Day Traders Diary

3/4/19

The S&P 500 advanced as much as 0.5% following a report that the U.S. and China are nearing a trade deal. The benchmark index was then down as much as 1.3% following an inability to sustain a retest of its November high. Renewed buying interest, however, propelled an afternoon rebound effort, leaving the S&P 500 with a loss of 0.4%.

The Dow Jones Industrial Average (-0.8%), the Nasdaq Composite (-0.2%), and the Russell 2000 (-0.9%) also finished off their session lows.

The S&P 500 health care sector (-1.3%) was Monday's outsized laggard, weighed down by broad-based weakness as worries about regulatory efforts to curtail health care costs undercut many stocks.  Biotech issues, which have been among the best performers this year, were a notable laggard as well on Monday, falling prone to profit-taking efforts.  On a related note, Biogen (BIIB 327.26, -6.84, -2.0%) announced a deal to acquire Nightstar Therapeutics (NITE 25.18, +10.02, +66.1%) for approximately $877 million, or $25.50/share, in cash.

Conversely, the materials (+0.4%), real estate (+0.4%), utilities (+0.2%), and energy (+0.2%) sectors outperformed.

The Wall Street Journal reported that Beijing is offering to lower tariffs on U.S. farm, chemical, and other products in exchange for the U.S. taking off the new tariffs it has imposed on Chinese imports. There was some dismay, however, over a separate report that a trade deal might not contain an effective remedy to resolve structural trade issues.

Nevertheless, the mere prospect of a U.S.-China trade deal lifted the S&P 500 to its November high in the opening minutes of trading. The inability to hold gains or make a further move higher on the news, however, was attributed to the notion that a potential trade deal was largely priced in.

The subsequent pullback included some technical drivers, too. The retest of the November high sparked some reflex selling interest that ultimately sent the S&P 500 below the 2800 level. The quick descent was likely exacerbated by weak-handed holders of long positions (i.e. performance chasers) who felt trapped and anxious about getting involved in the market rally too late.

An afternoon wave of buyers tempered selling from getting too out of hand, though. The S&P 500 sectors pared losses, allowing the benchmark index to close at its afternoon highs but still under the 2800 level.

The Children's Place (PLCE 84.42, -9.78, -10.3%) was a story stock of note after the company disappointed investors with its fourth quarter results and its first quarter/full year guidance. The company partly attributed its outlook to the effects of direct competitor Gymboree being liquidated.

U.S. Treasuries edged higher, pushing yields lower across the curve. The 2-yr yield declined one basis point to 2.54%, and the 10-yr yield declined three basis points to 2.72%. The U.S. Dollar Index increased 0.1% to 96.61. WTI crude increased 1.3% to $56.53/bbl.

Reviewing Monday's lone economic report:

• Total construction spending declined 0.6% in December (Briefing.com consensus -0.3%) after increasing 0.8% in November.
  • The key takeaway from the report is that residential construction spending was soft in December, although the market effectively knew that already based on the data seen in the Q4 GDP report.

Looking ahead, investors will receive the ISM Non-Manufacturing Index for February, New Home Sales for December, and the Treasury Budget for January on Tuesday.

• Russell 2000 +16.8% YTD
• Nasdaq Composite +14.2% YTD
• S&P 500 +11.4% YTD
• Dow Jones Industrial Average +10.7% YTD

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• Headlines provided by Briefing.com