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Stock Market Outlook for August 8, 2017

Markets on the move following strong employment reports in Canada and the US.

 

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:

Citrix Systems, Inc.  (NASDAQ:CTXS) Seasonal Chart

Citrix Systems, Inc. (NASDAQ:CTXS) Seasonal Chart

Briggs & Stratton Corp. (NYSE:BGG) Seasonal Chart

Briggs & Stratton Corp. (NYSE:BGG) Seasonal Chart

Adobe Systems Incorporated  (NASDAQ:ADBE) Seasonal Chart

Adobe Systems Incorporated (NASDAQ:ADBE) Seasonal Chart

 

 

The Markets

Stocks closed higher on Friday and Monday following a much better than expected employment report for the month of July.  The headline print indicated that nonfarm payrolls increased by 209,000, above the consensus estimate that called for a gain of 178,000.  The unemployment ticked lower by one-tenth to 4.3% and average hourly earnings saw a 0.3% rise, inline with forecasts.  Stripping out the seasonal adjustments, nonfarm payrolls actually declined by 0.7%, or 1.04 million, better than the average decline for the month of July of 0.9%. The above average result has put the year-to-date change back into an above average position on the year, albeit very marginal, as the factory shutdown period comes in less severe than normal.  Drilling through the results, manufacturing employment showed a very rare gain in the month, rising by 0.1% to buck the seasonal slowdown in this segment of the economy.  The average change in employment in this category is –0.8% with only 12% of Julys over the past 50 years showing a positive result.  While manufacturing data in recent months has come in strong, including the regional manufacturing surveys for July, data still points to the seasonal downtick in activity that is typical in this summer month, which would be expected to act as a drag on employment in this segment of the economy.  Therefore, don’t be surprised to see revisions  to manufacturing employment for July in the months to come, as is typical for what is considered to be the most difficult category to estimate.  Aside from manufacturing, strength remains apparent in the leisure/hospitality segment as lower paying opportunities continue to be favoured.  Continuing to show sluggish results for the summer period is employment in utilities, which is higher on the year by 0.2%, a far cry from the 2.0% increase by this point in the year.  Changing weather trends and reduced electricity demand is to blame.  As well, construction employment is falling below trend following June’s weak construction spending report, the result of diminished spending on highway/street projects.  As for employee pay, average hourly earnings gained by 1.0% in July, more than three times the average increase for this summer month.  The year-to-date trend is attempting to recover from the losses recorded in recent months, but it still remains below average by around three-tenths of a percent.  The best month of the year for earnings is directly ahead when the level jumps by 1.2%, on average, in the month of September.  Overall, the report suggests strength in certain segments of the economy, but the broader report still leaves much to be desired, particularly in the area of professional and business services payrolls, which are trending below average.  The report certainly suggests an economy that is strong and growing, but is not robust enough to reinvigorate the above average results that are typical earlier in the expansion phase of the economic cycle.  With that being said, employment is typically a lagging indicator, therefore economic strength or weakness often takes time to filter through this report.  The decline in payrolls in the month of July typically takes around three months to recover, so it will be interesting to see if the economy can recoup the losses at a pace that is reminiscent of what the weekly report on jobless claims suggest; initial claims are back to the lows of the year approximately one month ahead of schedule, a testament to the strength of the labor market.  For a complete breakdown of the report, including the approximately 150 categories that encompass it, you can scroll through the charts in our seasonal chart database at http://charts.equityclock.com/u-s-employment-situation.

Nonfarm Employment Seasonal Chart

Monthly Nonfarm Employment Data

Nonfarm Employment Seasonal Chart

Educational Services Employment Seasonal Chart Food Services and Drinking Places Employment Seasonal Chart Retail Employment Seasonal Chart Construction Employment Seasonal Chart Manufacturing Employment Seasonal Chart Wholesale Trade Employment Seasonal Chart Transportation and Warehousing Employment Seasonal Chart Professional and Business Services Employment Seasonal Chart Utilities Employment Seasonal Chart Oil and Gas Extraction Employment Seasonal Chart Leisure and Hospitality Employment Seasonal Chart Average Hourly Earnings of Production and Nonsupervisory Employees: Total Private Seasonal Chart

North of the border, Statistics Canada also released employment results for the month just past.  The headline print indicated that employment increased by 10,900 in July, beating the consensus estimate of 10,000.  Stripping out the adjustments, employment actually declined by 0.4%, or 70,500, more than the no change (0.0%) that is average for the month.  The result puts the year-to-date trend below the seasonal average through the month of July, the result of a below average increase in full-time employment.  Part-time employment, meanwhile, is trending above average on the year, an undesirable trend from the perspective of fuelling income growth.  Along with the US, utilities and construction employment is showing a weak trend through the first seven months of the year, while manufacturing employment accounts for a significant portion of the year to-date growth.  Following lacklustre employment growth in Canada over the past few years, in part due to weakness in commodity prices, green shoots in certain segments have helped lift the aggregate result to a more normal trend on the year, a positive for the economy and those looking for work.  For the breakdown of employment by North American Industry Classification System, the charts can be found at the following link http://charts.equityclock.com/canada-labour-force-survey.

