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Stock Market Outlook for January 10, 2018

Decline in bond prices may be just getting started should this topping pattern hold true.

 

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

Tell me if you’ve heard this before: Stocks gained on Tuesday as investors bid stocks higher ahead of the start of fourth quarter earnings season.  The banks, which are among the first to report, surged by 1.31%, according to the SPDR S&P Bank ETF(KBE) (disclosure: the BMO Equal Weight US Bank ETF – ZUB – was a top pick of mine on my last appearance on BNN’s market call).  The bank ETF is trading within a narrowing range with trend-line resistance apparent closer to $50.  Trendline support hovers around $47.50.  The industry benefits from a period of seasonal strength between late November and early June, trading higher in the midst of the tendency of higher rates through the first four months of the year.  JP Morgan, Wells Fargo, PNC Financial, and Blackrock are slated to report earnings on Friday with more to follow next week as market valuations are put to the test at these all-time market highs.

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Banks Industry Seasonal Chart
S5BANKX Index Relative to the S&P 500S5BANKX Index Relative to the Sector

S5BANKX Index Monthly Averages

A breakdown in treasury prices/breakout in yields also provided fuel to the financial sector and the broad market as a whole as investors show signs of rotating away from the safe-haven bond.  The 7-10 year treasury bond ETF (IEF) broke below the neckline of a head-and-shoulders topping pattern around $105; downside implications are to $102, or almost 3% below present levels.  The yield on the 10-year bond at 2.5%, meanwhile, is moving beyond declining trend line resistance that has been under threat over the past year.  Multi-decade declining trendline resistance is apparent closer to 3.5%.  Historically, yields between 4% to 5% have been enough to put bonds and stocks in competition with one another, suggesting that yields could double from present levels before they are enticing enough to investors to change course.  Seasonal weakness in treasury yields continues through the end of April.

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10 Year U.S. Treasury Notes Futures (TY) Seasonality
CME_TY1 Relative to the S&P 500CME_TY1 Relative to the Sector

Monthly Seasonal 10 Year U.S. Treasury Notes Futures (TY)

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The rise in yields continues to take a toll on the utilities and REIT sectors, typically two of the weaker sectors of the market through the first couple of months of the year.  Despite the S&P 500 Utilities Sector Index being firmly oversold, it continues to move lower, significantly underperforming the market in the process.  Long-term trend channel support is apparent around 250, or over 4% below present levels.  The sector remains weak through to the start of March, at which point weather influences can often support the sector constituents into the start of spring.

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Utilities Sector Seasonal Chart

UTILITIES Monthly Averages

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MSCI US REIT Index Seasonality

Monthly Seasonal MSCI US REIT Index

On the economic front, the monthly Job Openings and Labor Turnover survey showed that the number of employment opportunities declined in November.  The headline print indicated that job openings fell to 5.879 million from the previously revised 5.925 million for October.  The consensus estimate was for 6.038 million.  Stripping out the seasonal adjustments, non-farm openings actually fell by 8.4%, which is around half of the average decline for this second to last month of the year of 15.3%.  Year-to-date, openings are running around 3% above average as hints emerge that companies are willing to expand in this new tax era for the American economy.  Hires are similarly holding above average, around 4.0% according to this latest read, once again hinting at good momentum for the year ahead.  But while employers appear to be keeping the growth of hires and openings at an above average pace, employee confidence in attainting alternate employment is merely neutral.  The year-to-date change in quits is trending inline with the seasonal average, which suggests that employees are neither optimistic nor pessimistic of their opportunities outside of present positions.  Typically during periods of strong economic growth, the quit rate will tend to jump as employees take their chances in the labor market given the favourable conditions.   Seasonally, quits tend to rise in the month of January as workers seek fresh opportunities following the holiday season and once bonuses are received.  The change in hires, openings, and quits will be interesting to watch into the new year as we gauge how companies plan to allocate their tax savings, whether it be to buybacks, wage growth, or expanding operations.

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

By region, the hurricanes that hit the south in September may have actually been a boost to employment in the US.  Hiring activity in the southeast is trending above average as communities look to rebuild.  Openings in the south are similarly above the seasonal average trend as of the end of November.  But those looking for a job may be best suited to relocate to the midwest, which is seeing the fourth best growth in the level of openings in the past 20 years.  The number of opportunities is higher by 25.2% for 2017, 16.3% above average for this time of year.  Manufacturing, particularly of durable goods, continues to be a prominent area for both hires and openings as companies operating in this segment of the economy try to expand.  Manufacturing activity typically ramps up through the first half of the year, rebounding from the winter slowdown.  With results remaining above average through this slower period, there is reason to be optimistic of the period of seasonal strength ahead.

Hires by Region

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Openings by Region

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Sentiment on Tuesday, as gauged by the put-call ratio, ended bullish at 0.81.

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Seasonal charts of companies reporting earnings today:

KB Home (KBH) Seasonal Chart Lennar Corporation (LEN) Seasonal Chart MSC Industrial Direct Company, Inc. (MSM) Seasonal Chart Progress Software Corporation (PRGS) Seasonal Chart  SuperValu Inc. (SVU) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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