Day Traders Diary

11/7/18

The S&P 500 confidently finished with a gain of 2.1% on Wednesday with the benchmark index now up 6.4% since its close on October 29. Wednesday's advance follows the conclusion of U.S. congressional midterm elections that produced a split Congress. 

The prevailing assumption in the market was that a newly divided Congress would preserve market-friendly policies, namely the tax cut and deregulation efforts. U.S. President Donald Trump also mentioned on Wednesday bipartisan efforts to work with the Democrats in the House on infrastructure, trade, and lowering drug costs.

Meanwhile, the Dow Jones Industrial Average gained 2.1%, the Nasdaq Composite gained 2.6%, and the Russell 2000 gained 1.7%.

All 11 S&P 500 sectors finished in positive territory with the consumer discretionary (+3.1%), health care (+2.9%), and information technology (+2.9%) groups leading the sector standings with strong gains. Health care companies rose with the belief that a split Congress would also make it unlikely that it will fully repeal the Affordable Care Act. On a related note, heavily-weighted health care component Humana (HUM 353.98, +22.17) jumped 6.7% after it reported above-consensus earnings and raised its guidance.

Also, the tech sector welcomed a strong showing from its top-weighted components. Apple (AAPL 209.95, +6.18, +3.0%), Microsoft (MSFT 111.96, +4.24, +3.9%), Visa (V 144.78, +3.99, +2.8%), and MasterCard (MA 208.24, +9.09, +4.6%) all provided the sector a much-needed lift. Within the consumer discretionary group, Amazon (AMZN 1755.49, +112.68) carried the sector with an impressive gain of 6.9%.

Conversely, the defensive-oriented real estate (+1.1%), utilities (+1.1%), and consumer staples (+0.6%) sectors underperformed the broader market, though still finished with healthy gains. Heavyweight utilities component Southern (SO 47.01, +1.34) rose 2.9% after it beat earnings expectations.

In other earnings, some smaller, but well-known, companies that had notable post-earnings performances were Etsy (ETSY 50.01, +9.58, +23.7%), Office Depot (ODP 3.41, +0.66, +24.0%), Michael Kors (KORS 49.05, -8.40, -14.6%), and Groupon (GRPN 2.92, -0.35, -10.6%). Etsy and Office Depot both beat earnings and raised their guidance; Michael Kors beat earnings estimates but lowered its fiscal Q3 guidance below consensus, and Groupon missed earnings expectations.

Of note, pot stocks surged after Attorney General Jeff Sessions resigned his post effective immediately per President Trump's request. Mr. Sessions was an influential critic of legalizing marijuana and served as roadblock to advance the national conversation. Well-known cannabis companies Tilray (TLRY 139.60, +32.74) and Canopy Growth (CGC 46.07, +3.48) rose 30.6% and 8.2%, respectively.

Cannabis stocks were already on the rise after several more states voted to legalize recreational or medical marijuana. Michigan became the 10th state to legalize its recreational use, and Utah and Missouri passed initiatives to join 31 other states that already legalize its medical use. 

In other markets, U.S. Treasuries finished roughly flat with the 10-yr yield unchanged at 3.21%. Also, the U.S. Dollar decreased 0.2% to 96.10. Separately, WTI crude lost 0.9% to settle at $61.65/bbl, extending its recent decline to nearly 20.0% from its four-year high last month. The Energy Information Administration reported a weekly crude inventory build of 5.8 million barrels last week, marking the seventh consecutive week of stockpile builds.

Reviewing Wednesday's economic data, which included the weekly MBA Mortgage Applications Index and the Consumer Credit report for September:

• The weekly MBA Mortgage Applications Index showed a decline of 4.0%, a decrease from the prior week's decline of 2.5%.
• Total outstanding consumer credit increased by $11.0 billion in September after increasing an upwardly revised $22.8 billion (from $20.1 billion) in August.
  • The key takeaway from the report is that it reflects a deceleration in credit expansion that could contribute to concerns about the U.S. economy hitting/nearing peak growth.

Looking ahead, investors will receive the weekly Initial and Continuing Claims report and the FOMC Rate Decision for November on Thursday.

• Nasdaq Composite +9.7% YTD
• Dow Jones Industrial Average +5.9% YTD
• S&P 500 +5.3% YTD
• Russell 2000 +3.0% YTD

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• Headlines provided by Briefing.com