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Stock Market Outlook for December 1, 2017

Seasonally, the best month of the year for stocks is ahead.

 

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:

Interfor Corp (TSE:IFP) Seasonal Chart

Interfor Corp (TSE:IFP) Seasonal Chart

Velan, Inc. (TSE:VLN) Seasonal Chart

Velan, Inc. (TSE:VLN) Seasonal Chart

Mainstreet Equity Corp. (TSE:MEQ) Seasonal Chart

Mainstreet Equity Corp. (TSE:MEQ) Seasonal Chart

American Railcar Industries Inc. (NASD:ARII) Seasonal Chart

American Railcar Industries Inc. (NASD:ARII) Seasonal Chart

St Joe Corp. (NYSE:JOE) Seasonal Chart

St Joe Corp. (NYSE:JOE) Seasonal Chart

Amerigo Resources (TSE:ARG) Seasonal Chart

Amerigo Resources (TSE:ARG) Seasonal Chart

Helmerich & Payne Inc. (NYSE:HP) Seasonal Chart

Helmerich & Payne Inc. (NYSE:HP) Seasonal Chart

Extra Space Storage Inc. (NYSE:EXR) Seasonal Chart

Extra Space Storage Inc. (NYSE:EXR) Seasonal Chart

Aecon Group Inc  (TSE:ARE) Seasonal Chart

Aecon Group Inc (TSE:ARE) Seasonal Chart

Uni-Select (TSE:UNS) Seasonal Chart

Uni-Select (TSE:UNS) Seasonal Chart

Public Storage  (NYSE:PSA) Seasonal Chart

Public Storage (NYSE:PSA) Seasonal Chart

Applied Materials, Inc.  (NASDAQ:AMAT) Seasonal Chart

Applied Materials, Inc. (NASDAQ:AMAT) Seasonal Chart

Whirlpool Corporation  (NYSE:WHR) Seasonal Chart

Whirlpool Corporation (NYSE:WHR) Seasonal Chart

Canadian Tire Corp. Ltd. (TSE:CTC) Seasonal Chart

Canadian Tire Corp. Ltd. (TSE:CTC) Seasonal Chart

 

 

The Markets

Stocks rallied to close out the last trading day of the month as optimism surrounding the Senate Tax Reform bill continues to buoy investor spirits.  The S&P 500 Index added over eight-tenths of one percent, moving well off of short-term support at the rising 20-day moving average and breaking through trendline resistance that presently hovers around 2625.  Momentum indicators have moved back into overbought territory as investors continue to demand equity exposure given the favourble backdrop that the potential tax cuts present.

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For the month, the large-cap benchmark was higher by 2.81%, which is over double the average increase for the eleventh month of the year of 1.3%.  Momentum indicators are significantly overbought on this monthly look, but signs of peaking have yet to materialize.  The benchmark had been hovering around the mid-point to is longer-term rising trendline for much of the year, but with shorter-term rising trendlines showing significant cracks, a look to the upper limit of the longer-term span may be appropriate.  Trend channel resistance is apparent around a key psychological limit at 3000.  Intermediate risks are down to the 20 and 50-week moving averages at 2312 and 2111, respectively.

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Best performing sectors in November were Consumer Staples (+5.40%), Consumer Discretionary (+4.90%), Industrials (+3.54%), and Financials (+3.28%).  Technology and materials lagged the broad market move, gaining less than one percent over the period.  The result plays out fairly well compared to what typically tops the leaderboard in this second to last month of the year.  End of year consumer and business spending tends to be a major factor, driving investors into consumer and industrial sectors.  However, out of the norm is the lag in the performance of technology, which also benefits from the end of year business and consumer spend.  The selloff that materialized during Wednesday’s session certainly took a bite out of this seasonal leader.

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Looking forward, the month of December has typically been the best month of the year for stocks in the US.  Over the past 50 years, the S&P 500 Index has averaged a gain of 1.5% in this last month of the year with positive results realized in 72% of periods.  Returns have ranged from a loss of 6.0% in 2002 to a gain of 11.2% in 1991.  As with November, a large share of the returns tend to be generated in the back half of the month as the so-called Santa Claus rally lifts stocks around the holiday period.  Subdued trading volumes and optimism pertaining to the year ahead allow for this drift higher in equity prices as fund managers seek to close their books for the year on a positive note.  Tax loss selling and overall portfolio rebalancing is typically completed prior to investors leaving for their year-end breaks.

