Day Traders Diary

8/15/16

• Stocks dropped for the fifth time in six sessions on Wednesday as tensions between the U.S. and Turkey tightened and as oil prices tumbled to a two-month low, weighing on energy shares. The S&P 500 finished lower by 0.8% after being down as much as 1.3% intraday. The Dow and the Nasdaq lost 0.5% and 1.2%, respectively.

  Turkey was in focus once again after the country doubled tariffs on some U.S. imports -- including cars, alcohol, and tobacco. The U.S. and Turkey are feuding over the detainment of American pastor Andrew Brunson, who is accused of supporting a group blamed for an attempted coup in 2016.

  The Turkish lira extended Tuesday's rebound though, adding 6.8% against the U.S. dollar, after plunging around 25% against the greenback on Friday and Monday combined. The U.S. Dollar Index, which measures the dollar's strength against a basket of other currencies, finished flat, keeping near a more than one-year high.

  Late-afternoon reports that Turkey is now ready to discuss its issues with the United States helped Wall Street pare losses before the closing bell.

  Meanwhile, West Texas Intermediate crude futures dropped 3.0% to $65.07/bbl after the Energy Information Administration's weekly inventory report showed an unexpected build of 6.8 million barrels. The drop in oil prices weighed on the energy sector (-3.5%), which finished well behind the 10 other S&P groups.

  Cyclical sectors -- including energy -- underperformed in general, with consumer discretionary (-1.2%), materials (-1.6%), and technology (-1.1%) all losing more than the S&P 500. Conversely, the countercyclical consumer staples (+0.4%), utilities (+0.8%), and telecom (+0.7%) sectors finished in the green, and real estate (+0.9%) also outperformed.

  In earnings news, Macy's (M 35.15, -6.67) plunged 16.0% after concerns over its overall sales activity outweighed better-than-expected second quarter earnings and above-consensus guidance for the fiscal year. The sell off extended to other retailers, sending the SPDR S&P Retail ETF (XRT 50.45, -1.41) lower by 2.7%.

  Elsewhere, U.S. Treasuries rallied amid the risk-off sentiment, sending yields lower across the curve. The yield on the 2-yr note slipped two basis points to 2.61%, and the yield on the benchmark 10-yr note gave up five basis points, falling to 2.85%. Meanwhile, the CBOE Volatility Index spiked 11.6% to 14.85, a fresh six-week high.

  Reviewing Wednesday's big batch of economic data, which included July Retail Sales, the preliminary reading for Q2 Productivity and Unit Labor Costs, the Empire Manufacturing Index for August, Industrial Production and Capacity Utilization for July, Business Inventories for June, the NAHB Housing Market Index for August, and the weekly MBA Mortgage Applications Index:

• July retail sales rose 0.5% (Briefing.com consensus +0.1%), while the June increase was revised to 0.2% from 0.5%. Excluding autos, retail sales increased 0.6% in July (Briefing.com consensus +0.3%), and the June increase was revised to 0.2% from 0.4%.
  • The key takeaway from the report is that the downward revisions to June mitigated the July headline surprise. That point notwithstanding, core retail sales, which exclude autos, gasoline station, building materials, and food services sales, were up 0.5%, which is a positive input for Q3 GDP forecasts.
• The preliminary unit labor costs declined 0.9% during the second quarter, while the Briefing.com consensus expected an increase of 0.5%. The preliminary productivity reading showed an increase of 2.9%, while the Briefing.com consensus expected an increase of 2.0%.
  • The key takeaway from the report is that labor costs look to be in check, which will facilitate a gradual tightening path for the Federal Reserve.
• The Empire Manufacturing Survey for August rose to 25.6 (Briefing.com consensus 20.0) from the prior month's unrevised reading of 22.6.
• Industrial Production rose 0.1% in July (Briefing.com consensus +0.4%), while the June increase was revised to 1.0% (from +0.6%). Meanwhile, Capacity Utilization stayed at 78.1% (Briefing.com consensus 78.3%), unchanged from a revised reading of 78.1% in June (from 78.0%).
  • The key takeaway from the report is that it showed continued strength in manufacturing output, which offset declines in mining and utilities production.
• Business Inventories rose 0.1% in June (Briefing.com consensus +0.1%). The May reading was revised to +0.3% from +0.4%.
  • The key takeaway from the report is that business sales continued to outpace inventory growth, which is a favorable trend that carries the potential to lead to a better pricing environment for businesses.
• The NAHB Housing Market Index for August came in at 67 (Briefing.com consensus 67), down from 68 in July.
• The weekly MBA Mortgage Applications Index decreased 2.0% to follow last week's drop of 3.0%.

• Looking ahead, investors will receive July Housing Starts and Building Permits, weekly Initial Claims, and the Philadelphia Fed Index for August on Thursday.

• Nasdaq Composite +12.6% YTD
• Russell 2000 +8.8% YTD
• S&P 500 +5.4% YTD
• Dow Jones Industrial Average +1.8% YTD
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    • Headlines provided by Briefing.com