Day Traders Diary

2/7/19

The S&P 500 lost 0.9% on Thursday, as recurring concerns about a slowdown in global growth and the prospects of a U.S.-China trade deal weighed on investor sentiment. In addition, an underlying sense that the market was due for a pullback also fueled broad-based profit taking.

The Dow Jones Industrial Average lost 0.9%, the Nasdaq Composite lost 1.2%, and the Russell 2000 lost 0.8%.

The S&P 500 energy (-2.1%), information technology (-1.4%), and materials (-1.4%) sectors led Thursday's retreat. Conversely, the defensive-oriented, and higher-yielding, utilities (+1.3%) and real estate (+0.8%) sectors were the lone groups to finish with gains.

Growth concerns resurfaced following a batch of disappointing updates from overseas: (1) the Bank of England left its key rate unchanged at 0.75% and lowered its 2019 GDP growth outlook to 1.2% from 1.7%, (2) the EU Commission cut its 2019 euro area GDP growth forecast to 1.3% from 1.9%, (3) Germany reported a 0.4% month-over- month decline in industrial production in December and (4) the Reserve Bank of India surprisingly cut its key lending rate 25 basis points to 6.25%.

These developments contributed to a lower start for the stock market, which extended losses following some negative trade-related headlines.

Specifically, NEC Director Larry Kudlow told Fox Business Thursday morning that there is still "a pretty sizable distance to go in U.S. trade talks." A White House official then told CNBC that a meeting between President Trump and China's President Xi was "highly unlikely" to happen prior to the March 1 trade deadline. President Trump later confirmed that a meeting is not likely before the deadline. 

Some buying interest in late afternoon trading, however, helped the S&P 500 close off its session low (-1.6%).

In earnings news, Twitter (TWTR 30.80, -3.36, -9.8%), Fiat Chrysler (FCAU 15.23, -2.12, -12.2%), and Tapestry (TPR 33.48, -5.83, -14.8%) all posted steep losses after the companies disappointed investors with their results. On the other hand, Chipotle Mexican Grill (CMG 585.78, +59.72) jumped 11.4% after it impressed investors with a strong report and reassuring outlook.

Separately, the S&P 500 financial sector (-0.9%) saw a big M&A deal on Thursday -- the largest since the financial crisis.

BB&T (BBT 50.46, +1.93, +4.0%) and SunTrust Banks (STI 64.72, +5.98, +10.2%) announced an all-stock merger of equals valued at approximately $66 billion, which would make it the sixth largest U.S. retail bank if approved. The agreement, however, was not enough to lift the financial space, which was pressured by a drop in U.S. Treasury yields and weakness in the money-center bank stocks.

U.S. Treasury yields, which move inversely to prices, declined amid the economic growth concerns. The 2-yr yield decreased six basis points to 2.47%, and the 10-yr yield decreased five basis points to 2.65%. The U.S. Dollar Index increased 0.2% to 96.54. WTI crude lost 2.4% to $52.70/bbl.

Reviewing Thursday's economic data, which included the weekly Initial and Continuing Claims report and the Consumer Credit report for December:

• Initial claims for the week ending February 2 decreased by 19,000 to 234,000 (Briefing.com consensus 220,000). Continuing claims for the week ending January 26 decreased by 42,000 to 1.736 million.
  • The key takeaway is that the labor market is still looking pretty good, as initial claims remain low, yet outside headlines are stirring concerns that might not remain the prevailing trend.
• Total outstanding consumer credit increased by $16.5 billion in December after increasing an upwardly revised $22.4 billion (from $22.1 billion) in November.
  • The key takeaway from the report is that it shows the extension of consumer credit is rooted in nonrevolving debt (e.g. car loans and student loans) while revolving credit (e.g. credit cards), which can be a support for discretionary spending, is not expanding in a robust manner.

Investors will not receive any notable economic data on Friday.

• Russell 2000 +11.7% YTD
• Nasdaq Composite +9.8% YTD
• S&P 500 +8.0% YTD
• Dow Jones Industrial Average +7.9% YTD