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Looking through the past 20 years of data, the best sector during December has been Utilities, gaining an average of 2.7% over the course of the month.  This defensive sector has been positive in 18 of the past 20 periods, benefitting from the ramp up in production at the start of the colder winter period.  Materials and Industrials are next in line, moving higher by an average of 1.9%, followed by Financials and Consumer Discretionary, which have returned an average of 1.8%.  Consumer Staples and technology have tended to be the laggards, averaging gains of less than one percent over the 31-day span.  Concluding their periods of seasonal strength in these final weeks of the year are the Dow Jones Transportation Average (Dec. 8) and Health Care (Dec. 4).  Airlines also fall into that transportation bucket, concluding their seasonal run on December 5th, on average.  As well, despite not showing much of a run this year, the average period of strength for telecom stocks concludes closer to the end of the month.  A couple of industries start their periods of seasonal strength, including biotech (Dec. 16 )and gas utilities (Dec. 11).  As for the commodity market, a number of metals begin their seasonal rise leading into the peak period for industrial production through the first half of the year.  Silver, Copper, and Platinum are notable commodities that benefit from the manufacturing uptick to start the year.  And on the agriculture side, soybeans show a rising seasonal trend into the new year.

Utilities Sector Seasonal Chart

UTILITIES Relative to the S&P 500
UTILITIES Relative to the S&P 500

UTILITIES Monthly Averages

Yesterday, data released from CASS Information Systems showed a surprising uptick in shipping activity for the month of October.  CASS’s shipments index increased by 0.5% last month, showing a rare positive divergence versus the average decline of 2.6% for this first month of the last quarter.  Expenditures were even better, rising 3.9%, over 5% above the average change for the month of October.  Expenditures are typically an excellent gauge of demand and the above average pace charted year-to-date certainly bodes well for the broader economy as goods are shipped from one place to another.  The last quarter of the year is typically softer in terms of shipment volumes and expenses, but this has yet to materialize in the data.  Transportation stocks have been rallying strongly over the past few sessions as the optimism surrounding shipments during the fourth quarter spending season entice investors back to the industry.  The Dow Jones Transportation Average continues to hold above the psychologically important 10,000 level, trading at all-time highs.  A candlestick pattern referred to “three white soldiers” provides a bullish signal that further gains may be ahead.  Seasonally, the period of strength for the Dow Jones Transportation Average concludes on December 8th, on average.

Cass Freight Index: Shipments  Seasonal Chart

Monthly Cass Freight Index: Shipments  Data

Cass Freight Index: Shipments Seasonal Chart

Cass Freight Index: Expenditures Seasonal Chart

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Dow Jones Transportation Average Seasonality

$TRAN Relative to the S&P 500
$TRAN Relative to the S&P 500

Monthly Seasonal Dow Jones Transportation Average

Continuing with the transportation theme, a number of data-points from various agencies have been released over the past couple of weeks covering the period ending in either August or September.  Picking one area to highlight, while CASS is showing strong shipping activity, data from the US Bureau of Transportation Statistics suggests that it is not coming from rail.  Intermodal rail freight traffic is higher this year by a mere 2.5%, well below the 11.4% average increase through this point in the year, based on the past 15 years of data.  This is the weakest year-to-date performance in the history of this dataset.  Rail carloads are similarly weak, higher by 2.4%, around two percent below its seasonal norm.  The shipment of commodities would be a significant factor and looking at pipeline petroleum movement could explain the weakness in rail.  The amount of petroleum transported by pipeline is growing well above average, taking demand away from the less efficient rail industry.  As well, above average activity in shipments by water is another competing factor.  Investors, however, seem unconcerned by the lag in the rails, driving the Dow Jones US Railroad Index to new highs along with the broader transportation complex.  Seasonally, the rails see their next period of strength between mid-January and early May.

Vehicle Miles Traveled Seasonal Chart

Monthly Vehicle Miles Traveled Data

Vehicle Miles Traveled Seasonal Chart

Rail Freight Intermodal Traffic Seasonal Chart Air Revenue Passenger Miles Seasonal Chart Natural Gas Consumption Seasonal Chart Rail Freight Carloads Seasonal Chart Tonnage for Internal U.S. Waterways Seasonal Chart Pipeline Petroleum Movement Seasonal Chart Public Transit Ridership Seasonal Chart

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Railroads Industry Seasonal Chart
S5RAIL Index Relative to the S&P 500S5RAIL Index Relative to the Sector

S5RAIL Index Monthly Averages

Sentiment on Thursday, as gauged by the put-call ratio, ended bullish at 0.85.

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Seasonal charts of companies reporting earnings today:

American Woodmark Corporation (AMWD) Seasonal Chart Big Lots, Inc. (BIG) Seasonal Chart Genesco Inc. (GCO) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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