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Stock Market Outlook for January 29, 2018

Export growth improving into 2018, a positive influence on demand for manufactured goods.

 

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:

Bon-Ton Stores, Inc. (NASD:BONT) Seasonal Chart

Bon-Ton Stores, Inc. (NASD:BONT) Seasonal Chart

Kirkland's, Inc. (NASD:KIRK) Seasonal Chart

Kirkland’s, Inc. (NASD:KIRK) Seasonal Chart

Foot Locker, Inc.  (NYSE:FL) Seasonal Chart

Foot Locker, Inc. (NYSE:FL) Seasonal Chart

Praxair, Inc.  (NYSE:PX) Seasonal Chart

Praxair, Inc. (NYSE:PX) Seasonal Chart

Dover Corporation  (NYSE:DOV) Seasonal Chart

Dover Corporation (NYSE:DOV) Seasonal Chart

Eastman Chemical Company  (NYSE:EMN) Seasonal Chart

Eastman Chemical Company (NYSE:EMN) Seasonal Chart

DISH Network Corp. (NASD:DISH) Seasonal Chart

DISH Network Corp. (NASD:DISH) Seasonal Chart

ConocoPhillips  (NYSE:COP) Seasonal Chart

ConocoPhillips (NYSE:COP) Seasonal Chart

 

 

The Markets

Significant gains in stocks on Friday saw the S&P 500 crush yet another short-term level of resistance around 2850.  The parabolic trend continues to steepen as investors quickly push the market benchmark towards the 3000 target that defines the upper limit to the long-term rising trend channel.  Daily momentum indicators continue to point higher with very few signs that they are set to roll over anytime soon.  Month-end window dressing could be argued to have had a significant influence during Friday’s session as investors that have been conservatively positioned pad their books in order to give the appearance that they were appropriately positioned through what is turning out to be the best start to a year in decades.  Defensive sectors (staples and utilities) continue to lag the market move, while some of the more cyclical areas (financial, consumer discretionary, and technology) outperform.  Risk sentiment suggests that investors are betting on strength in the economy and looking to leverage the market move by increasing beta within investment portfolios. 

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Topping the leaderboard on Friday was health care, which somewhat falls between the spectrum of defensive and cyclical on the risk scale.  The S&P 500 Health Care Sector Index surged by 2.17%, led by biotech and pharmaceutical stocks.  Performance relative to the S&P 500 Index is curling higher as the sector looks to be the beneficiary of the ongoing rotation as investors seek to find value in this overbought market.  Seasonally, biotech stocks remain in a period of seasonal strength through to mid-February.  Health care and technology have historically been the top two sectors in the month of January, as noted in our first report of the year, and it looks like history could repeat.

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Healthcare Sector Seasonal Chart

HEALTHCARE Relative to the S&P 500
HEALTHCARE Relative to the S&P 500

HEALTHCARE Monthly Averages

On the economic front, a report on durable goods capped off a strong year for manufacturing activity in the US.  The headline print indicated that durable goods orders increased by 2.9% in December, easily surpassing the 0.6% forecasted increase for this last month of the year.  Excluding transportation, the gain was a more moderate 0.6%, inline with estimates.  Stripping out the seasonal adjustments, the Value of Manufacturers’ New Orders for Capital Goods Industries actually increased by 22.9%, which is short of the average increase for the month of 26.7%.  Still, despite the downbeat result for December, it was a banner year for durable goods orders in 2017, increasing 12.0%, the best calendar year increase since 2011.  The average annual gain is 2.0%.  The breakdown of the report shows above average gains across the board, with most categories showing the best growth in years.  The only exception was defense capital goods, which, albeit showing above average growth at 10.2%, recorded a gain that was 12.4% less than the year prior.  The manufacturing economy is certainly strong and has the ability to continue to support economic fundamentals through the period of strength for this segment of the economy during the first half of the year.  The only threat that is becoming apparent is the above average increase in inventories, which were higher last year by 3.1%, around a full percentage point above the historical average trend.  This is also the best growth in years, raising concerns of margin compression as manufacturers could be forced to lower prices in order to bring these stockpiles back inline with targets.  There is little to suggest at this point that demand is going to be a factor into the year ahead, but these supplies warrant attention nonetheless to gauge the sell-through rate that is supporting this manufacturing renaissance.

