Equity Market Insight from Nasdaq MID - September 6, 2017

Wednesday, September 6, 2017, 12:00 PM, EST

  • NASDAQ Composite +0.02%, Dow +0.26%, S&P 500 +0.19%, Russell 2000 +0.11%
  • NASDAQ Advancers: 1134 Decliners: 936
  • Today’s Volume (from yesterday): -6.02%

U.S. stocks recovered a portion of yesterday’s pullback with Energy stocks (+1.6%) once again leading the markets higher. At Tuesday’s session lows, the DOW was off by 277 points, which marks the largest intraday decline since 5/17. Stocks rallied slightly during the final 2 hours of Tuesday’s session and the momentum appears to be carrying over into today’s activity. Crude Oil is testing its 200 day MA and attempting to post 4 consecutive days of gains. Stocks were little changed in response the Vice Chairman Stanley Fischer announcement.

  • Insurance stocks are weaker this morning as Florida braces for a potential Category 5 hurricane (winds 185 mph) making landfall this weekend. The path and strength of Hurricane Irma resembles Hurricane Andrew in 1992, which cost insurers ~$25 billon (in today’s dollars). Efforts to clean up Harvey in Houston continue as the White House has promised monetary support for the victims affected. Home Depot and Lowes are up by more than 1.5% a morning with Florida customers flocking to the stores for supplies.
  • Federal Reserve announced Vice Chair Stanley Fischer plans to resign for personal reasons this October. Fischer was appointed by President Obama in 2014 and his term was set to expire in June, 2018. He was formerly vice chair at Citigroup, managing director at the IMF, and governor of the Bank of Israel. Also Janet Yellen’s term expires in February and her renomination remains undecided.
  • Mortgage applications increased last week as declining mortgage rates incentivized homebuyers to action. Purchase applications for home mortgages rose 1.4% after falling 2.7% in the prior week. Lower rates were also a big driver for homeowners, whose refinancing activity rose 5.1% after falling 2.0% in the previous period. The average interest rate on 30-year fixed rate fell 5 basis points to 4.06%, the lowest level since November 2016. The week's uptick in purchase applications is a positive reaction to lower rates, which could help energize the sluggish housing market.

Technical Take:

One could say markets went gangbuster following the US presidential election in November 2016. Interest rates spiked higher in record fashion with equities following closely behind, some industries stronger than others. Regional banks were amongst the strongest groups in the equity space with the KRE ETF gaining +20%! in November alone, followed by +6% in December. For the year 2016 the KRE ETF gained a yuge +32.6%. Investors were betting banks would benefit not only from the expected stimulus policies from the Trump administration, but also the positive impact on margins from the massive spike higher in rates and widening yield curve. While the latter benefit was real, aided also by three rate hikes, nine months later Trump’s major stimulus plans (healthcare reform, tax reform, and infrastructure spending) lay dormant. In the meantime a plethora of other risks ranging from nuclear war, debt ceiling, quantitative tightening, and ongoing record hurricane damage are forming a perfect storm and driving yields lower. Most recently is a growing number of Feed governors calling for a halt in rate hikes. Today the 10-yr Treasury yield made a fresh YTD low at 2.05%. More relevant to regional banks is the belly of the yield curve, the 5yr – 3month spread, which now at 60bps is at its lowest level (weekly close) since December 2012!!! YTD the KRE is down (7.9%) and looking ahead the current technical setup is very concerning. Given the dramatic spike higher in Q4, there is now a volume gap below the $51 level down 10% towards the $45 - 46 support range. Low volume gaps are similar to an air-pocket where price action can knife through in short time given the minimal amount of price history. Momentum is bearish with the daily RSi at 36 and the weekly making fresh YTD lows at 42. KRE longs had better mind the gap and defend $51.

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Nasdaq's Market Intelligence Desk (MID) Team includes:

Michael Sokoll, CFA is a Senior Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.

Jeffrey LaRocque is a Director on the Market Intelligence Desk (MID) at Nasdaq, covering U.S. equities with over 10 years of experience having learned market structure while working on institutional trading desks and as a stock surveillance analyst. Jeff's diverse professional knowledge includes IPOs, Technical Analysis and Options Trading.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Annie O'Callaghan is Director on the Market Intelligence Desk (MID) at Nasdaq. Annie has worked for NASDAQ in a variety of roles including support of Nasdaq C-level management in client retention and customer service. Annie also served as a Sales Director in Nasdaq’s Transactions Services business. Prior to joining Nasdaq, Annie worked at AX Trading, managing accounts for its Alternative Trading System and served on Credit Suisse's trading desk as an Electronic & Algorithmic Sales Trading Analyst.

Brian Joyce, CMT has 16 years of trading desk experience. Prior to joining Nasdaq Brian executed equity orders and provided trading ideas to institutional clients. He also contributed technical analysis to a fundamental research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Airline companies among others understand the trading in their stock. Brian is a Chartered Market Technician.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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