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Stock Market Outlook for June 16, 2017

Regional manufacturing surveys remain strong, but they have yet to translate to actual results.

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:

Packaging Corp Of America (NYSE:PKG) Seasonal Chart

Packaging Corp Of America (NYSE:PKG) Seasonal Chart

 

 

The Markets

Stocks ended lower on Thursday, dragged down by the continued selloff in the Technology sector as investors rebalance the  weight of some of the high flying positions amongst their portfolio.  The S&P 500 Index closed lower by around two-tenths of one percent, testing support at its rising 20-day moving average.  Momentum indicators are increasingly rolling over with MACD triggering a “sell” signal during Thursday’s session.  The rebalance choppiness in the market typically continues through quadruple witching, taking place this Friday, and into the last week of the month at which time fund inflows will commonly provide some lift to equity benchmarks for the start of the second half of the year.

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Turning to the commodity market, the price of gold shed 1.67% on Thursday, reacting to the reversal in the US Dollar.  The precious metal recently turned lower from resistance around $1300, charting what appears to be the making of a double-top pattern.  A break of support at $1214 would suggest downside potential towards $1130, or back to the lows set in December.  MACD has negatively diverged from price for the past four months, failing to confirm the year-to-date highs in price that were charted in April and, more recently, in June.  Seasonally, weakness in the month of June and July tends to lead to appealing buying opportunities for the period of seasonal strength that follows between the end of July and the beginning of October.

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On the economic front, industrial production rebounded in May, moving back to the highs of the year, at least from a non-seasonally adjusted perspective.  The headline print indicated that industrial production was unchanged (0.0%) last month, missing the consensus estimate calling for a 0.2% rise.  The manufacturing component fell by 0.4%, also missing the consensus estimate forecasting a similar 0.2% increase.  Stripping out the seasonal adjustments, total industrial production actually increased by 1.4%, much more than the average increase for May of 0.5%.  Manufacturing, meanwhile, was higher by 1.2%, double the historical average increase for May of 0.6%.  Both the aggregate industrial production index and manufacturing gauge continue to lag their seasonal average trends year-to-date.  Continuing to weigh on the year-to-date trends are the lagging performance in the production of utilities and consumer goods, which are realizing impacts from unfavourable weather and weak commodity prices.  Motor vehicle production is showing exceptional weakness, higher by 12.2% year-to-date, well below the average increase of 22.0% through the first five months of the year.  This is the weakest January through May increase in vehicle production since 2009, which was impacted by the recession.  Strength in the report continues to stem from the production of crude oil, which has seen significant gains year-to-date.  The drilling oil/gas wells category is higher by 36.2% through the month of May, the largest year-to-date increase on record.  Unfortunately the strength in the report is not widespread with most categories showing average to below average results.  Looking ahead, June is a big month for industrial production with activity higher in the month by 2.7%, on average, typically printing the high of the year.  This is the month that the economy really needs to prove itself as data is complied for second quarter GDP.  Thus far, temperatures on the east coast have been hovering above average, likely to act as a boost to utility production, one of the lagging areas year-to-date.  Whether the weather fuels increased production in consumer non-durable goods, such as clothing, is yet to be seen.

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If the regional manufacturing gauges are any indication as to the level of activity to expect for June, then the results may be quite good.  The Philadelphia Fed General Business Conditions index pulled back to 27.6 for June, beating expectations calling for a print of 26.0.  The Empire State general business conditions index was also better than expected, rising to 19.8 from –1.0 previous.  The forecast was for a print of 5.0.  Stripping out the seasonal adjustments, both manufacturing gauges are firmly above their seasonal averages as business attempt to push through activity ahead of the summer factory shutdown period in July.  But as the report on industrial production above shows, theses outlook surveys have yet to translate into actual results.

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Sentiment on Thursday, as gauged by the put-call ratio, ended neutral at 0.98.

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Seasonal charts of companies reporting earnings today:

  • No significant earnings reports scheduled for today

 

S&P 500 Index

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TSE Composite

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