Canada Employment Seasonal Chart

Canada Employment full-time Seasonal Chart Canada Employment part-time Seasonal Chart Canada Labour force Seasonal ChartCanada Unemployment Seasonal Chart

With upbeat employment reports on both sides of the border, stocks in Canada and the US closed higher on the week, with the Dow Jones Industrial Average charting another record high.  Major benchmarks in the US remain firmly overbought on their weekly charts, while the TSX Composite is attempting to make a move back into bullish territory as energy stocks continue their bottoming process amidst their period of seasonal strength.  The TSX closed above its declining 50-day moving average for the first time since mid-May and is now approaching the neckline to a possible short-term head-and-shoulders bottoming pattern.  Not helping the Canadian benchmark on Friday was the downtick in gold stocks as the commodity dipped following a sharp rebound in the US Dollar from a level of significant support.  Dollar weakness has provided a tailwind to commodity prices, such as gold and oil, in recent weeks, but the strength has been slight, raising questions as to how the commodities would react when the US dollar reverses the near parabolic decline.  It may take a rebound in the US Dollar Index towards its declining 50-day moving average, now at 95.50, to alleviate the pressures from the unsustainable move lower over the past few months.  Seasonally, the dollar index tends to weaken through the month of October, typically a positive catalyst for gold and oil into the end of summer.

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US Dollar Index Futures (DX) Seasonal Chart

DX.FUT Monthly Averages

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Turning to the US, with treasury yields weakening slightly following Friday’s report, financials got a boost, pushing the S&P 500 Financial Sector Index ever so slightly above resistance around 420.  Momentum indicators are maintaining a trend of higher-highs and higher-lows, suggesting buying demand returning to the sector following seven months of stagnant results.  Financials are tied to two dominant themes underlying the market at present: Trump and the US Fed.  Gains in the Financial sector represent a vote of confidence in the Trump administration to push through its agenda, which includes, among other things, deregulation.  As well, strength amongst financial stocks is a bet on the US central bank normalizing monetary policy in a manner that would be conducive to further profitability in the only sector that has yet to see stock prices exceed their pre-recession highs.  Seasonally, the financial sector tends to decline between now and early October as falling yields act as a headwind to earnings through the end of the year.

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Sentiment on Friday, as gauged by the put-call ratio, ended neutral at 1.00.

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Seasonal charts of companies reporting earnings today:

Albemarle Corporation (ALB) Seasonal Chart Avis Budget Group, Inc. (CAR) Seasonal Chart  Booz Allen Hamilton Holding Corporation (BAH) Seasonal Chart CBS Corporation (CBS) Seasonal Chart Chicago Bridge & Iron Company N.V. (CBI) Seasonal Chart Comstock Resources, Inc. (CRK) Seasonal Chart Douglas Dynamics, Inc. (PLOW) Seasonal Chart Eagle Bulk Shipping Inc. (EGLE) Seasonal Chart GW Pharmaceuticals Plc (GWPH) Seasonal Chart Horizon Pharma plc (HZNP) Seasonal Chart Marriott International (MAR) Seasonal Chart Orchids Paper Products Company (TIS) Seasonal Chart Plains All American Pipeline, L.P. (PAA) Seasonal Chart Ritchie Bros. Auctioneers Incorporated (RBA) Seasonal Chart Tyson Foods, Inc. (TSN) Seasonal Chart ACADIA Pharmaceuticals Inc. (ACAD) Seasonal Chart CVS Health Corporation (CVS) Seasonal Chart Dean Foods Company (DF) Seasonal Chart Endo International plc (ENDP) Seasonal Chart Expeditors International of Washington, Inc. (EXPD) Seasonal Chart Fossil Group, Inc. (FOSL) Seasonal Chart Franco-Nevada Corporation (FNV) Seasonal Chart FTD Companies, Inc. (FTD) Seasonal Chart Gartner, Inc. (IT) Seasonal Chart Henry Schein, Inc. (HSIC) Seasonal Chart  Intercontinental Hotels Group (IHG) Seasonal Chart Jacobs Engineering Group Inc. (JEC) Seasonal Chart Jazz Pharmaceuticals plc (JAZZ) Seasonal Chart Mallinckrodt plc (MNK) Seasonal Chart Michael Kors Holdings Limited (KORS) Seasonal Chart Norwegian Cruise Line Holdings Ltd. (NCLH) Seasonal Chart Nuance Communications, Inc. (NUAN) Seasonal Chart Ralph Lauren Corporation (RL) Seasonal Chart Sunoco LP (SUN) Seasonal Chart Valeant Pharmaceuticals International, Inc. (VRX) Seasonal Chart Walt Disney Company (The) (DIS) Seasonal Chart Wayfair Inc. (W) Seasonal Chart Zoetis Inc. (ZTS) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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