

  Amazon.com for its part got an extra turnaround push on reports suggesting the company saw a huge year-over-year jump in Prime Day sales.

  The turn in trading sentiment was captured in the Invesco QQQ Trust (QQQ 180.27, +1.09, +0.6%), which had been down 1.1% and closed with a 0.6% gain.

  Beyond Netflix, Dow components Goldman Sachs (GS 231.02, -0.42, -0.2%), Johnson & Johnson (JNJ 129.11, +4.42, +3.5%), and UnitedHealth (UNH 250.34, -6.64, -2.6%) also were in the news for delivering earnings results.  They all topped consensus earnings estimates, yet the reaction to their reports was mixed.

  Elsewhere, Capitol Hill was a focal point today as Fed Chairman Powell appeared before the Senate Banking Committee to deliver his semiannual monetary policy report.

  Mr. Powell covered a range of topics in the Q&A portion of the testimony, yet there was nothing that was ultimately surprising in his remarks, which included a contention that there were growing concerns among business contacts about trade issues. 

  The Fed chair reiterated the view that improving economic conditions should allow for continued gradual rate hikes.  On a related note, the yield on the 2-yr note increased one basis point to 2.61% and the U.S. Dollar Index increased 0.5% to 94.97.

  Market participants seemed to appreciate Mr. Powell's calm, but confident, delivery, and the recognition that his remarks didn't introduce any volatility into the marketplace.

  That connection also went hand-in-hand with the intraday reversal.

  The weakest-performing sectors on Tuesday were the real estate (-0.6%), energy (-0.4%), telecom services (-0.4%), and utilities (-0.1%) sectors.  The best-performing sector was the materials sector (+1.3%), yet its small weighting in the S&P 500 minimized its influence as a major market driver.

  Reviewing today's economic data, which included Industrial Production and Capacity Utilization for June and the NAHB Housing Market Index for July:

• Industrial Production rose 0.6% in June (Briefing.com consensus +0.5%), while the May decrease was revised to 0.5% (from -0.1%). Meanwhile, Capacity Utilization ticked up to 78.0% (Briefing.com consensus 78.3%) from a revised reading of 77.7% in May (from 77.9%).
  • The key takeaway from the report is that manufacturing output bounced back sharply, reflecting good underlying demand, after a fire at a truck assemblies parts supplier undercut output levels in May.
• The NAHB Housing Market Index for July remained at 68 (Briefing.com consensus 69), unchanged from June.

• Wednesday's economic calendar will feature the Housing Starts and Building Permits Report for June. In addition, Fed Chairman Powell will appear before the House Financial Services Committee at 10:00 a.m. ET for the second, and final, day of his semiannual monetary policy report to the Congress.

• Nasdaq Composite +13.8% YTD
• Russell 2000 +9.9% YTD
• S&P 500 +5.1% YTD
• Dow Jones Industrial Average +1.6% YTD

Headlines provided by Briefing.com