Day Traders Diary



The S&P 500 lost 0.8% on Thursday, as a negative economic outlook from the European Central Bank (ECB) helped fuel growth concerns and profit-taking interest. Thursday's risk-off mindset was made apparent by the underperformance of cyclical sectors and the flight-to-safety trade in the U.S. Treasury market where the 10-yr yield dropped six basis points to 2.64%.

The Dow Jones Industrial Average lost 0.8%, the Nasdaq Composite lost 1.1%, and the Russell 2000 lost 0.9%. A technical violation of the S&P 500's and Nasdaq Composite's 200-day moving averages also contributed to some selling interest; both closed below that key technical level.

10 of the 11 S&P 500 sectors finished lower with consumer discretionary (-1.4%), financials (-1.1%), and information technology (-0.9%) leading the retreat. Conversely, the utilities sector (+0.3%) was the lone group to finish higher.

The European Central Bank issued a dovish-minded policy stance, which was an acknowledgement of the slowing growth in the eurozone.

The ECB left its key interest rates unchanged, but it also (1) pushed out its guidance for rates to stay at their present level at least through the end of 2019, versus prior guidance of at least through the summer of 2019; and (2) reintroduced a targeted long-term refinancing operation (TLTRO) that will begin in September 2019 and continue through March 2021.

At the same time, the ECB cut its real GDP growth forecast for 2019 to 1.1% from the 1.7% growth forecast it provided as recently as December.

The timing served as a reinforcement of the concern that the global economy is weakening and that the U.S. market has gotten ahead of itself pricing in a more upbeat growth outlook that isn't being corroborated with falling earnings estimates.

Earnings growth for multinational companies will remain at risk from a strengthening dollar. Pronounced weakness in the euro following the ECB decision (-1.1% to 1.1183 against the dollar) drove a 0.8% gain in the U.S. Dollar Index (97.70, +0.82).

Kroger (KR 25.61, -2.83, -10.0%) and Burlington Stores (BURL 147.28, -19.90, -11.9%) were among the more notable companies Thursday that issued downside earnings guidance.

Reviewing Thursday's economic data, which included the weekly Initial and Continuing Claims report, revised fourth quarter Unit Labor Costs and Productivity, and the Consumer Credit report for January:

  • Initial claims for the week ending March 2 were low at 223,000 ( consensus 224,000), as expected, while continuing claims for the week ending February 23 fell by 50,000 to 1.755 million.
    • The key takeaway from the report is that the low level of initial claims is consistent with prior readings that have been consistent with the understanding that labor market conditions remain tight.
  • Nonfarm business sector labor productivity increased 1.9% ( consensus 1.7%) in the fourth quarter. Unit labor costs increased 2.0% ( consensus 1.5%).
    • The key takeaway from the report is that the annual average productivity from 2017 to 2018 was a lowly 1.3%, which is below the long-term rate of 2.1% from 1947 to 2018.
  • Total outstanding consumer credit increased by $17.0 billion in January ( consensus $17.0 billion) after increasing a revised $15.4 billion (from $16.5 billion) in December.
    • Once again, credit growth was rooted in nonrevolving debt, like car loans and student loans, while revolving credit (credit cards) expanded at a more muted pace.

Looking ahead, investors will receive the Employment Situation Report for February and the Housing Starts and Building Permits Report for January on Friday.

  • Russell 2000 +13.0% YTD
  • Nasdaq Composite +11.9% YTD
  • S&P 500 +9.7% YTD
  • Dow Jones Industrial Average +9.2% YTD
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