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Stock Market Outlook for January 8, 2018

Stocks rally despite weaker than expected payroll report.

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*** 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:

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The Markets

Stocks punched out gains on Friday despite a weaker than expected payroll report for the month of December.  The headline print for the nonfarm payroll report indicated that 148,000 jobs were added last month, well short of the 191,000 forecasted by analysts.  The unemployment rate remained unchanged at 4.1% and average hourly earnings rose by 0.3%, inline with estimates.  Stripping out the seasonal adjustments, nonfarm payrolls actually declined by 180,000, or 0.1%, below the unchanged result that is average for this last month of the year.  For calendar year 2017, payrolls were higher by 1.5%, slightly below the 1.7% increase that has been the norm over the past 50 years.  Goods producing payrolls were by far the winner for the year, gaining 2.7% above average while service producing payrolls lagged their seasonal average trend.  The year will be characterized by the resurgence in manufacturing activity, lifting payroll growth in this segment of the economy to well above average levels and helping corporations post strong earnings growth, even before the Trump tax reform legislation was passed.  Residential building employment has been similarly strong, including posting a rare increase in the month of December when activity typically wanes in the midst of the colder winter weather.  At this point, it is up to the consumer to carry the baton into the new year, buying the products that have been produced and have been showing signs of going to inventory in recent months.  With the tax reform legislation allowing consumers to retain more of their income, the catalyst for consumer strength is certainly present, but the data has yet to confirm.  Retail trade jobs showed the first calendar year decline since the recession, down 0.2% for the year as brick and mortar stores close shop.  The calendar year change in wholesale trade was similarly below average for 2017.  Outside of manufacturing and retail, the growth in one of the steady areas of the labour market is showing signs of slowing.  Health care payrolls is perhaps the least influenced by seasonal fluctuations out of all of the categories in the report, but its growth of 2.0% in 2017 lags behind the 2.4% average increase, based on the past 25 years of data.  Nursing and residential care facilities are showing the third weakest payroll growth on record as the ramp up in hiring activity alongside the aging population appears to have reached a peak.  Shifting demographics and consumer habits/preferences are an evolving story, likely to continue to influence seasonal trends and market performance in the years ahead.  For further charts from this report, they are accessible via the chart database at

Total Nonfarm Seasonal Chart

Monthly Total Nonfarm Data

Goods-producing Seasonal ChartPrivate service-providing Seasonal ChartManufacturing Seasonal ChartResidential building Seasonal ChartRetail trade Seasonal ChartHealth care Seasonal Chart

As for payroll growth, the 2.3% calendar year increase is well short of the 4.2% average increase, based on data from the past 50 years.  This is the ninth lowest calendar year increase in payroll growth in the five decades covered and is representative of the low rate of inflation that has dominated throughout the year.  January is typically one of the strongest months of the year for payroll growth and with companies recently announcing bonuses following the passing of tax legislation, the bump in this gauge of take-home pay should be strong, setting the stage for a much better year ahead.

Major equity benchmarks in the US closed higher following the result with the S&P 500 Index adding seven-tenths of one percent.  January 6th has historically marked the average peak to the Santa Claus rally period and, with the trading for this period now complete, investors are looking at a gain of 3.45% for the S&P 500 ETF (SPY).  This is the best return for the approximately three week span since Christmas of 2012 when the large-cap benchmark returned 3.74%.  The average gain for this period is 2.12%, based on data from the past 50 years.  The period of strength typically runs into the start of fourth quarter earnings season, which offers investors a recap of the year just past and guidance for the year ahead.  This will provide the next big catalyst to stocks and give insight as to whether present valuations are justified.  Stocks tend to gyrate through the middle of the month.  A weekly look at the S&P 500 Index shows that momentum indicators are the most overbought in over 35 years.  The relative strength index presently sits at a lofty 85.27; anything over 70 indicates an overbought status.  Keep in mind that overbought conditions can remain intact for a long period of time and it usually takes a catalyst to influence investors to reduce their aggressive buying pressures.  As highlighted in previous reports, with the break above rising trendline resistance around the end of last year, the next level of reference, from a trendline perspective, is around 3000, marking the upper limit to the long-term rising trend channel.  This is also a key psychological level that has the power to act as a magnet until it is achieved.  A correction between now and then is certainly within the realm of possibilities, but until the trend of higher-highs and higher-lows ceases to exist, the path of least resistance is higher.


North of the border, Statscan released its look at the state of the labour market in Canada.  The headline print indicated that 78,600 jobs were added in December, far surpassing analyst expectations that called for a decline of 10,000.  Stripping out the seasonal adjustments, employment actually declined by 6,700, or essentially unchanged from the month prior.  This is much better than the 0.3% decline that is average for this last month of the year.  While the rise in part-time employment was the story for 2016, last year saw the recovery in full-time employment, rising 2.7% over the course of the year, 1.1% above the average calendar year change.  This is the best performance for employment since 2002 and the drop in the level of those considered to be unemployed is the largest on record, down 16.2%.  As with the US, goods producing jobs were the driving force behind the aggregate result, showing a gain that is 2.9% above average.  And within that result, manufacturing had a strong showing, gaining over 5% for the year in a segment of the economy that has shown mixed results over recent history.  Finance and transportation employment also showed gains that were well above average.  Health care and utilities were the few categories to lag their historical average change.  Both sides of the border have seen significant benefits from the manufacturing rebound and in many ways is characteristic of a strengthening economy.  Stocks have certainly benefitted, but commodities still remain well behind.  With that being said, there still remains a good case that commodities will be the highlight of 2018 as the demand finally influences prices higher.  This is also consistent in years following the implementation of tax reform as increased demand for product fuels inflation and drives commodity prices higher.  Given the strong start to the year for stocks, it is hard to take your eye off the ball when things have been working so well, but be prepared for the shift to this alternative asset class as the fuel to drive it higher continues to grow.  For a breakdown of the report, the charts are available in the database at

Canada Employment Seasonal Chart

Canada Employment full-time Seasonal Chart Canada Employment part-time Seasonal Chart Canada Unemployment Seasonal Chart

While touching on the topic of manufacturing, factory orders were strong in November, reporting a 1.3% rise on the headline print.  Analysts were expecting a gain of 1.1%.  Stripping out the seasonal adjustments, the Value of Manufacturers’ New Orders for All Manufacturing Industries actually declined by 1.9%, much better than the 4.3% decline that is average for the second to last month of the year.  The level of new orders is running 4.5% above average for the year, the best performance since 2011.  But with that has come an above average increase in inventories as supply starts to outpace demand.  As alluded to, tax reform and higher take home pay could help bring the supply and demand situation back into balance, but until this is represented in the data, it would be speculative to say.  Further charts for November’s report on factory orders can be obtained via the chart database at

Value of Manufacturers' New Orders for All Manufacturing Industries Seasonal Chart

Monthly Value of Manufacturers' New Orders for All Manufacturing Industries Data

Value of Manufacturers' Total Inventories for All Manufacturing Industries  Seasonal Chart

And without diving into the details of Canada’s Merchandise Trade report released on Friday, we’ve thrown the charts into the database for your perusal.  Link as follows:

Sentiment on Friday, as gauged by the put-call ratio, ended bullish at 0.92.





Seasonal charts of companies reporting earnings today:

A. Schulman, Inc. (SHLM) Seasonal Chart Helen of Troy Limited (HELE) Seasonal Chart 



S&P 500 Index





TSE Composite




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