Day Traders Diary

2/26/19

The S&P 500 decreased 0.1% as it struggled for direction on Tuesday. The stock market wavered between small gains and losses while investors weighed mixed economic data, key corporate news, and comments from Fed Chair Jerome Powell. 

The Dow Jones Industrial Average (-0.1%) and the Nasdaq Composite (-0.1%) also finished just below their flat lines. The Russell 2000, meanwhile, underperformed with a loss of 0.7%.

The S&P 500 materials (-0.6%), health care (-0.3%), and industrial (-0.3%) sectors underperformed the broader market. Conversely, the information technology (+0.2%), consumer discretionary (+0.2%), and communication services (+0.1%) sectors outperformed.

The major averages began the session slightly lower, as softer-than-expected reports involving the housing market weighed on investor sentiment. 

Home Depot's (HD 188.30, -1.68, -0.9%) weaker-than-expected FY20 earnings guidance, and December housing starts increasing at the slowest pace (1.078 million) since September 2016, helped stir early concerns about a slower pace of economic, and earnings, growth unfolding in the months ahead, particularly for companies with close ties to the housing market.

Caterpillar (CAT 137.98, -3.43, -2.4%) was another drag on the market following a "double" downgrade to 'Sell from 'Buy' at UBS. UBS also lowered its price target to $125 from $154, citing a belief that 55% of the company's end markets will peak in 2019, pressuring revenue and margins in 2020.

Selling efforts were kept in check, though, amid a strengthening consumer confidence report and the outperformance of tech stocks. A weakened U.S. Dollar Index (96.06, -0.36, -0.4%), driven by gains in the euro, the yen, and the British pound, which rallied on reports Prime Minister May is considering plans to delay/avoid a no-deal Brexit, could have also acted as a measure support. A weaker dollar can be advantageous for the earnings prospects of multinational companies.

In other earnings news, Macy's (M 24.72, +0.36, +1.5%), J.M. Smucker (SJM 106.09, +5.03, +5.0%), and AutoZone (AZO 935.00, +45.40, +5.1%) all beat profit estimates and sported comfortable gains as a result. 

Separately, Fed Chair Powell delivered his semi-annual testimony on the economy to the Senate Banking Committee. The market's response was relatively muted, as he maintained the Fed's "patient" approach to monetary policy and balance sheet normalization and did not introduce any "new" views that could have been construed as hawkish. 

U.S. Treasuries saw increased buying interest, which drove yields lower across the curve. The 2-yr yield decreased three basis points to 2.48%, and the 10-yr yield decreased four basis points to 2.64%. WTI crude increased 0.3% to $55.60/bbl.

Reviewing Tuesday's economic data, which included Housing Starts and Building Permits for December, the Conference Board's Consumer Confidence Index for February, the Case-Shiller Home Price Index for December, and the FHFA Housing Price Index for December:

• Housing starts declined 11.2% month-over-month in December to a seasonally adjusted annual rate of 1.078 million (Briefing.com consensus 1.254 million). Building permits were up 0.3% month-over-month to a seasonally adjusted annual rate of 1.326 million (Briefing.com consensus 1.290 million).
  • The key takeaway from the report is that it reinforced the understanding that new supply is slow to develop. Single-family starts fell 6.7% to 758,000, with declines in all regions, except the South (+2.2%). Meanwhile, permits for single-family units declined 2.2% to 829,000, held back by a 4.0% decline in the South, which is the largest market for new home construction.
• The Conference Board's Consumer Confidence Index jumped to 131.4 in February (Briefing.com consensus 125.0) from an upwardly revised 121.7 (from 120.2) in January. The February reading broke a string of three consecutive monthly declines in the index.
  • The key takeaway from the report is that consumers' attitude about the outlook improved greatly, coinciding with the sharp improvement in the stock market, continued strength in the labor market, and the end of the partial government shutdown. That upbeat outlook should be a supportive factor for consumer spending.
• The Case-Shiller Home Price Index for December increased 4.2% (Briefing.com consensus 4.5%), down from a revised November reading of 4.6% (from 4.7%).
• The FHFA Housing Price Index for December increased 0.3%, down from an unrevised reading of 0.4% in November.

Looking ahead, investors will receive several economic reports on Wednesday: the January Advance Intl. Trade in Goods, Advance Retail Inventories, and Wholesale Inventories Report; the weekly MBA Mortgage Applications Index; Factory Orders for December; and Pending Home Sales for January. Fed Chair Powell will also continue his testimony before the House Financial Services Committee.

• Russell 2000 +17.0% YTD
• Nasdaq Composite +13.8% YTD
• Dow Jones Industrial Average +11.7% YTD
• S&P 500 +11.5% YTD

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  • Headlines provided by Briefing.com