Day Traders Diary

2/15/19

The S&P 500 gained 1.1% on Friday, as investors were relieved to hear that U.S.-China trade-talks produced some progress and that Congress passed a funding resolution to avoid another government shutdown. Friday's advance increased the benchmark index's weekly gain to 2.5%.

The Dow Jones Industrial Average (+1.7%), the Nasdaq Composite (+0.6%), and the Russell 2000 (+1.6%) also extended their weekly gains to 3.1%, 2.4%, and 4.2%, respectively.

All 11 S&P 500 sectors finished higher, led by gains in financials (+2.0%), energy (+1.6%), and health care (+1.5%). Conversely, the utilities (+0.3%) and communication services (+0.4%) sectors underperformed but still finished with modest gains.

A week-long round of trade negotiations in Beijing came to a conclusion on Friday, although structural issues -- forced technology transfers, enforcement oversight, and China subsidizing domestic industries -- were unresolved.

Still, investors were pleased to hear that mid-level talks are expected to continue in Washington next week. President Trump expressed optimism, saying talks are going extremely well, while he continued to weigh the possibility of extending the March 1 deadline.

President Trump signed a bipartisan funding resolution, which included funding that was well short of the $5.7 billion requested for border security. As many thought he might, President Trump declared a national emergency, setting up a likely legal battle, to secure adequate funding from other departments to build a border wall.

It was still a positive day for the market, evidenced by the broad-based gains. PepsiCo (PEP 115.91, +3.32, +3.0%) and NVIDIA (NVDA 157.34, +2.81, +1.8%) for instance were undeterred by underwhelming corporate results.

On the other hand, shares of Newell Brands (NWL 17.16, -4.53, -20.9%) and Mattel (MAT 13.82, -3.09, -18.3%) were clobbered on Friday following disappointing guidance, both of which included weak fiscal 2019 guidance.

U.S. Treasuries edged lower, pushing yields slightly higher. The 2-yr yield increased two basis points to 2.52%, and the 10-yr yield increased one basis point to 2.67%. The U.S. Dollar Index decreased 0.1% to 96.90. WTI crude rose 2.0% to $55.56/bbl.

Reviewing Friday's batch of economic data, which included Export and Import Prices for January, the Empire State Manufacturing Survey for February, Industrial Production and Capacity Utilization, and the preliminary University of Michigan Index of Consumer Sentiment for February:

• Import prices fell 0.5% in January and are down 1.7% over the last 12 months. Excluding fuel, they are down 0.2% over the last 12 months. Export prices declined 0.6% in January and are down 0.2% over the last 12 months. Excluding agricultural products, export prices are also down 0.2% year-over-year.
  • The key takeaway is that the Import-Export Price Indexes for January tracked in a way that should keep the Federal Reserve tracking on its patient-minded path.
• The Empire Manufacturing Survey for February increased to 8.8 (Briefing.com consensus 7.0) from the prior month's unrevised reading of 3.9.
• Industrial production declined 0.6% in January (Briefing.com consensus +0.2%) following a downwardly revised 0.1% increase (from 0.3%) in December. The January downturn was driven by a large drop in motor vehicle assemblies. The capacity utilization rate fell to 78.2% (Briefing.com consensus 78.8%) from an upwardly revised 78.8% (from 78.7%).
  • The key takeaway from the report is that it will feed into concerns about a slowing U.S. economy. Manufacturing production fell 0.9% due to the downturn in motor vehicle assemblies, but excluding that factor, manufacturing production was still down 0.2% with decreases logged for most other major durable goods industries.
• The University of Michigan's preliminary index of consumer sentiment for February increased to 95.5 (Briefing.com consensus 94.0) from the final reading of 91.2 for January, as attitudes improved with the end of the partial government shutdown and the Federal Reserve hitting the pause button on its interest rate hikes.
  • The key takeaway from the report is the indication that consumers' long-term inflation expectations fell to the lowest level recorded in the past half century, which is a vantage point that is certain to register in the Federal Reserve's willingness to be patient-minded with its policy approach.

Looking ahead, the stock market will be closed Monday for Washington's Birthday, and investors will not receive any economic data.

• Russell 2000 +16.4% YTD
• Nasdaq Composite +12.6% YTD
• Dow Jones Industrial Average +11.0% YTD
• S&P 500 +10.7% YTD

• • Headlines provided by Brieifng.com