Briefing.com

Daily Sector Wrap

Updated: 23-Aug-17 16:35 ET
Politics Persuade Equities Modestly Lower

Dow Jones Industrial Average -0.4%; Nasdaq Composite -0.3%; S&P 500 -0.4%; Nasdaq 100 -0.4%; Russell 2000 -0.1%; S&P 400 -0.2%

The equity market moved modestly lower on Wednesday amid concerns of a potential government shutdown and following a New York Times article that highlighted a rift between President Trump and Senate Majority Leader Mitch McConnell. The Nasdaq (-0.3%) and the Dow (-0.4%) settled roughly in line with the S&P 500, which dropped 0.4%. The major averages closed the session near the bottom of their relatively narrow trading ranges.

Soon after Wall Street cheered Tuesday reports suggesting that White House aids and Congressional leaders have worked together to make significant strides in framing a tax-reform proposal, the New York Times published an article that painted the relationship between Congress and the White House in a different light. Specifically, the NY Times reported that President Donald Trump and Senate Majority Leader Mitch McConnell haven't spoken to one another in weeks.

Mr. McConnell said in an interview on Wednesday afternoon that he and President Trump are "committed to advancing [their] shared agenda together and anyone who suggests otherwise is clearly not part of the conversation." The equity market did not react to the senator's remarks. 

It's also worth mentioning that, on Tuesday night, President Trump put the possibility of a government shutdown on the table if he is unable to secure funding for his promised barrier along the U.S.-Mexico border and expressed his belief that the U.S. will likely pull out of the North American Free Trade Agreement (NAFTA). Both actions would likely ruffle some feathers within the GOP.

The aforementioned headlines don't bode well for the belief that Mr. Trump will be able to work with Congress in passing the pro-growth promises of his presidential campaign. However, it's also important to not lose sight of the fact that Wednesday's slide was modest in scope and retraced only a small portion of Tuesday's rally. The S&P 500 still trades solidly higher for the week, up 0.8%.

Eight of the eleven sectors finished Wednesday's session in negative territory with the consumer discretionary (-0.8%), industrials (-0.9%), and health care (-0.7%) sectors leading the retreat. One of the consumer discretionary space's weakest components was Lowe's (LOW 73.01, -2.81), which dropped 3.7% in reaction to worse than expected earnings and disappointing earnings guidance.

Within the industrial space, transports showed notable weakness, sending the Dow Jones Transportation Average lower by 1.3%. However, on a positive note, Dow component United Technologies (UTX 117.03, +1.34) jumped 1.2% after the New York Post reported that an unidentified hedge fund has been accumulating a stake in the company and is pressuring the aerospace giant to spin off its non-core businesses.

On the flip side, the real estate (+1.0%), utilities (+0.3), and energy (+0.4%) spaces finished in the green. The energy sector benefited from a rise in the price of crude oil, which climbed 1.2% to $48.41/bbl. The commodity was trading modestly lower in the morning session, but moved sharply higher after the Energy Information Administration (EIA) reported that U.S. crude stockpiles declined by 3.3 million barrels for the week ended August 18.

In the bond market, U.S. Treasuries rallied in a curve-flattening trade on Wednesday with the 10-yr yield dropping four basis points to 2.17% and the 2-yr yield ticking one basis point lower to 1.31%. 

Reviewing Wednesday's economic data, which included July New Home Sales and the weekly MBA Mortgage Applications Index:

  • New Home Sales in July hit an annualized rate of 571,000, which is below the revised June rate of 630,000 (from 610,000), and lower than the Briefing.com consensus of 615,000.
    • The key takeaway from the report is that new home sales growth is continuing at a frustratingly slow pace despite the tailwinds of low mortgage rates and low unemployment.
  • The weekly MBA Mortgage Applications Index ticked down 0.5% to follow last week's 0.1% increase.

On Thursday, investors will receive two pieces of economic data--the weekly Initial Claims Report (Briefing.com consensus 237K) and July Existing Home Sales (Briefing.com consensus 5.56 million). The two reports will be released at 8:30 ET and 10:00 ET, respectively.

  • Nasdaq Composite +16.6% YTD
  • Dow Jones Industrial Average +10.4% YTD
  • S&P 500 +9.2% YTD
  • Russell 2000 +0.9% YTD

Sector performance: Technology -0.2% (+22.8% YTD), Health Care -0.7% (+14.1% YTD), Utilities +0.3% (+12.5% YTD), Materials -0.2% (+8.9% YTD), Consumer Discretionary -0.8% (+8.7% YTD), Industrials -0.9% (+6.7% YTD), Consumer Staples -0.3% (+6.7% YTD), Financials -0.2% (+6.1% YTD), Real Estate +1.0% (+5.9% YTD), Telecom Services unch (-10.3% YTD), Energy +0.4% (-17.1% YTD)


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