Day Traders Diary



      The S&P 500 confidently extended weekly gains by 2.3% on Wednesday after Federal Reserve Chair Jerome Powell said he sees current interest rates "just below" neutral. That proved to be a rally point because the language Mr. Powell used early last month indicated a view that the fed funds rate was "a long way from neutral."

      Meanwhile, the Dow Jones Industrial Average gained 2.5%, the Nasdaq Composite gained 3.0%, and the Russell 2000 gained 2.5%.

      Fed Chair Powell added that there is no preset policy path, and the Fed will be data-dependent in its decision making, which pleased investors. By highlighting risks, though, that included previous rate increases, trade disputes, and Brexit/EU political uncertainty, the market chose to read between the lines that the Fed chair isn't wedded to three rate hikes in 2019.

      Mr. Powell's perceived dovish remarks sent bond yields and the dollar lower. The U.S. Dollar Index dropped 0.6% to 96.84, the 2-yr yield fell three basis points to 2.80%, and the 10-yr yield slipped one basis point to 3.04%.

      Regarding trade disputes, investors remain hopeful that some kind of agreement can be struck between the U.S. and China to forestall further protectionist trade measures. There is a burgeoning belief that President Donald Trump might aim to keep a floor of support under the stock market by striking a more conciliatory tone in his Saturday meeting with China President Xi Jinping. Nevertheless, it remains a speculative trade given President Trump's tough-minded tariff position.

      Back to the stock market, the S&P information technology (+3.4%), consumer discretionary (+3.2%), and health care (+2.5%) sectors provided strong support for the broader market. 

      The heavily-weighted tech sector welcomed a solid showing from heavyweights Apple (AAPL 180.94, +6.70), Microsoft (MSFT 111.12, +3.98), Visa (V 141.38, +5.47), and MasterCard (MA 202.28, +9.30), which rose between 3.7% and 4.8%. Amazon (AMZN 1677.75, +96.33) and UnitedHealth (UNH 280.95, +9.80) jumped 6.1% and 3.6%, respectively, with the latter rising to a record close.

      Also, the cyclical transport and chip stocks had noteworthy performances, evidenced by the strong gains within the Dow Jones Transportation Average (+2.5%) and Philadelphia Semiconductor Index (+2.3%). Alaska Air (ALK 74.74, +3.99) outperformed with a gain of 5.6% after Cowen raised its ALK price target to $84 from $80. Chipmaker Micron (MU 38.71, +1.71) rose 4.6% after it said earnings were tracking towards the higher-end of its outlook and was very pleased with the progress on tariffs.

      Conversely, the utilities (-0.1%), real estate (+0.9%), and consumer staples (+1.0%) groups finished at the bottom of the sector standings.

      In earnings, Salesforce (CRM 140.64, +13.10) and Burlington Stores (BURL 167.56, +19.00) jumped 10.3% and 12.8%, respectively, after releasing upbeat reports. On the other hand, Tiffany & Co (TIF 92.54, -12.41) fell 11.8% after the company missed revenue expectations due to weaker spending among Chinese tourists.

      Also, WTI crude dropped 2.7% to $50.20/bbl after crude stockpiles rose for the 10th consecutive week, according to the Energy Information Administration (EIA). Specifically, the EIA reported a higher-than-expected build of 3.6 million barrels. Nevertheless, the oil-sensitive energy sector (+1.7%) rose in tandem with the stock market.

      Reviewing Wednesday's economic data, which included New Home Sales for October; the second estimate of Q3 GDP; Advance Reports for International Trade in Goods, Retail Inventories, and Wholesale Inventories for October; and the weekly MBA Mortgage Applications Index:

      • New home sales declined 8.9% month-over-month in October to a seasonally adjusted annual rate of 544,000 ( consensus 575,000). September was revised up to 597,000 from 553,000.
        • Regardless of the upward revision to September, the key takeaway from the report is that the pace of new home sales is weak across all regions and reflects the affordability constraints fueled by rising mortgage rates. The October sales pace is the slowest since March 2016.
      • The second estimate for Q3 real GDP showed output increasing at an annualized rate of 3.5% ( consensus 3.6%), unchanged from the advance estimate as downward revisions to personal spending and state and local government spending offset upward revisions to nonresidential fixed investment and private inventory investment. The GDP Price Deflator was also unchanged at 1.7% ( consensus 1.4%).
        • The key takeaway from the report is that real final sales, which exclude the change in inventories, were up just 1.2%, which was the weakest growth rate since the fourth quarter of 2016.
      • The Advance report for International Trade in Goods for October showed a deficit of $77.2 billion. Meanwhile, the Advance report for Wholesale Inventories for October showed an increase of 0.7%, and the Advance report for Retail Inventories for October showed an increase of 0.9%.
      • The weekly MBA Mortgage Applications Index showed an increase of 5.5%, reversing course from the 0.1% decline in the prior week.

      Looking ahead, investors will receive Personal Income and Spending for October, PCE Price Index for October, FOMC Minutes for November, weekly Initial and Continuing Claims, and Pending Home Sales for October.

      • Nasdaq Composite +5.6% YTD
      • S&P 500 +2.6% YTD
      • Dow Jones Industrial Average +2.6% YTD
      • Russell 2000 -0.3% YTD
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