Day Traders Diary

12/21/18

The S&P 500 fell 2.1% on Friday, as uncertainty surrounding a host of issues, which included politics and trade, continued to provide a justification to reduce risk. Friday's decline pushed the benchmark index to a new yearly low of 2408.12 and a weekly loss of 7.1%.

The Dow Jones Industrial Average (-1.8%), the Nasdaq Composite (-3.0%), and the Russell 2000 (-2.6%) also posted considerable declines to cap weekly losses at 6.9%, 8.4%, and 8.4%, respectively.

The S&P 500 had climbed to session highs in morning action (+1.5%) amid some market-soothing commentary from New York Fed President John Williams. Specifically, Mr. Williams indicated that the Fed is listening to the market and that the path of balance sheet runoff in 2019 is not "inflexible."

That recovery effort, however, was yet again met with selling resistance that drove the market further into negative territory. Disappointment in the inability to sustain a rebound effort from short-term oversold conditions effectively led to a buyers strike that weighed heavily on the indices.

Some discouraging headlines that compounded risk-reduction efforts included (1) the threat of a partial government shutdown due to disagreement over funding for a border wall, and (2) a late-day report that Director of the White House National Trade Council Peter Navarro told Nikkei that an agreement with China in 90 days will be difficult to attain.

All 11 S&P 500 sectors finished in negative territory with the communication services (-3.1%), information technology (-3.0%), and consumer discretionary (-2.6%) groups leading the retreat.

Dow component Nike (NKE 72.37, +4.84, +7.2%), for its part, was the best-performing stock in the S&P 500 after it released a strong earnings report and issued an encouraging FY19 currency neutral revenue growth outlook.

U.S. Treasuries remained resistant to selling pressure amid the equity sell-off. The 2-yr yield dropped four basis points to 2.63%, and the 10-yr yield was unchanged at 2.79%.

Reviewing Friday's batch of economic data, which included Personal Income and Spending for November; PCE Prices for November; Durable Orders for November; and GDP - Third Estimate for Q3; and the final reading of the University of Michigan Consumer Sentiment for December:

• Personal income increased 0.2% month-over-month in November (Briefing.com consensus 0.3%). Personal spending rose 0.4% (Briefing.com consensus 0.3%). The PCE Price Index increased 0.1% (Briefing.com consensus 0.0%) while the core PCE Price Index, which excludes food and energy, also increased 0.1% (Briefing.com consensus 0.2%).
  • The key takeaway from the report is that it showed PCE inflation continues to run below the Federal Reserve's longer-run target of 2.0%, which could raise the market's angst level about the Fed being on course to make a policy mistake with further tightening action.
• Durable goods orders increased 0.8% in November (Briefing.com consensus 1.7%) after an upwardly revised 4.3% decline (from -4.4%) in October. Excluding transportation, orders declined 0.3% (Briefing.com consensus +0.3%) after increasing an upwardly revised 0.4% (from 0.1%) in October.
  • The key takeaway from the report is that business investment was weak, evidenced by the 0.6% decline in nondefense capital goods orders excluding aircraft. Moreover, a 0.1% decline in shipments of those same goods will be accounted for as a negative input in Q4 GDP forecasts.
• The third estimate for Q3 GDP showed a downward revision to 3.4% from 3.5% (Briefing.com consensus 3.5%) and an upward revision to the GDP Price Deflator to 1.8% from 1.7% (Briefing.com consensus 1.7%).
  • The key takeaway from the report was the same as before, which is that real final sales grew at their slowest rate since the fourth quarter of 2016.
• The University of Michigan Index of Consumer Sentiment checked in at 98.3 with the final reading for December (Briefing.com consensus 97.5) versus a preliminary reading of 97.5 and the final reading of 97.5 for November. That left the 2018 average at 98.4, which was the best year since 2000.
  • The key takeaway from the report is that sentiment wasn't dented with the stock market's losses; however, expectations were tempered a bit amid burgeoning concerns about income and job prospects.

Investors will not receive any notable economic data on Monday.

• Nasdaq Composite -8.3% YTD
• Dow Jones Industrial Average -9.2% YTD
• S&P 500 -9.6% YTD
• Russell 2000 -15.9% YTD

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  • Headlines provided by Briefing.com