Day Traders Diary

12/11/18

The S&P 500 finished flat on Tuesday, squandering two intraday rally efforts, as headline volatility surrounding politics and trade contributed to another day of whipsaw trading action.

The benchmark index traded as high as 1.4% shortly after the start of trading, but surrendered the entirety of that gain and was down as much as 0.6% in the afternoon.  It mounted a late recovery charge, trading up as much as 0.8%, but then rolled over in the last 30 minutes.  Fittingly, the S&P 500 closed just about where it began, underscoring the lack of conviction on the part of buyers and sellers.

The Dow Jones Industrial Average (-0.2%), Nasdaq Composite (+0.2%), and Russell 2000 (-0.2%) also took similar paths, but the Nasdaq was able to hold onto a slim gain.

Stocks jumped in early morning trading amid news that high-ranking officials from the U.S. and China resumed trade discussions over the phone. The progress stirred up some optimism that the controversial arrest of Huawei Technologies CFO, Meng Wanzhou, would not impede trade negotiations as was previously feared.

The upbeat tone didn't last long, though.  The S&P 500 financial sector (-1.0%) and Dow Jones Transportation Average (-0.5%) -- two areas key for driving economic sentiment -- underperformed in the early rally effort and eventually relented to selling activity that left them in negative territory once again.

Their underperformance hurt investor confidence, as did a cantankerous (and televised) exchange in the Oval Office between President Trump, Congresswoman Nancy Pelosi, and Senator Charles Schumer, which featured an exclamation from President Trump that he would be proud to shut down the government in the interest of border security if he did not get the funding needed ($5 billion) for a border wall.

These occurrences brought the broader market to session lows before another round of headlines contributed to the market's brief turnaround in the afternoon. 

The Wall Street Journal reported that China verbally agreed to reduce U.S. import auto tariffs to 15% from 40%, which followed a Bloomberg article from the morning that said China had submitted a proposal to reduce the tariffs.  General Motors (GM 34.69, +0.27, +0.8%) and Ford Motor (F 8.54, +0.02, +0.2%) reacted favorably to the news.

Given the current uncertainty and volatility in the market, it should not be surprising that the defensive-oriented consumer staples (+0.9%), utilities (+0.3%), and health care (+0.3%) sectors outperformed the broader market.

The heavily-weighted information technology sector (+0.1%), meanwhile, was able to stay afloat despite missing the influential leadership of Apple (AAPL 168.63, -0.97, -0.6%), which relented again to selling interest after yesterday's technically-charged rally. Chip stocks were able to provide some offsetting support, evidenced by the Philadelphia Semiconductor Index rising 0.6%.

Reviewing Tuesday's economic data, which included the Producer Price Index for November and the NFIB Small Business Optimism Index for November:

• The Producer Price Index for final demand increased 0.1% month-over-month in November (Briefing.com consensus 0.0%) while the index for final demand, excluding food and energy, increased 0.3% (Briefing.com consensus +0.1%). The monthly reading left the index for final demand up 2.5% year-over-year, versus 2.9% in October, and the index for final demand, excluding food and energy, up 2.7%, versus 2.6% in October.
  • The key takeaway from the report is that it didn't inflame inflation concerns to an alarming degree, like the October report did, so market participants have not been bothered by the idea that it will drive the Federal Reserve to be overly aggressive with future rate hikes.
• The NFIB Small Business Optimism Index for November decreased to 104.8 from the prior reading of 107.4 in October.

Looking ahead, investors will receive the Consumer Price Index for November, the weekly MBA Mortgage Applications Index, and the Treasury Budget for November on Wednesday.

• Nasdaq Composite +1.9% YTD
• Dow Jones Industrial Average -1.4% YTD
• S&P 500 -1.4% YTD
• Russell 2000 -6.2% YTD