Day Traders Diary

3/27/19

The S&P 500 lost 0.5% on Wednesday, although it had been down as much as 1.1% on recurring concerns about slowing growth and a resilient U.S. Treasury market. The broader market spent the bulk of afternoon action in a steady rebound as Treasuries cooled off, but missing leadership from tech stocks limited the scope of the rebound attempt.

The Dow Jones Industrial Average lost 0.1%, the Nasdaq Composite lost 0.6%, and the Russell 2000 lost 0.4%.

Ten of the 11 S&P 500 sectors finished lower, led by health care (-0.8%) and energy (-0.7%). The industrial sector (+0.1%) was the lone group to finish higher.

After losing ground in mid-morning trade, the S&P 500 found itself back in the 2800 area, which has served as resistance since mid-October. Persistent reminders of slowing economic growth have sobered expectations for the market, providing more fuel for a flight-to-safety trade in U.S. Treasuries, which sent yields to fresh lows for the year.

Wednesday's reminders about slowing growth came from overseas:

• European Central Bank President Mario Draghi indicated the ECB may maintain its highly accommodative policy for an even longer period
• 2019 growth expectations for Italy were cut to zero by a confederation of industrial employers
• Switzerland's KOF Institute lowered its expectations for 2019 Swiss GDP growth to 1.0% from 1.6%
• The Reserve Bank of New Zealand issued a dovish statement, indicating the next move in rates is likely to be a cut

• The 2-yr yield declined five basis points to 2.21%, and the 10-yr yield declined four basis points to 2.37%. The U.S. Dollar Index increased 0.2% to 96.89. 

  The lower yields, though, appear to be helping the U.S. housing market, which should offer a measure of support for the economy. Homebuilders KB Home (KBH 24.73, +0.65, +2.7%) and Lennar (LEN 51.67, +1.96, +3.9%) provided investors with an upbeat outlook for the sector that overshadowed underwhelming earnings results.

  On a related note, the weekly MBA Mortgage Applications Index jumped 8.9% following a 1.6% increase in the prior week. This was the fifth increase in the last six weeks. 

  Southwest Airlines (LUV 49.83, +1.08, +2.2%), meanwhile, cut its Q1 revenue guidance to reflect the grounding of the Boeing (BA 374.21, +3.83, +1.0%) 737 MAX, a new contract with mechanics, and overall operational performance during the quarter. The company remained optimistic, though, and the positive response in its shares indicated the market agreed that headwinds will abate after the first quarter.

  In M&A news, health care company WellCare (WCG 259.81, +28.54, +12.3%) agreed to be acquired by Centene (CNC 52.12, -2.73, -5.0%) for $305.39/share in cash and stock.

  Reviewing Wednesday's economic data, which included the weekly MBA Mortgage Applications Index, the Trade Balance Report for January, and the Current Account Balance for the fourth quarter:

• The weekly MBA Mortgage Applications Index jumped 8.9% following a 1.6% increase in the prior week.
• The trade deficit narrowed to $51.1 bln in January (Briefing.com consensus -$57.5 bln) from a revised $59.9 bln (from $59.8 bln) in December. On a year-over-year basis, the goods and services deficit decreased 3.7% from the level observed in January 2018.
  • The key takeaway from the report is that the trade deficit narrowed after hitting its widest level in a decade in the previous reading.
• The current account deficit for the fourth quarter totaled $134.4 billion (Briefing.com consensus -$126.6 billion). The third quarter deficit was revised to $126.6 billion from $124.8 billion.

• Looking ahead, investors will receive several economic reports on Thursday, which will include the PCE Price Index for February, the Core PCE Price Index for January, the Chicago PMI for March, New Home Sales for February, and the revised University of Michigan Index for Consumer Sentiment for March.

• Nasdaq Composite +15.2% YTD
• Russell 2000 +12.9% YTD
• S&P 500 +11.9% YTD
• Dow Jones Industrial Average +9.9% YTD
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  • Headlines provided by Briefing.com