Day Traders Diary

10/29/18

The S&P 500 lost 0.7% in another volatile session on Monday, extending its monthly losses to 9.4%. Continued tech weakness shook investor confidence, and reports of another possible round of Chinese tariffs helped accelerate losses in the afternoon.

Stocks opened strong, with the S&P 500 trading as high as 1.8% early on, before gradually losing steam in the afternoon. Particular weakness in leadership stocks within the information technology (-1.8%), communication services (-1.6%), and consumer discretionary (-1.5%) sectors weighed heavily on the broader market. 

Meanwhile, the Dow Jones Industrial Average lost 1.0%, the Nasdaq Composite lost 1.6%, and the Russell 2000 lost 0.4%.

The major averages were already at session lows, with the S&P 500 hovering near its unchanged mark, before the U.S.-China news broke out. Bloomberg reported that the White House is preparing to announce tariffs on all remaining Chinese imports if talks next month between U.S. president Donald Trump and Chinese president Xi Jinping fail to ease the trade war.

Nevertheless, the disappointing price action in technology stocks struck a chord with investors because there was an early assumption that the sector would rebound following IBM's (IBM 119.64, -5.15, -4.1%) acquisition of Red Hat (RHT 169.63, +52.95, +45.4%) for an all-cash offer of $190 per share -- a 63% premium over Red Hat's Friday closing price. The hefty premium had energized the market with speculation about additional merger and acquisition potential (and healthy premiums paid) following the steep markdown in prices.

The tech sector's rollover undermined investor confidence in a potential rebound. Facebook (FB 152.09, -3.28, -2.3%), Alphabet (GOOG 1020.08, -51.39, -4.8%) and Netflix (NFLX 284.97, -14.86, -5.0%) dragged the communication services sector lower, while consumer discretionary component Amazon (AMZN 1538.88, -103.93) extended its post-earnings losses, losing 6.3%. Also, the world's largest tech company, Apple (AAPL 212.24, -4.06), lost 1.9%.

Conversely, the heavily-weighted financials sector pared monthly losses with a relatively strong performance on Monday, adding 0.9%. The group, however, traded as high as 2.6% before trimming gains. The financial rally was helped by a calming of contagion risk concerns (for now) with Standard and Poor's maintaining its BBB investment-grade rating for Italy. Similarly, the defensive-oriented real estate (+1.6%), utilities (+1.4%), and consumer staples (+1.1%) sectors had strong performances on Monday, finishing atop the sector standings.

In other markets, Treasury yields closed slightly higher with the 2-yr yield and 10-yr yield adding one basis point each to 2.82% and 3.09%, respectively. Also, the U.S. Dollar Index increased 0.3% to 96.63, and WTI crude fell 1.1% to $66.85/bbl.

Overseas, German Chancellor Angela Merkel announced on Monday that she won't be seeking re-election as head of the CDU. The decision follows disappointing results over the weekend for her party in a regional election. Her plan, however, is to remain Chancellor until 2021, after which time she will not pursue any other political posts.

Meanwhile, in Asia, China is reportedly considering a 50% cut in its tax on car purchases. Shares of Ford Motor (F 9.28, +0.30) and General Motors (GM 33.13, +0.48) benefited from the reports, gaining 3.3%, and 1.5%, respectively. 

Reviewing Monday's economic data, which included Personal Spending, Personal Income, and the PCE Price Index for September:

• Personal income increased 0.2% in September (Briefing.com consensus +0.4%) while personal spending jumped 0.4% (Briefing.com consensus +0.4%).
• The PCE Price Index was up 0.1% (Briefing.com consensus +0.1%) while the core PCE Price Index, which excludes food and energy, increased 0.2% (Briefing.com consensus +0.1%).
  • The key takeaway from the report is the recognition that PCE price inflation decelerated to 2.0% year-over-year from 2.2% in August. Core PCE price inflation held steady at 2.0%. The inflation readings are on par with the Federal Reserve's longer run target, yet they haven't moved to such a degree that they are going to alter the Federal Reserve's current policy stance, which involves an expectation for further gradual rate hikes.

Looking ahead, investors will receive the Case-Shiller 20-City Index for August and the Consumer Confidence Index for October on Tuesday.

• Nasdaq Composite +2.1% YTD
• Dow Jones Industrial Average -1.1% YTD
• S&P 500 -1.2% YTD
• Russell 2000 -3.8% YTD

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  • Headlines provided by Briefing.com