Stock Market Outlook for January 9, 2017
Payroll growth last year the weakest since 2010.
**NEW** As part of the ongoing process to offer new and up-to-date information regarding seasonal and technical investing, we are adding a section to the daily reports that details the stocks that are entering their period of seasonal strength, based on average historical start dates. Stocks highlighted are for information purposes only and should not be considered as advice to purchase or to sell mentioned securities. As always, the use of technical and fundamental analysis is encouraged in order to fine tune entry and exit points to average seasonal trends.
Stocks Entering Period of Seasonal Strength Today:
- No stocks identified for today.
Stocks drifted higher on Friday with the S&P 500 Index and Nasdaq Composite charting new all-time closing highs; the Dow Jones Industrial Average remains mere points from its all-time peak as 20,000 continues to be elusive for the blue-chip benchmark. The Dow gyrated just below this milestone level throughout much of Friday’s session; investors used the key psychological point as a opportunity to book profits. Investors were reacting to the payroll report for December, which although missed expectations did offer some encouragement with respect to hourly earnings. The Bureau of Labor Statistics reported that nonfarm payrolls increased by 156,000 last month, shy of the 175,000 consensus estimate. The unemployment rate ticked higher by one-tenth to 4.7% and average hourly earnings advanced by 0.4%, inching out the 0.3% forecast. Stripping out the seasonal adjustment, payrolls actually declined by 270,000, or 0.2%, a notable divergence versus the average increase of 0.1% for December. For the year, payrolls have increased by 1.4%, the weakest percentage change since 2010 as the economy started to emerge from the Great Recession. Weakness in December appears to be centered in some of the lower paying areas of the economy, particularly leisure/hospitality, which showed a rare decline in the employment during this holiday period. The suggestion is that seasonal hires were laid off earlier than average, fuelling the down drift in the aggregate result. The full scope of the seasonal layoffs will become apparent in January’s result. With the reduction of lower paying opportunities, average hourly earnings of those employed saw an uptick of 0.1%, just less than the average increase for December of 0.2%. For the year, earnings are higher by 2.5%, inline with the increase for 2015. The result marked the first back-to-back annual gain topping 2% since the recession ended. The annual increase still remains well below the average increase, the result of subdued inflationary pressures. Overall, while the divergence of the aggregate change in payrolls may warrant concern, it is premature to conclude any detrimental impacts on the economy as a whole. The decline in payrolls in the month of January typically tops 2% and any layoffs brought forward into the preceding month could be a net positive, smoothing this seasonal variation. Further monitoring is warranted.
Meanwhile, in Canada, Statscan reported that employment increased by 53,700, a significant divergence from the consensus forecast of a decline of 5,100. The unemployment rate ticked higher by one-tenth of a percent to 6.9%. Stripping out the seasonal adjustments, employment actually declined by 46,700, or 0.3%. This is around half of the average decline for December of 0.5%. For the year, employment in Canada increased by 1.2%, an improvement versus the gain of 0.8% reported in 2015. The average full-year change is 1.6%. The results in Canada showed some similarities to that of the US; lower paying part-time opportunities showed a larger than average contraction, while the change in full-time employment was better than average. Still, much more improvement is required to place the economy on a desirable path of above average full-time employment growth. As with the US, the extent of the contraction in employment in January warrants attention; overall employment declines, on average, by 1.8% in the first month of the year as seasonal hires are laid off.
And just briefly, the report on Factory Orders for January came in slightly ahead of estimates, reporting a decline of 2.4% versus the consensus of a 2.5% contraction. Non-seasonally adjusted, the actual decline was 4.9%, larger than the average decline of 3.9% for the month of November. The year-to-date change continues to lag the historical norm as an elevated US dollar and lacklustre export activity constrains manufacturing conditions.
Sentiment on Friday, as gauged by the put-call ratio, ended close to neutral at 0.97.
Seasonal charts of companies reporting earnings today:
S&P 500 Index