Contact | RSS Feed

Stock Market Outlook for December 12, 2017

Skills mismatch in Americas manufacturing heartland could prevent the economy from reaching its full potential.

 

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:

Dorel Industries, Inc.  (TSE:DII.B) Seasonal Chart

Dorel Industries, Inc. (TSE:DII.B) Seasonal Chart

Thomson Reuters Corporation (TSE:TRI) Seasonal Chart

Thomson Reuters Corporation (TSE:TRI) Seasonal Chart

 

 

The Markets

Stocks closed moderately higher on Monday as the technology sector continues to claw back the losses recorded around the start of December.  The S&P 500 Index jumped at the close to end the session higher by around a third of one percent, charting a new all-time closing high.  The S&P 500 Technology sector Index moved above its 20-day moving average, now closing in on short-term resistance around 1120.  Support remains solid at the rising 50-day moving average.  Seasonally, the sector tends to struggle through the middle of December as investors rebalance portfolios ahead of the end of the year.  But there may be reason to expect the weakness in the sector to continue.  Selling pressures in this market segment stemmed from losses in the semiconductor industry, leading to a drawdown in the Philadelphia semiconductor index of around 10% from peak to trough.  The industry benchmark is now battling with resistance at previous support around the 50-day moving average.  Continued weakness below this significant intermediate moving average could reignite the selling pressures in the broader sector as investors seek to close the books on 2017, a year that has been dominated by strength in technology stocks.  The sector typically takes off again at the start of the new year as investors load up on this growth sector in hopes for repeat performance in the year ahead.

image

Technology Sector Seasonal Chart

TECHNOLOGY Relative to the S&P 500
TECHNOLOGY Relative to the S&P 500

TECHNOLOGY Monthly Averages

image

PHLX Semiconductor Seasonal Chart

^SOX Relative to the S&P 500
^SOX Relative to the S&P 500

^SOX Monthly Averages

On the economic front, a report on job openings and labor turnover suggests that the labor market tightened in October.  The monthly JOLTS report indicated that openings fell 2.0% in October to 5.996 million, while hires rose by 4.4% to 5.552 million.  The consensus estimate for openings called for 6.100 million.  Stripping out the seasonal adjustments, openings actually increased by 0.5% and hires increased by 9.6%.  The average change for each in the month of October is +7.5% and +1.6%, respectively.  As a result, the year-to-date change in openings has fallen below its seasonal average trend, while hiring has advanced beyond it as employers attempt to fill the supply of positions.  The skills gaps between what employers are looking for and what potential candidates can offer remains a burden on economic momentum, holding the economy back from achieving a more robust result.  Unfortunately, this is seemingly not on the radar of the Trump administration, who seems focussed on growing the economy the old fashion way by lowering taxes and increasing infrastructure spend.  At this stage in the economic recovery and with the dominance of technology in the workplace, the effectiveness and sustainability of the current administration’s policies is certainly questionable.  Turning to a gauge of worker confidence, quits are running 2.6% below average through the end of October, arguably a neutral read and reflective of this late point in the economic expansion.  The calendar rate of change in quits hit a cycle high back in 2014 when workers become confident in a stabilizing economy following the worst economic downturn since the depression.  Seasonally, quits, hires, and openings fall off into the last couple of months of the year as companies look to close up shop for the year.

Job Openings: Total Nonfarm Seasonal Chart

Monthly Job Openings: Total Nonfarm Data

Job Openings: Total Nonfarm Seasonal Chart

Quits: Total Nonfarm Seasonal Chart Hires: Total Nonfarm Seasonal Chart Layoffs and Discharges: Total Nonfarm Seasonal Chart

Diving through the trends on the openings side, it is perhaps no surprise that strength is being dominated by durable goods production.  Openings for durable goods is higher by 31.4% through October, 8.5% above the seasonal average trend.  Openings for non-durable goods, meanwhile, are lower than they were when the year began, down 0.7% through October.  By region, strength in the Midwest is certainly an outlier, running 10.2% above average on the year, while the northeast and south see openings that are running 22.6% and 9.6%, respectively, below their average trends. Compare this to hires in the Midwest, which is running 9.8% below average, while the northeast and south are both running around 10% above their seasonal norms, it is easy to see where the skills gap is the worst.  The midwest is a huge manufacturing region, but with the manufacturing boom that has taken place over the past year, companies have been unable to attract the workers required to fulfill the demand.  This structural issue in America’s manufacturing heartland could be very difficult to rectify, and it certainly won’t see the benefits of tax reform that other regions will achieve.  Midwest states account for approximately 20% of the nation’s GDP and are generally associated with states that are backers of the republican party.

Openings

imageimageimageimageimageimage

Hires

imageimageimageimage

Sentiment on Monday, as gauged by the put-call ratio, ended bullish at 0.82.

image

 

Sectors and Industries entering their period of seasonal strength:

Live Cattle Futures (LC) Seasonal Chart
FUTURE_LC1 Relative to the S&P 500FUTURE_LC1 Relative to Gold

FUTURE_LC1 Monthly Averages

 

 

Seasonal charts of companies reporting earnings today:

 Verifone Systems, Inc. (PAY) Seasonal Chart

 

 

S&P 500 Index

image

image

 

 

TSE Composite

image

image

 

Sponsored By...
Seasonal Advantage Portfolio by CastleMoore

Comments are closed.