Value of Manufacturers' New Orders for Capital Goods Industries  Seasonal Chart

Monthly Value of Manufacturers' New Orders for Capital Goods Industries  Data

Value of Manufacturers’ New Orders for Capital Goods Industries Seasonal Chart

Value of Manufacturers' New Orders for Capital Goods - Nondefense  Seasonal Chart Value of Manufacturers' New Orders for Capital Goods - Nondefense excluding Aircraft  Seasonal Chart Value of Manufacturers' Total Inventories for Capital Goods Industries  Seasonal Chart Value of Manufacturers' New Orders for Consumer Goods: Durable Goods Excluding Transportation Industries Seasonal Chart Value of Manufacturers' New Orders for Consumer Goods: Durable Goods Excluding Defense Industries Seasonal Chart Value of Manufacturers' New Orders for Capital Goods: Defense Capital Goods Industries Seasonal Chart Value of Manufacturers' New Orders for Durable Goods Industries: Transportation Equipment Seasonal Chart

One of the factors that bodes well for demand of durable goods in 2018 is the pickup in international trade through the end of the fourth quarter as a lower dollar makes exports cheaper to foreign buyers.  The US Census department reported on Friday that the trade deficit widened in December to $71.6 billion from $70.0 billion prior.  But underlying the aggregate result was a 2.7% increase in exports and a 2.5% increase to imports.  Stripping out the seasonal adjustments, exports were actually higher by 0.9%, while imports were lower by 3.8%.  The average change for each in the month of December is –0.6% and –3.3%, respectively.  The change in exports has gone from below average through the first ten months of the year to above average in the final two, resulting in a gain for the calendar year as a whole that is 2.1% above the historical average.  Industrial supplies exports was a big boon for exports in the fourth quarter, resulting in growth that is 11.8% above average for the year, the best performance for this category since 2010.  Capital goods are just starting to show signs of coming around, gaining 7.9% in December to finish the year higher by 4.5%.  The year-end tally is inline with the average annual increase.  Foods exports is the only export category to show a decline on the year, down by 2.2% through the 12-month span.  Weakness in the US Dollar has the power to keep the emerging strength in exports alive into the new year, thereby giving a further boost to GDP in the first quarter.

US International Trade - Imports Seasonal Chart

Monthly US International Trade - Imports Data

US International Trade – Imports Seasonal Chart

US International Trade - Exports Seasonal Chart

Monthly US International Trade - Exports Data

US International Trade – Exports Seasonal Chart

US Foods, Feeds, Beverages Exports Seasonal Chart US Industrial Supplies Exports Seasonal Chart US Capital Goods Exports Seasonal Chart US Automotive Vehicles, etc. Exports Seasonal Chart US Consumer Goods Exports Seasonal Chart

North of the border, Statscan released its monthly look at the consumer price index, one of the few economic reports that is released around the globe without seasonal adjustments on the headline print.  The headline and non-adjusted result indicated that consumers paid 0.4% less for goods in December, double the average decline for this last month of the year.  For the year as a whole, the gauge of inflation was higher by 1.9%, inline with the average calendar year change.  Above average strength in durable goods was a driver throughout 2017; non-durable good price gains were below the seasonal norm.  But aside from the goods itself, there is one chart that really stands out in the report: mortgage interest cost.  Typically this is a very steady category, usually only changing by a fraction of a percent over the course of the year.  In 2017, this category jumped by 1.3%, the largest increase since 2008.  These costs are only set to rise through the years ahead as mortgage rates increase, rising alongside the growth in the economy.  Mortgage interest costs have been essentially flat for the past three decades and this may catch consumer’s off guard as a greater share of incomes go towards covering the cost of financing.  A breakdown of the report can be obtained from the chart database at http://charts.equityclock.com/canada-consumer-price-index-cpi.

Canada CPI - All-items Seasonal Chart

Monthly Canada CPI - All-items Data

Canada CPI - All-items excluding energy Seasonal ChartCanada CPI - Durable goods Seasonal ChartCanada CPI - Non-durable goods Seasonal ChartCanada CPI - Services Seasonal Chart

http://charts.equityclock.com/seasonal_charts/economic_data/v41691056_seasonal_chart.PNG

Sentiment on Friday, as gauged by the put-call ratio, ended bullish at 0.79.

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Sectors and Industries entering their period of seasonal strength:

Oil & Gas Exploration & Production Industry Seasonal Chart
S5OILP Index Relative to the S&P 500S5OILP Index Relative to the Sector

S5OILP Index Monthly Averages

 

 

Seasonal charts of companies reporting earnings today:

Affiliated Managers Group, Inc. (AMG) Seasonal Chart Alexandria Real Estate Equities, Inc. (ARE) Seasonal Chart Ashland Global Holdings Inc. (ASH) Seasonal Chart Crane Company (CR) Seasonal Chart Dominion Energy, Inc. (D) Seasonal Chart DST Systems, Inc. (DST) Seasonal Chart Graco Inc. (GGG) Seasonal Chart Hawaiian Holdings, Inc. (HA) Seasonal Chart IDEX Corporation (IEX) Seasonal Chart J & J Snack Foods Corp. (JJSF) Seasonal Chart Lockheed Martin Corporation (LMT) Seasonal Chart Rambus, Inc. (RMBS) Seasonal Chart Seagate Technology PLC (STX) Seasonal Chart Sohu.com Inc. (SOHU) Seasonal Chart Werner Enterprises, Inc. (WERN) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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