Stock Market Outlook for March 20, 2017
Industrial Production reported a rare contraction for February, the result of above average temperatures.
**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:
Stocks closed lower on Friday, led by financials, as investors continue to react to the perceived dovishness of the Fed following their rate decision on Wednesday. The S&P 500 Financial Sector Index shed 1.06% during the session, moving below its 20-day moving average for the first time since early February. Support is implied at the rising 50-day moving average, now at 398. The move follows the apparent rejection of yields at levels of resistance charted at the end of 2016. The yield on the 10-year treasury bond is turning lower from 2.6% and the 30-year treasury bond is falling from a recent high of 3.2%. A double-top in each would be confirmed by a move below the first quarter lows at 2.3% and 2.9%, respectively. The “short” bond trade has become crowded with market participants attempting to take advantage of the rising rate cycle that we are presently in; a mean reversion trade may be due, alleviating the one-sided positioning and reinvigorating the longer-term prospects of the trade. Seasonally, yields typically rise between now and the end of April.
On the economic front, while other reports have seen a benefit from the warmer than average temperatures this winter, industrial production was negatively impacted by the lack of cold. The headline print indicated that production was unchanged in February, missing the consensus estimate calling for an increase of 0.2%. Manufacturing increased by 0.5%, marginally exceeding forecasts calling for a 0.4% rise. Stripping out the seasonal adjustments, industrial production realized a rare decline in the month of February, falling by an ever so marginal 0.05%. The average increase in production during this second month of the year is 1.3%; gains have been realized in 87% of periods over the past 50 years. The aggregate result was dragged down by significant declines in utility production as consumers used less electricity to heat their homes. The production of residential utilities was lower by 21.5%, more than double the average decline of 9.8% for this winter month. As for manufacturing, activity increased by 1.7% in the month, below the average change of 2.3%. Year-to-date, the increase in manufacturing activity is inline with the historical average, a significant win compared to the past 11 consecutive years of below average results through the first two months of the year. Manufacturing activity continues to rebound, a fact that has been easily apparent in regional surveys over the past few months.
Sentiment on Friday, as gauged by the put-call ratio, ended bullish at 0.96.
Seasonal charts of companies reporting earnings today:
S&P 500 Index