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Stock Market Outlook for February 17, 2017

Economic data continues to impress: Initial Jobless Claims at multi-decade lows & Philly Fed at a multi-decade high.

 

Real Time Economic Calendar provided by Investing.com.

 

**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

 

 

The Markets

Stocks closed relatively flat on Thursday as investors took profits in some of the cyclical winners from the past few sessions; defensive sectors were the beneficiaries.  Utility stocks topped the leaderboard on the day, pushing the S&P 500 Utilities Sector Index back towards resistance at its 200-day moving average.  This rate sensitive sector continues to take its cues from treasury yields, which are trying to find direction following the gyrations that surrounded Janet Yellen’s testimony on Tuesday and Wednesday.  The direction of the break for this risk-off asset class continues to warrant monitoring as a shift towards risk aversion would presumably have negative implications for stocks.

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On the economic front, data continues to impress.  Initial jobless claims remain under pressure, holding at multi-decade lows.  The weekly report, for the period ending February 11,  showed a seasonally adjusted 239,000, beating the consensus forecast of 246,000.  The year-to-date change remains firmly below average, a sign of a robust labour market.  Seasonally, claims continue to decline through March before plateauing into the spring.

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While jobless claims hold around multi-decade lows, from a seasonally adjusted perspective, Philadelphia’s key gauge of manufacturing conditions is reporting a multi-decade high.  The Philadelphia Fed’s General Business Conditions Index jumped to 43.3 in February, the highest level since January of 1984.  Stripping out the seasonal adjustments, the reading was equally upbeat, coming in at 40.0, well above the average reading of 8.2 for the second month of the year.  The manufacturing gauge has shown significant strength in the past three months, advancing well above the average trend, influenced by the optimism surrounding the new business friendly administration in the US.  The economic indicator typically peaks for the year in March, suggesting another upbeat read may be ahead.  The indicator remains in expansionary territory through the spring, then dips into contractionary territory in July, amidst the summer factory shutdown period.

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Turning to housing starts, while the headline print did exceed estimates, the non-seasonally adjusted data was merely average.  The headline print showed that starts fell marginally to a seasonally adjusted annual rate of 1.246 million, from 1.279 million previous.  The consensus forecast was for a rate of 1.232 million.  Stripping out the seasonal adjustments, starts actually declined by 5.1% in January, inline with the norm for the first month of the year.  Data was mixed across the regions with the northeast and south showing above average results and the midwest and west falling well below the seasonal trend.  Building permits and housing units authorized, but not started, both came in ahead of their average change for January.  Seasonally, homebuilding stocks generally conclude their period of seasonal strength in the month of February; the frequency of positive monthly results tends to hover around 50% through the next seven months.  The iShares US Home Construction ETF (ITB) shed around half of a percent following the report, turning lower from resistance around $30.

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Home Building Industry Seasonal Chart
S5HOME Index Relative to the S&P 500S5HOME Index Relative to the Sector

S5HOME Index Monthly Averages

Sentiment on Thursday, as gauged by the put-call ratio, ended bullish at 0.89.

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Seasonal charts of companies reporting earnings today:

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S&P 500 Index

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TSE Composite

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