Stock Market Outlook for March 16, 2017
Oil bouncing from trendline support as inventories show first draw in 10 weeks.
**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 surged on Wednesday as the Fed raised the band on its overnight lending rate towards the 1.00% threshold, the first time the upper limit of the range exceeded a fraction of a percent since 2008. The S&P 500 Index bounced firmly from short-term support at its 20-day moving average, now moving back towards the all-time high around 2400. Energy and material stocks topped the leaderboard as commodities traded higher following the rate hike. The dollar dipped and bond prices rallied, the opposite reaction that might be expected following a fed rate increase. The US Dollar Index is charting what appears to be a lower intermediate high as investors adopt the belief that the Fed will be less hawkish than originally anticipated during this rate hike cycle. Seasonally, the US Dollar Index tends to decline between now and the start of May.
With the yield curve flattening slightly following the Fed meeting, the financial sector sat out of the broad market move, trading marginally lower on the day. A negative momentum divergence on the chart of the S&P 500 Financial Sector Index suggests buying pressures have become exhausted, possibly setting up for a retracement of the move that followed last November’s election bounce. Support at the benchmark’s rising 50-day moving average is around 3% below present levels. Seasonally, the financial sector remains in a period of strength through to mid-April.
On the economic front, a report on retail trade showed average activity for the month of February. The headline print indicated that retail sales increased by 0.1% in the second month of the year, inline with the consensus forecast. Excluding the more volatile gas and autos, sales were higher by 0.2%, slightly missing the 0.3% forecasted increase. Stripping out the seasonal adjustments, total retail trade actually declined by 0.1%, marginally below the average change for February of 0.0%. The year-to-date trend continues to follow the seasonal norm. Excluding Autos, the trend in retail remains above the average change through the first two months of the year (-24.8% versus the norm of –26.5%), more so a factor of the evolving shift in vehicle purchases towards the Christmas holiday period and away from the first quarter. Looking through the components, average change was the norm, although above average results were realized in sporting/hobby/book/music, general merchandise, and clothing stores, perhaps in reaction to the above average temperatures through February. Weakness in sales at restaurants (food services and drinking places) continues to pose a concern. This tends to be the most discretionary of all of the categories and weakness is suggestive of consumers keeping a tighter grip on their wallet. Following a number of years in which the consumer has helped to keep the economy afloat amidst struggle in manufacturing/industrial production, a very early warning sign may be becoming apparent. Flags would start to be raised if consumers restrict spending in other categories, which, as highlighted, are predominantly holding around an average level of change.
Touching briefly on manufacturing, strength continues to materialize in the regional surveys. The Empire State Manufacturing Survey showed a non-seasonally adjusted level of 32.7, the highest since 2010 when the economy emerged from the recession. The average level for the month of March is 22.9. Manufacturing activity tends to remain strong through May before levelling off in the summer, amidst the annual shutdown period.
As mentioned in yesterday’s report, oil was a focus during Wednesday’s session as the EIA released its weekly inventory report. The administration reported that oil contracted by 200,000 barrels, while inventories of gasoline declined by 3.1 million barrels. The result saw the days of supply of oil decline by one-tenth to 34.1. The level remains around the highest levels in decades and injection season has yet to reach its average peak. A decline in oil imports versus the week prior helped to alleviate the supply pressure, although the continued uptick in domestic production posses concerns for future inventory results; imports are likely to remain subdued in the next report given the winter storm that impacted the US east coast in recent days. The price of oil is bouncing from rising trendline support around $47, finally getting a lift after a week of selling pressures.
As for gasoline, elevated demand outpacing supply continues to bode well for the days of supply of the commodity, which fell by a full day to 27.5. The supply overhang that dominated the month of January is almost eliminated now that supply is back to within a day of the average trend. Supply of the refined product typically continues to decline through to mid-April. Despite the bullish supply characteristics, the price of gasoline, according to the US Gasoline ETF, was mildly lower and integrated oil & gas stocks lagged the sector return on the day.
Sentiment on Wednesday, as gauged by the put-call ratio, ended bullish at 0.71.
Sectors and Industries entering their period of seasonal strength:
Seasonal charts of companies reporting earnings today:
S&P 500 Index