Stock Market Outlook for May 8, 2014
Upcoming US Events for Today:
- Chain Store Sales for April will be released throughout the day.
- Weekly Jobless Claims will be released at 8:30am. The market expects Initial Claims to show 330K versus 344K previous.
Upcoming international Events for Today:
- German Industrial Production for March will be released at 2:00am EST. The market expects a year-over-year increase of 4.4% versus an increase of 4.8% previous.
- Bank of England Policy Announcement will be released at 7:00am EST. The market expects no change in rates at 0.50%.
- ECB Policy Announcement will be released at 7:45am EST. The market expects no change in rates at 0.25%.
- Canadian Housing Starts for April will be released at 8:15am.
- China Consumer Price Index for April will be released at 9:30pm EST. The market expects a year-over-year increase of 2.0% versus an increase of 2.4% previous. Producer Price index is expected to show a year-over-year decline of 1.9% versus a decline of 2.3% previous.
Recap of Yesterday’s Economic Events:
|CNY HSBC China Services PMI||51.4||51.9|
|CNY HSBC China Composite PMI||49.5||49.3|
|CHF Unemployment Rate s.a.||3.20%||3.20%||3.20%|
|CHF Unemployment Rate||3.20%||3.20%||3.30%|
|EUR German Factory Orders n.s.a. (YoY)||1.50%||4.30%||6.50%|
|EUR German Factory Orders s.a. (MoM)||-2.80%||0.30%||0.96%|
|EUR German Markit Retail PMI||53.1||50.2|
|EUR French Markit Retail PMI||50.3||50|
|EUR Italian Markit Retail PMI||49.5||46.5|
|EUR Euro-zone Markit Retail PMI||51.2||49.2|
|USD MBA Mortgage Applications||5.30%||-5.90%|
|USD Non-Farm Productivity||-1.70%||-1.20%||2.30%|
|USD Unit Labor Costs||4.20%||2.60%||-0.40%|
|CAD Building Permits (MoM)||-3.00%||4.30%||-11.30%|
|DOE U.S. Gasoline Inventories||1608K||500K||1564K|
|DOE U.S. Distillate Inventory||-447K||750K||1936K|
|DOE U.S. Crude Oil Inventories||-1781K||1250K||1698K|
|DOE Cushing OK Crude Inventory||-1395K||-612K|
|USD Consumer Credit||$17.53B||$15.8B||$16.5B|
Stocks ended mixed on Wednesday, pushed and pulled by supportive comments from Fed Chair Janet Yellen and volatility in NASDQ listed stocks. The S&P 500 Index ended higher by 0.56%, bouncing off of support at the 20-day and 50-day moving averages, while the NASDAQ ended lower by 0.32%, weighed down by shares of Internet companies, including Yahoo, Groupon, Google, and Amazon; the Dow Jones Internet Index fund (FDN) ended lower by almost 2%, charting a new year-to-date low. The Nasdaq Composite is showing one of the most bearish setups within a technical analysts’ handbook: a head-and-shoulders topping pattern. A break below the neckline of the bearish pattern at 4000 targets a downside move to 3550, or around 12% lower than present levels. The technology heavy benchmark is already down around 7% from the recent high, significantly underperforming the broad market as investors rotate away from high P/E equities. According to the Wall Street Journal, the trailing 12-month P/E ratio of the NASDAQ 100 is 20.85, significantly higher than the 18.10 reported just one year ago; the P/E of the S&P 500 currently sits at 17.60. Historical average P/E for the large-cap benchmark is between 15 and 16. Current valuations have failed to entice investors to commit new capital to the market, and therefore a rotation has taken place, away from growth and into value. A re-price of equity markets appears to be required in order to get investors involved, once again.
With investors fleeing from risk, yet again, defensive equities flourished on Wednesday. Utilities was the top performing sector, up 1.62%, while Consumer Staples wasn’t too far behind, gaining 0.96% on the day. REITs also had a strong session with the Dow Jones REIT Index up 1.23%, moving above horizontal resistance that stretched back to last summer. Investors are craving yield by buying equities that will offer a distribution while waiting for market volatility to settle down and for growth plays to come back into fashion. REITs are seasonally strong in the Spring and Summer months as investors use the defensive characteristics of the allocation to sit out the summer volatility.
The trade that seems to tell the story of investors aversion to risk is the relative performance of Consumer Staples versus Consumer Discretionary. The spread has been trending sharply higher since March with Staples outperforming Discretionary by around 12% in just the past couple of months; support for the trade remains apparent at the rising 20-day moving average line. The ratio of the defensive sector versus its cyclical counterpart just saw its 50-day moving average move above its 200-day for the first time since mid-2012, suggesting the end of the long-term underperformance of the staples sector and the end of the long-term outperformance of the cyclical sector. The Discretionary sector led the market higher from the 2009 low, but, for the first time in the past five years, relative weakness has now become pronounced. The long Consumer Staples, short Discretionary trade is a classic summer seasonal play that typically runs through to October.
Seasonal charts of companies reporting earnings today (some of which were incorrectly indicated to report on Wednesday in yesterday’s Market Outlook):
Sentiment on Wednesday, as gauged by the put-call ratio, ended bullish at 0.86.
S&P 500 Index
Horizons Seasonal Rotation ETF (TSX:HAC)
- Closing Market Value: $14.62 (up 0.07%)
- Closing NAV/Unit: $14.62 (up 0.11%)
|2014 Year-to-Date||Since Inception (Nov 19, 2009)|
* performance calculated on Closing NAV/Unit as provided by custodian
Click Here to learn more about the proprietary, seasonal rotation investment strategy developed by research analysts Don Vialoux, Brooke Thackray, and Jon Vialoux.