Day Traders Diary

4/1/19

The stock market followed Friday's strong close to the first quarter with an even stronger start to the second quarter. The S&P 500 climbed 1.2% to a fresh high for the year while the Dow Jones Industrial Average (+1.3%) and the Nasdaq Composite (+1.3%) outperformed.

The Monday rally was a long time in the making, considering the advance got going overnight in the futures market and continued into the afternoon. Equity futures jumped out of the gate after better than expected China's Manufacturing PMI (actual 50.5; expected 49.5; prior 49.2) and Non-Manufacturing PMI (actual 54.8; expected 54.5; prior 54.3) reinforced the idea that global economic activity is rebounding.

Markets across Asia rallied on Monday, as did equities across Europe, even though final March Manufacturing PMI readings from Germany (actual 44.1; expected 44.7; prior 44.7) and France (actual 49.7; expected 49.8; prior 49.8) decreased from their respective flash estimates.

A weaker than expected U.S. Retail Sales report for February (actual -0.2%; Briefing.com consensus 0.2%) could not stop the rally, partly because the January increase was revised up to 0.7% from 0.2% and partly because today's remaining batch of data was ahead of expectations with the ISM Manufacturing Index for March rising to 55.3 (Briefing.com consensus 54.1) from 54.2 in February.

The upbeat tone fostered a daylong rally in equities with high-beta groups like the Dow Jones Transportation Average (+2.3%) and the PHLX Semiconductor Index (+2.5%) pacing the advance. The Dow Jones Transportation Average jumped above its 200-day moving average (10504) and approached its February high amid gains in all 20 components. Norfolk Southern (NSC 193.54, +6.65, +3.6%) was at the forefront of the rally after being upgraded to Buy from Neutral at Bank of America/Merrill Lynch.

Meanwhile, the broader industrials sector gained 2.1%, but still finished behind financials (+2.4%). The economically-sensitive group benefitted from weakness in Treasuries, which sent the 10-yr yield higher by eight basis points to 2.50%. This helped expand the spread between the 3-month bill yield and the 10-yr note yield to 11 basis points from three basis points at the end of Friday's session.

On the commodity side, crude oil jumped 2.3% to a fresh 2019 high at $61.59/bbl with the 200-day moving average (61.66) looming just above. Copper futures rallied to a fresh high for the year in overnight trade, but an intraday pullback returned the red metal to unchanged at $2.93/lb.

While most stocks benefited from a buying spree on Monday, Lyft (LYFT 69.01, -9.28) did not. Shares of the ride-sharing company fell 11.9%, making for another day of uninspiring price action. Today's slide pressured the stock below $72.00—a level where it priced on Thursday evening before hitting the market at $87.24 on Friday.

News of impending price cuts at Amazon-owned (AMZN 1814.19, +33.44, +1.9%) Whole Foods weighed on Kroger (KR 24.48, -0.12, -0.5%) in afternoon trade.

Interestingly, the strong session was not accompanied by strong trading volume, as 837 million shares changed hands at the NYSE floor, shy of the 200-day moving average, which stands just below 913 million.

Today's economic data included February Retail Sales, March ISM Manufacturing Index, January Business Inventories, and February Construction Spending:

• Retail sales declined 0.2% (Briefing.com consensus +0.2%) on the heels of an upwardly revised 0.7% increase (from +0.2%) in January. Excluding autos, retail sales declined 0.4% (Briefing.com consensus +0.3%) after increasing an upwardly revised 1.4% (from +0.9%) in January.
  • The key takeaway from the report is that it reflects a slowdown in retail spending activity in February, which was likely adversely affected by the polar vortex.
• The ISM Manufacturing Index for March increased to 55.3% (Briefing.com consensus 54.1%) from 54.2% in February.A number above 50% is indicative of expansion in the manufacturing sector.
  • The key takeaway from the report is that activity accelerated from February, which is a positive step for quieting some of the recession concerns that have been simmering with the recent flattening/inversion of the yield curve.
• Total construction spending increased 1.0% in February (Briefing.com consensus -0.3%) on the heels of an upwardly revised 2.5% increase (from 1.3%) in January.
  • The key takeaway from the report is that the February increase was fueled by increases in both private and public construction spending.
• Business inventories increased 0.8% in January (Briefing.com consensus +0.5%) following an upwardly revised 0.8% increase (from +0.6%) in December. Business sales increased 0.3% on the heels of an upwardly revised 0.9% decline (from -1.0%) in December.
  • The key takeaway from the report is that the inventory boost will be a positive input for Q1 GDP forecasts.

Tomorrow's economic data will be limited to the 8:30 ET release of February Durable Orders (Briefing.com consensus -0.9%; prior 0.4%) and Durable Orders ex-transportation (Briefing.com consensus 0.2%; prior -0.1%).

• Nasdaq Composite +18.0% YTD
• Russell 2000 +15.4% YTD
• S&P 500 +14.4% YTD
• Dow Jones Industrial Average +12.6% YTD

• • Headlines provided by Briefing.com