Day Traders Diary



    The S&P 500 gained 1.1% on Thursday to snap a five-session losing streak. U.S.-China trade optimism and strength from tech stocks, particularly Apple (AAPL 191.41, +4.61, +2.5%), contributed to the broader market overcoming its morning struggles. 

    The Dow Jones Industrial Average gained 0.8%, the Nasdaq Composite gained 1.7%, and the Russell 2000 gained 1.4%.

    More news surrounding U.S-China trade developments helped fuel an afternoon rally. A Financial Times report suggested China and the U.S. are trying to reach a trade truce ahead of the G-20 meeting at the end of the month. This should not be seen as anything particularly new, though, since similar reports were out earlier in the week.

    Commerce Secretary Wilbur Ross chimed in that he believes the G-20 meeting will be a 'big picture' meeting and does not expect a deal by end of the year. Nevertheless, the positive response caught some participants off guard and probably prompted some short-covering action. The trade-sensitive industrials sector finished with gain of 1.3%.

    Also, the market already had some some support leading up to the news from the information technology (+2.5%), energy (+1.5%), financials (+1.4%), and materials (+1.4%) sectors. 

    Apple showed some resiliency after entering the session with a monthly loss of 14.7%. Morgan Stanley defended the stock, saying that it is currently a buying opportunity; the company also sees a price target of $253/share and is 'Overweight' on the stock. Also within the tech space, chipmakers put on a good showing, as the Philadelphia Semiconductor Index gained 3.3%, extending its winning streak to three sessions.

    Within the financials group, heavyweights JPMorgan Chase (JPM 110.07, +2.74, +2.6%) and Bank of America (BAC 27.90, +0.69, +2.5%) helped lift the sector. Of note, Warren Buffet's Berkshire Hathaway (BRK.B 217.38, +1.35, +0.6%) disclosed it initiated new positions in some financial companies including JPMorgan and also increased its positions in Bank of America and other notable financial companies.

    Conversely, the utilities and real estate sectors underperformed with respective losses of 0.8% and 0.9%. Utilities component PG&E (PCG 17.74, -7.85) weighed on the sector after sinking 30.7% to follow yesterday's 21.8% plunge. Of note, natural gas, which utility companies use for generating electric power, pulled back 15.6% to $4.05/MMBtu after yesterday's 17.1% spike.

    Homebuilders had a rough day after KB Home (KBH 17.61, -3.19, -15.3%) lowered its fourth quarter guidance and reported quarter-to-date orders to be down 14%. The iShares Dow Jones US Home Construction ETF (ITB 30.37, -0.74) lost 2.4%, extending deeper into bear market territory for the year with a 2018 loss of 30.5%. Negative investor sentiment carried over to home improvement retailers Home Depot (HD 177.36, -2.54, -1.4%) and Lowe's (LOW 93.68, -1.23, -1.3%), which helped keep the consumer discretionary sector (unch) in check.

    In earnings, Dow components Wal-Mart (WMT 99.54, -1.99, -2.0%) and Cisco Systems (CSCO 46.77, +2.44, +5.5%) reported upbeat reports but finished mixed. Wal-Mart beat earnings estimates and raised its 2019 fiscal year guidance, and Cisco beat top and bottom lines estimates. 

    In other markets, U.S. Treasuries gave up early gains, returning yields to their unchanged marks. The benchmark 10-yr yield finished flat at 3.12%. WTI crude rose for the second straight session, adding 0.5% to $56.44/bbl, though is still well-off its October 3 high of $76.90/bbl. Also, the EIA's weekly crude oil inventory report showed that U.S. crude stockpiles rose by a higher-than-expected 10.3 million barrels last week -- marking the eighth straight week of crude inventory builds.

    Elsewhere, political uncertainty continued to play a factor in European markets. Brexit secretary Dominic Raab, and several other ministers, resigned a day after UK Prime Minister Theresa May received cabinet approval for her draft withdrawal statement. The resignations put pressure on Ms. May's leadership position and the fate of the Brexit plan in the British Parliament. The British pound fell 1.7% to 1.2777.

    Also, press reports indicated that Italian League economic adviser Borghi is making waves about Italy possibly leaving the eurozone if the Italian League wins a majority in the next election. 

    Reviewing Thursday's batch of economic data, which included Retail Sales for October, weekly Initial and Continuing Claims, Empire Manufacturing Survey for November, Import and Export Prices for October, Philadelphia Fed Index for November, and Business Inventories for September:

    • Total retail sales increased 0.8% ( consensus +0.5%) following a downwardly revised 0.1% decline (from +0.1%) in September. Excluding autos, retail sales jumped 0.7% ( consensus +0.5%) following an unrevised 0.1% decline in September.
      • The key takeaway from the report is that it reflects healthy consumer spending activity that will provide a positive input for Q4 GDP forecasts. Core retail sales, which exclude auto, gas station, building equipment and materials, and food services sales, jumped 0.3%.
    • Initial claims for the week ending November 10 increased by 2,000 to 216,000 ( consensus 214,000). Continuing claims for the week ending November 3 increased by 46,00 to 1.676 million.
      • The key takeaway from the report is that the weekly increases did very little to alter trends in the four-week moving average for both series, which remain near historic lows and indicative of a tight labor market.
    • Import prices increased 0.5% in October. Excluding fuel, they were up 0.2%. Export prices increased 0.4%. Excluding agricultural exports, they were up 0.5%.
      • The key takeaway from the report is that nonfuel import prices remain tame, up just 0.7% year-over-year, versus 1.4% for the 12-months ending October 2017.
    • The Empire Manufacturing Survey for November increased to 23.3 ( consensus 20.0) from 21.1 in October, bolstered by an increase in the index for shipments, inventories, the number of employees, and prices paid.
      • The key takeaway from the report, which uses 0.0 as the dividing line between expansion and contraction, is that manufacturing activity in the New York Fed region continues to run at a good pace.
    • The Philadelphia Fed Index for November fell to 12.9 ( consensus 20.5) from 22.2 in October, as most component indexes fell back from stronger levels.
      • The key takeaway from the report is that manufacturing growth slowed in the Philadelphia Fed region in November, yet it still remains in an expansion mode with a reading above 0.0.

    Looking ahead, investors will receive Industrial Production and Capacity Utilization for October and Net Long-Term TIC Flows for August on Friday.

    • Nasdaq Composite +5.2% YTD
    • Dow Jones Industrial Average +2.3% YTD
    • S&P 500 +2.2% YTD
    • Russell 2000 -0.7% YTD

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