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Stock Market Outlook for November 9, 2017

Financial sector weakness may present an appealing buying opportunity.

 

Real Time Economic Calendar provided by Investing.com.

 

*** 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 slightly higher on Wednesday with consumer staples and financials bookending the sector performance through the session.  The S&P 500 Financial Sector index continued its decline below its 20-day moving average following Democrat wins in key elections in New Jersey and Virginia.  The result creates uncertainty pertaining to the Republican’s ability to push through their tax reform bill.  A retracement on the financial sector benchmark back to levels of support between 420 and the 50-day moving average (427.81) is a reasonable target.  Seasonally, the financial sector enter its period of strength closer to the end of November, suggesting present weakness may lead to appealing buying opportunities.  The period of seasonal strength peaks in the middle of April, on average.

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Financial Sector Seasonal Chart

FINANCIAL Relative to the S&P 500
FINANCIAL Relative to the S&P 500

FINANCIAL Monthly Averages

One of the reasons that financial stocks have suffered in recent days is the flattening of the yield curve, threating the net interest margins of these lending institutions.  The US treasury yield spread of 10’s over 2’s broke below important support at 0.76%, quickly falling below 0.70%, the lowest level since 2007.  Yield spreads spiked around this time last year as investors reacted to the potential of a more hawkish fed following the election of Donald Trump, but, as inauguration day rolled around, spreads returned to a steady and consistent trend lower.  Not exactly a vote of confidence for the new President.  Investors rotating out of the shorter end of the curve and into the longer end have fuelled the move as these fixed income investors show their reluctance of letting go of the multi-decade bull market in bonds.  The long-term treasury bond ETF (TLT) is almost back to the high of the year charted at the start of September, amidst the period of seasonal strength for the asset class.  Bonds have historically been classified as a defensive investment, therefore their strength is somewhat counterintuitive given the bullish, cyclical bias of equity investors this year.  Seasonally, bonds tend to underperform stocks through to May.

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http://charts.equityclock.com/seasonal_charts/futures/CME_TY1_RelativeToSPX.PNG

And the breakdown in the yield spread of 10’s over 2’s occurs at a very important time in monetary policy as the Fed begins to unwind its bloated balance sheet.  Last week, the first signs of the unwind were finally noticed as the level of US treasury securities held by the Fed fell from $2.465 Trillion to $2.459 Trillion.  This is the biggest change in the Fed’s balance sheet in either direction since the end of the latest QE program in 2014.  While the decline is notable when looking at a three year chart of the level of holdings, it isn’t even a blip when zooming out to a 10+ year view where the scope of the task to unwind the balance sheet becomes apparent.  As the ball gets rolling for this unwind in the months and quarters ahead, increasing monitoring of the impact on equity and fixed income markets will be warranted given the unprecedented liquidation.

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Turning to our weekly look at petroleum inventories in the US, the EIA is indicating that oil stockpiles grew by 2.2 million barrels last week, which was more than offset by declines in product inventories, including a 3.3 million barrel draw in gasoline.  The days of supply of crude appears to be flat-lining between 28 and 29, impacted by lower gasoline production and demand in recent months, combined with higher domestic production of the raw commodity.  US oil production, at 9.62 million barrels per day, is at the highest level on record, higher by 9.7% year-to-date.  Stockpiles of oil remain on track to record the largest calendar-year draw since 2002.  As for gasoline, you would have to look back to 1994 to find a larger draw on inventories through the end of October.  Gasoline inventories are lower by 11.0% year-to-date, a pace that is 6.3% below average.  The days of supply of the refined product at 22.4 is the best level for this time of year since 2008.

Weekly U.S. Days of Supply of Crude Oil excluding SPR  (Number of Days) Seasonal Chart

Weekly U.S. Days of Supply of Crude Oil excluding SPR (Number of Days) Seasonal Chart

Weekly U.S. Ending Stocks excluding SPR of Crude Oil Seasonal ChartWeekly U.S. Field Production of Crude Oil Seasonal ChartWeekly U.S. Commercial Crude Oil Imports Excluding SPR Seasonal Chart

Weekly U.S. Days of Supply of Total Gasoline  (Number of Days) Seasonal Chart

Weekly U.S. Days of Supply of Total Gasoline (Number of Days) Seasonal Chart

Weekly U.S. Ending Stocks of Total Gasoline Seasonal Chart Weekly U.S. Refiner and Blender Adjusted Net Production of Finished Motor Gasoline Seasonal Chart Weekly U.S. Product Supplied of Finished Motor Gasoline Seasonal Chart

The price of crude oil closed lower following the report by around two-thirds of one percent.  The commodity has charted a near parabolic move higher in recent weeks, becoming the most overbought since early 2012.  A retracement back to levels of support between $53 and $55 would be reasonable expectation in the short-term.  Seasonally, the price of oil tends to trade lower through to early December.

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Crude Oil Futures (CL) Seasonal Chart

FUTURE_CL1 Monthly Averages

Sentiment on Wednesday, as gauged by the put-call ratio, ended close to neutral at 0.97.

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Seasonal charts of companies reporting earnings today:

Air Lease Corporation (AL) Seasonal Chart Astrazeneca PLC (AZN) Seasonal Chart Atlantic Power Corporation (AT) Seasonal Chart Avid Technology, Inc. (AVID) Seasonal Chart Bellatrix Exploration Ltd (BXE) Seasonal Chart Brooks Automation, Inc. (BRKS) Seasonal Chart Canadian Solar Inc. (CSIQ) Seasonal Chart Charles River Laboratories International, Inc. (CRL) Seasonal Chart Consolidated Water Co. Ltd. (CWCO) Seasonal Chart Cott Corporation (COT) Seasonal Chart D.R. Horton, Inc. (DHI) Seasonal Chart DISH Network Corporation (DISH) Seasonal Chart Endo International plc (ENDP) Seasonal Chart  J & J Snack Foods Corp. (JJSF) Seasonal Chart Johnson Controls International plc (JCI) Seasonal Chart  Kohl's Corporation (KSS) Seasonal Chart Macy's Inc (M) Seasonal Chart Magna International, Inc. (MGA) Seasonal Chart Motorcar Parts of America, Inc. (MPAA) Seasonal Chart News Corporation (NWSA) Seasonal Chart Nordstrom, Inc. (JWN) Seasonal Chart Norwegian Cruise Line Holdings Ltd. (NCLH) Seasonal Chart NVIDIA Corporation (NVDA) Seasonal Chart Office Depot, Inc. (ODP) Seasonal Chart Perrigo Company (PRGO) Seasonal Chart Ritchie Bros. Auctioneers Incorporated (RBA) Seasonal Chart Stantec Inc (STN) Seasonal Chart Teekay Corporation (TK) Seasonal Chart TELUS Corporation (TU) Seasonal Chart TransCanada Corporation (TRP) Seasonal Chart Walt Disney Company (The) (DIS) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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