Day Traders Diary

1/22/19

The S&P 500 lost 1.4% on Tuesday, pulling back from short-term overbought conditions, with the narrative shifting back towards growth concerns. The Dow Jones Industrial Average lost 1.2%, the Nasdaq Composite lost 1.9%, and the Russell 2000 lost 1.7%.

10 of the 11 S&P 500 sectors finished lower with energy (-2.2%), industrials (-2.1%), and communication services (-2.0%) underperforming the broader market. Conversely, the utilities sector (+0.2%) was the only group to finish with gains.

The benchmark index came into the session up 13.6% since its Dec. 24 low and was arguably due for a pullback. Strikingly, the market's rally up to this point had brushed past many of the issues that were highlighted in Tuesday's headlines, which were nothing new to the market.

Some of those headlines included (1) a slowing Chinese economy, evidenced by China's 2018 6.6% GDP growth being its lowest pace since 1990; (2) the IMF cutting its 2019 and 2020 global growth forecasts by 0.1 each to 3.5% and 3.6%, respectively; and (3) a slowing U.S. housing market, evidenced by existing home sales sinking 6.4% in December to a seasonally adjusted annual rate of 4.99 million (Briefing.com consensus 5.25 million).

The stock market's seeming vulnerability to those headlines fostered a sense that the rally from deeply oversold conditions has run its course, such that the stock market will now be more attuned to stories highlighting weak growth or sticking points in trade negotiations with China.

Tuesday's selling efforts sent the S&P 500 below its 50-day moving average (2623). However, the benchmark index would close above that important technical support level after NEC Director Larry Kudlow, in a CNBC interview late in the day, refuted earlier reports that a preparatory US-China trade meeting had been cancelled.  Mr. Kudlow stated simply that the earlier reports were not true.

Separately, some weaker-than-expected corporate guidance also provided an excuse to take some profits off the table.

Dow component Johnson & Johnson (JNJ 128.92, -1.77, -1.5%) fell after it guided full-year 2019 sales below Wall Street's estimates. In addition, Stanley Black & Decker (SWK 115.69, -21.19) dropped 15.5% after it guided fiscal year 2019 earnings below consensus estimates.

Stanley Black & Decker's outsized loss, and a large downturn in shares of Arconic (ARNC 17.09, -3.25, -16.0%) after the company said its Board is no longer considering a sale of the company, contributed to the industrial sector's (-2.1%) underperformance.

Travelers (TRV 122.36, -1.65, -1.3%) was another Dow component that released its earnings report. The company missed earnings estimates and reported in-line revenue.

U.S. Treasuries saw increased buying interest, sending yields lower across the curve. The 2-yr yield decreased four basis points to 2.57%, and the 10-yr yield decreased five basis points to 2.73%. The U.S. Dollar Index was flat at 96.34. WTI crude fell 3.5% to $52.16/bbl.

Reviewing Tuesday's economic data, which featured Existing Home Sales for December as the only report:

• Existing home sales decreased 6.4% month-over-month in December to a seasonally adjusted annual rate of 4.99 million (Briefing.com consensus 5.25 million) from an upwardly revised 5.33 million (from 5.32 million) in November. Total sales were 10.3% lower than the same period a year ago.
  • The key takeaway from the report is that it reflects a softening housing market, evidenced by the deceleration in the median selling price growth rate and sales declines across all regions despite a decline in the average commitment rate for a 30-year, conventional, fixed rate mortgage (4.64%) versus November (4.87%).

Looking ahead, investors will receive the weekly MBA Mortgage Applications Index and the FHFA Housing Price Index for November on Wednesday.

• Russell 2000 +8.1% YTD
• Nasdaq Composite +5.8% YTD
• S&P 500 +5.0% YTD
• Dow Jones Industrial Average +4.6% YTD

Headlines provided by Briefing.com