Day Traders Diary

7/31/18

Stocks broke a three-session losing streak on Wednesday, with industrial shares leading the charge. The major averages extended modest opening gains throughout the morning, but slipped a bit in the final stretch, closing a step below their session highs. The S&P 500 added 0.5%; the Dow climbed 0.4%; the Nasdaq rose 0.6%; and the small-cap Russell 2000 jumped 1.1%.

Reports that the U.S. and China are trying to restart trade talks helped underpin the broader market, especially the trade-sensitive industrial sector (+2.1%), which closed atop the sector standings. Investors were also paying close attention to the information technology sector (+0.3%), which was a bit erratic after tumbling for three sessions in a row, trading between -0.4% and +1.0%.

Apple's (AAPL 190.29, +0.38) earnings, which were scheduled to be released after the close, also likely contributed to tech's fickle behavior. Investors were hoping that Apple, which is the largest company in the world by market cap, can get the tech sector back on track following last week's disappointing results and guidance from social media giant Facebook (FB 172.58, +1.52).

In total, eight of eleven sectors finished in the green. The health care group (+1.0%) was a notable outperformer, helped by Pfizer (PFE 39.93, +1.34), which rallied 3.5% after reporting better-than-expected earnings and guidance. Meanwhile, in the consumer staples sector (+0.5%), Procter & Gamble (PG 80.88, +0.68) finished higher by 0.9% after also beating bottom-line estimates.

On the downside, the financial sector (-0.7%) struggled on Tuesday, cutting its July gain to 5.2% -- still much better than the S&P 500 (+3.6%). The energy sector (-0.3%) dropped amid a decline in crude prices -- WTI crude -2.0% to $68.70/bbl -- and the lightly-weighted telecom services group (-0.8%) also lagged.

In other news, Chipotle Mexican Grill (CMG 433.66, -31.81) dropped 6.8% after reports of another food-borne illness incident in Powell, Ohio; the Bank of Japan decided to leave its ultra-loose monetary policy intact; and the Fed kicked off a two-day policy meeting in Washington.

Reviewing Tuesday's big batch of economic data, which included Personal Income, Personal Spending, and PCE Prices for June, the Employment Cost Index for Q2, the Chicago PMI for July, the Conference Board's Consumer Confidence Index for July, the S&P Case-Shiller Home Price Index for May:

• Personal income climbed 0.4% in June (Briefing.com consensus +0.4%) following an unrevised increase of 0.4% in May. Meanwhile, personal spending rose 0.4% in June (Briefing.com consensus +0.5%) following a revised increase of 0.5% in May (from 0.2%). The PCE Price Index rose 0.1% in June (Briefing.com consensus +0.1%), and the core PCE Price Index, which excludes food and energy, increased 0.1% (Briefing.com consensus +0.2%). Year-over-year, the core PCE Price Index is up 1.9%, unchanged from the last reading.
  • The key takeaway from the Personal Income and Spending Report for June is that it didn't produce any real surprises. That means it is the type of report that should keep the Federal Reserve inclined to think that it can continue to raise interest rates.
• The second quarter Employment Cost Index rose 0.6%, while the Briefing.com consensus expected an increase of 0.7%.
  • The key takeaway from the report is that wages and salaries, and benefit costs, are trending higher. That will support an inflation narrative and the thinking that the Federal Reserve will remain inclined to keep gradually raising interest rates.
• The Chicago PMI for July hit 65.5 (Briefing.com consensus 62.0), up from an unrevised 64.1 in June.
  • The key takeaway from the report is the understanding that the Prices Paid Indicator hit its highest level (82.1) since September 2008, which is indicative of pipeline inflation.
• The consumer confidence reading for July increased to 127.4 (Briefing.com consensus 126.6) from the prior month's revised reading of 127.1 (from 126.4).
  • The key takeaway from the report is the Conference Board's indication that a back-to-back decline in the Expectations Index suggests consumers do not anticipate growth accelerating.
• The Case-Shiller 20-City Index increased 6.5% in May (Briefing.com consensus +6.5%), and the April increase was revised to 6.7% from 6.6%.

Looking ahead, investors will receive on Wednesday the ADP Employment Change report for July, the Construction Spending report for June, the ISM Index for July, and the weekly MBA Mortgage Applications Index. In addition, the Fed will release its latest policy directive (2:00 PM ET), and July auto sales will be released throughout the day.

• Nasdaq Composite +11.1% YTD
• Russell 2000 +8.8% YTD
• S&P 500 +5.3% YTD
• Dow Jones Industrial Average +2.8% YTD

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  • Headlines provided by Briefing.com