Day Traders Diary

9/14/18

The stock market saw limited movement on Friday, ending a positive week on a flat note. The S&P 500 (unch) settled just above its flat line, locking in a 1.2% gain for the week. The Dow (unch) and Nasdaq (-0.1%) also finished near their flat lines, ending the week with respective gains of 0.9% and 1.4%.

Equities started the day just above yesterday's closing levels, but relative weakness in a handful of rate-sensitive sectors and a mixed showing from other groups kept the market near its unchanged level. The underperformance in groups like utilities (-0.5%), telecom services (-0.4%), and real estate (-0.9%) was owed to overnight and early-morning selling in Treasury futures, which lifted the 10-yr yield to a six-week high just below the 3.000% area.

The broader market treaded water during early trade, thanks to gains in cyclical sectors like financials (+0.7%), industrials (+0.5%), and energy (+0.6%). The S&P 500 was on the verge of climbing to a fresh high around noon, but a Bloomberg report, indicating that President Trump is seeking to impose tariffs on $200 billion worth of imports from China despite the recent efforts to revive trade talks, sent the broader market to a session low.

In addition to pressuring stocks, the news weighed on offshore yuan and helped the U.S. Dollar Index (94.94, +0.42) climb to a fresh high, trimming this week's loss to 0.4%.

Afternoon trade saw a slow climb off session lows, but the S&P 500 was not able to revisit its high, as heavily-weighted groups like consumer discretionary (-0.3%) and health care (-0.3%) struggled. For its part, the top-weighted technology sector spent the session near its flat line, ending little changed.

The market received just two earnings reports between yesterday's closing bell and today's open. Adobe Systems (ADBE 274.69, +6.17) climbed 2.3% to a fresh record after beating earnings and revenue expectations while Dave & Buster's (PLAY 62.05, +4.53) rose 7.9% to a 13-month high after beating quarterly expectations and initiating a quarterly dividend of $0.15 per share.

Treasuries ended the day with losses, though intraday action saw the complex climb off mid-morning lows. The 10-yr yield rose three basis points to 2.99% after approaching its August high (3.02%) in early trade.

Investor participation was fairly consistent with the past two sessions as 762 million shares changed hands at the floor of the New York Stock Exchange.

Participants received a sizable batch of economic data today, including August Retail Sales, August Import/Export Prices, August Industrial Production and Capacity Utilization, July Business Inventories, and the preliminary reading of the University of Michigan Consumer Sentiment Index for September:

• August retail sales rose 0.1% (Briefing.com consensus +0.4%), while the July increase was revised to 0.7% from 0.5%. Excluding autos, retail sales increased 0.3% in August (Briefing.com consensus +0.5%), and the July increase was revised to 0.9% from 0.6%.
  • The upward revisions to the prior month helped mitigate some of the headline disappointment for August, yet the key takeaway from the report is that consumer spending is up and will continue to support real GDP growth in the third quarter.
• Import prices declined 0.6% in August after sliding a revised 0.1% in July (from 0.0%). Excluding oil, import prices slid 0.1% in August after slipping an unrevised 0.3% in July.
  • The key takeaway from the report is the recognition that nonfuel import prices have declined for three straight months, underscoring perhaps some of the effects of a stronger dollar. The moderation in nonfuel import prices could help temper budding inflation concerns for the time being.
• Industrial Production rose 0.4% in August (Briefing.com consensus +0.4%), while the July increase was revised to 0.4% (from 0.1%). Meanwhile, Capacity Utilization came in at 78.1% (Briefing.com consensus 78.3%), up from a revised reading of 77.9% in July (from 78.1%).
  • The key takeaway from the report is the understanding that factory output was unchanged, excluding the gain in motor vehicles and parts.
• Business Inventories rose 0.6% in July (Briefing.com consensus +0.6%). The June reading was left unrevised at +0.1%.
  • The key takeaway from the report is that business sales continued to outpace inventory growth year-over-year, which is a favorable trend that carries the potential to lead to a better pricing environment for businesses.
• The preliminary reading of the University of Michigan Consumer Sentiment Index for September rose to 100.8 (Briefing.com consensus 97.0) from 96.2 in August.
  • The key takeaway from the report is that the pickup in sentiment was widespread across all major socioeconomic groups, which is a good underpinning for solid consumer spending activity.

Monday's economic data will be limited to the 8:30 ET release of the Empire Manufacturing report for September (Briefing.com consensus 23.0).

• Nasdaq Composite +16.0% YTD
• Russell 2000 +12.2% YTD
• S&P 500 +8.7% YTD
• Dow Jones Industrial Average +5.8% YTD

Week In Review: Wind in the Sails

Wall Street returned to its winning ways this week, powering through trade-related headlines and Hurricane Florence, one of the strongest storms to hit the Carolinas in decades. The S&P 500 advanced 1.2%, the tech-heavy Nasdaq Composite rose 1.4%, and the blue-chip Dow Jones Industrial Average climbed 0.9%.

Hurricane Florence was largely the talk of the week, forcing residents near the Carolina coast to either pack their bags or hunker down. The storm weakened to a Category 1 from a Category 4 before it made landfall on Friday though, which helped the market keep a positive bias. WTI crude futures were once up nearly 4.0% on the week, but gave the majority of that back as the storm weakened.

Meanwhile, on the trade front,the White House confirmed reports that it has proposed a new round of trade talks with China -- a proposition that was welcomed by Beijing. However, President Trump muddied the waters a bit with a tweet on Thursday, saying the U.S. isn't under pressure to make a deal with China; rather, China is under pressure to make a deal with the United States.

China's major stock index, the Shanghai Composite, fell 0.8% this week, touching its lowest level since January 2016.

Separately, President Trump is reportedly considering a second meeting with North Korean leader Kim Jong-un ahead of the November midterm elections. The two leaders held a historic summit in June, but relations have cooled since, due to North Korea's unsatisfactory progress towards denuclearization.

In U.S. corporate news, Apple (AAPL) unveiled a trio of new iPhones -- iPhone Xs ($999), iPhone Xs Max ($1099), and iPhone Xr ($749) -- at its annual product event on Wednesday, extending last year's high-end iPhone X line, which was created in celebration of the iPhone's 10th anniversary. Apple shares added 1.2% on the week.

The top-weighted technology sector was among the top-performing groups this week, rebounding from last week's disappointing performance, with a gain of 1.8%. In total, ten of eleven groups finished in positive territory. Cyclical sectors generally outperformed, although the heavily-weighted financial space did not, finishing lower by 0.4%.

On the data front, investors received some influential inflation data this week, including the core Producer Price Index for August and the core Consumer Price Index for August. The core PPI declined 0.1%, while the Briefing.com consensus expected an increase of 0.2%, and the core CPI showed a less-than-expected increase of 0.1% (Briefing.com consensus +0.2%).

Those readings helped to ease fears that the Fed might have to be more aggressive in raising rates in order to keep the economy from overheating.

In monetary policy, a trio of central banks released their latest policy decisions this week, including the European Central Bank, the Bank of England, and the Central Bank of Turkey. Both the ECB and the Bank of England kept interest rates unchanged, as expected, but Turkey's central bank increased its benchmark rate to 24.00% from 17.75%, attempting to stabilize the beleaguered Turkish lira.

The Fed is expected to raise rates by 25 basis points at its September 25-26 policy meeting, with the market placing the chances of a rate hike at 100%.

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• Headlines provided by Briefing.com