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Closing Market Summary: Indices Slip After 3-Day Rally

The major averages ended the day on a modestly lower note as equity indices pulled back from a three day rally. Today's loss of momentum can be attributed to the financial sector moving from leader to laggard, short-term overbought conditions, volatile oil trade, and key earnings misses. A final hour sell off pushed the major indices to their worst levels of the day as investors demonstrated increased risk aversion. The Nasdaq Composite (-1.0%) was the worst performer while the S&P 500 (-0.5%) and the Dow Jones Industrial Average (-0.3%) registered slimmer losses.

The economically-sensitive financial sector (-0.6%) was under pressure today after dovish remarks from St. Louis Fed President and FOMC voting member James Bullard called into question future fed funds rate hikes. Overnight, President Bullard voiced his opinion that the Fed can afford to be more patient in raising its policy rate. This weighed on the sector as continued low rates would limit banks' earnings prospects.

The benchmark index had trimmed its February loss from 4.9% to 1.2% over the past three trading days, with the consumer discretionary space (-0.7%) and technology (-0.7%) trimming their respective monthly losses from 6.4% and 6.2% to 2.3% and 2.5%. Today's action saw a pullback from the three-day rally.

On the commodities front, volatile oil trade weighed on the broader market as a bearish reading from the Department of Energy's weekly inventory report offset some additional speculation regarding whether OPEC and non-OPEC states could agree to a production cap agreement. The EIA inventory report showed a 2.147 million barrel build in crude inventories compared to last week's 0.754 barrel draw. This forced WTI crude to pare most of its gain, ending the day higher by 0.1% at $30.68/bbl. As a result, energy (-0.9%) settled with the worst loss of the day.

Dow component Wal-Mart (WMT 64.12, -1.99) tumbled 3.0% after defensive guidance overshadowed a bottom-line beat. The retail giant posted the worst performance in the composite while also leading the broader consumer staples sector (-0.5%) lower. Elsewhere in the Dow, IBM (IBM 132.45, +6.35) outperformed after receiving an upgrade at Morgan Stanley from "Equal-Weight" to "Overweight". The upgrade cited IBM's faster than expected move to analytics and cloud-focused business.

In the heavyweight technology space, fellow large names were not able to draw on IBM's success as Apple (AAPL 96.26, -1.86), Facebook (FB 103.47, -1.73), and Alphabet (GOOGL 717.51, -14.46) all displayed relative weakness. NVIDIA (NVDA 30.04, +2.38) outperformed, surging 8.6%, in the PHLX Semiconductor Index (-0.6%) after reporting above-consensus results with better than expected guidance for Q1.

Biotechnology underperformed, evidenced by a 2.6% tumble in the iShares Nasdaq Biotechnology ETF (IBB 259.42, -6.90). To be fair though, health care component Johnson & Johnson (JNJ 104.24, +1.74) was the only large-cap able to maintain traction in positive territory.

Today's trade saw a retreat to risk-off assets with the Treasury Complex, gold, and the yen rallying to end the day. Meanwhile, utilities (+1.6%) and telecom services (+1.1%) saw a revival in interest that had led the spaces to the best performances in volatile January and February. The yield on the 10-yr note ended its day seven basis points lower at 1.74% while gold ended higher by 2.3% at $1,238.60/ozt. On the foreign exchange front, the dollar/yen pair ended lower by 0.7% at 113.25. 

Today's participation was in the neighborhood of the recent average with 1.05 billion shares changing hands at the NYSE floor. 

Today's economic data included the weekly initial claims report, the February Philadelphia Fed Survey, and January Leading Indicators:

• The latest initial claims report showed claims falling by 7,000 to 262,000 (consensus 274,000) for the week ending February 13.
  • That is the lowest initial claims reading in the last 12 weeks and places claims at the lower end of the 250,000-300,000 range they have been pinned at since July 2014.
  • The Department of Labor said there were no special factors influencing the initial claims data, which pushed the four-week moving average down 8,000 to 281,250.
• Continuing claims for the week ending February 6 increased by 30,000 to 2.273 million (consensus 2.237 mln)
  • The four-week moving average for this series up 13,500 to 2.263 million, which is the highest level since the week of August 28, 2015.
• The Philadelphia Fed Index showed some slight improvement with a reading of -2.8 for February (consensus -2.9) versus -3.5 for January.
  • The dividing line between expansion and contraction is 0.0. February marked the sixth straight month the general business activity index has been below zero, signalling that there has been a persistent contraction in regional manufacturing activity.
  • Strikingly, the indexes for all business indicators showed lower readings than the prior month and only one index -- the shipments index -- registered a reading above zero. Specifically, the shipments index dropped to 2.5 from 9.6 in January.
  • The closely-watched new orders index fell to -5.3 from -1.4 while the number of employees index declined to -5.0 from -1.9. The indexes for both prices paid (to -2.2 from -1.1) and prices received (to -4.5 from -2.8) also fell deeper into negative territory.
  • Separately, the diffusion index for future general activity dipped to 17.3 from 19.1. That index has been trending lower since last summer and is now at its lowest level since November 2012.
• The Conference Board's Leading Economic Index declined 0.2% in January (consensus 0.2%) showed slight improvement from the downwardly revised 0.3% decline (from -0.2%) for December.
  • The decline in January was paced by large negative contributions from stock prices (-0.27 percentage points), initial claims (-0.11 percentage points), and the ISM New Orders Index (-0.08 percentage points).
  • Eight of the ten indicators are known ahead of time, so the variability to the consensus estimate typically revolves around building permits, which are usually released a day ahead of the report, and the Conference Board's estimate for manufacturers' new orders, nondefense capital goods orders excluding aircraft.
  • The Leading Economic Index increased 0.3% for the six-month period ending in January versus a 1.8% growth rate seen during the previous six months. Separately, the Coincident Economic Index increased 0.3% in January while the Lagging Economic Index increased 0.1%.

Tomorrow's economic data will be limited to the 8:30 ET release of January CPI (consensus -0.1%) and Core CPI (consensus +0.1%). 

• Russell 2000 -11.6% YTD
• Nasdaq -10.4% YTD
• S&P 500 -6.2% YTD
• Dow Jones -5.8% YTD