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Stock Market Outlook for February 15, 2018

While retail sales look quite good, one area continues to present concern: restaurant sales.

 

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:

Rocky Mountain Chocolate Factory, Inc. (NASD:RMCF) Seasonal Chart

Rocky Mountain Chocolate Factory, Inc. (NASD:RMCF) Seasonal Chart

America's Car-Mart, Inc. (NASD:CRMT) Seasonal Chart

America’s Car-Mart, Inc. (NASD:CRMT) Seasonal Chart

George Weston Limited  (TSE:WN) Seasonal Chart

George Weston Limited (TSE:WN) Seasonal Chart

Chesapeake Energy Corporation  (NYSE:CHK) Seasonal Chart

Chesapeake Energy Corporation (NYSE:CHK) Seasonal Chart

Perpetual Energy (TSE:PMT) Seasonal Chart

Perpetual Energy (TSE:PMT) Seasonal Chart

Developers Diversified Re (NYSE:DDR) Seasonal Chart

Developers Diversified Re (NYSE:DDR) Seasonal Chart

Invesco Mortgage Capital Inc. (NYSE:IVR) Seasonal Chart

Invesco Mortgage Capital Inc. (NYSE:IVR) Seasonal Chart

Wabtec (NYSE:WAB) Seasonal Chart

Wabtec (NYSE:WAB) Seasonal Chart

AAON, Inc.  (NASDAQ:AAON) Seasonal Chart

AAON, Inc. (NASDAQ:AAON) Seasonal Chart

 

 

The Markets

Another wild day for equity markets as investors reacted to the stronger than expected consumer price index for January.  The headline print on this widely followed inflation gauge showed an increase of 0.5% for the first month of the year, exceeding analyst estimates that called for a 0.3% rise.  Stripping out the seasonal adjustments, the results were similar to the headline print, CPI up 0.5% for the month, inline with the gain recorded this time last year.  The result is two-tenths of a percent higher than the average increase for the month of January, based on data from the past 20 years.  Stripping out the more volatile components of food and energy, CPI was higher by 0.4%, a tenth of a percent above the seasonal norm.  Fuel oil and other fuels was a big influence on the headline result, rising 7.35% as the price of oil surged.  Oil prices have since traded back to the flatline on the year, which should take away some of the heat from February’s result.  Inflation typically runs hot in the first half of the year as rising commodity prices lift prices that consumers eventually pay.  It is too early to gauge whether this will be the year when CPI moves above the seasonal norm by the end of the calendar period, but during post tax reform years that have seen benefits to economic activity, commodities typically outperform.  We are already seeing signs of this, such as the rise in grain prices to start the year and the re-emergence of strength in metal prices.  The price of gold added over two percent percent during Wednesday’s session, once again taking a run at horizontal resistance at 1370.  A break of the hurdle overhead projects upside potential towards $1700, based on an ascending triangle/head-and-shoulders bottoming pattern.  Seasonally, gold prices tend to remain supported through the end of February.

Consumer Price Index for All Urban Consumers: All Items Seasonal Chart

Monthly Consumer Price Index for All Urban Consumers: All Items Data

Consumer Price Index for All Urban Consumers: All Items Seasonal Chart

Consumer Price Index for All Urban Consumers: All Items Less Food and Energy Seasonal Chart

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Gold Futures (GC) Seasonal Chart

FUTURE_GC1 Relative to the S&P 500
FUTURE_GC1 Relative to the S&P 500

FUTURE_GC1 Monthly Averages

Stocks initially reacted negatively to the release of the Consumer Price Index, falling sharply in the premarket as expectations of higher borrowing rates raised concerns amongst investors.  S&P 500 futures sunk by well over 1% in the moments following the report’s release, then recouping the losses once stocks opened for trade as technology and financials led the market out of the rout.  Sectors sensitive to higher rates (utilities and REITs) saw another day of red.  The yield on the 10-year note hit the highest level in four years, inching closer towards the psychologically important 3% level.  The S&P 500 Index closed higher by one and a third percent, moving back towards its 50-day moving average. 

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In other news, a report on retail trade provided an interesting look at how consumers are allocating recently enacted tax cuts and bonuses.  The headline print for January’s report on retail trade indicated a 0.3% decline from the month prior, a significant divergence compared to the forecasted increase of the same magnitude.  Less gas and autos, the decline was slightly more subdued at 0.2%, but still well below the 0.3% consensus estimated gain.  Stripping out the seasonal adjustments, total retail trade actually declined by 22.1%, which is firmly better than the 23.0% decline that is average for the first month of the year.  This is the best start to the year since 2014 when retail trade ended the year higher by almost five percent.  Parsing through the details, nonstore and auto sales acted as a drag on the aggregate result in what is becoming an ongoing evolution in the seasonal trends for these areas of the retail industry.  The declines in these two segments are still almost three percent above the drawdown reported at the start of last year, so signs of strength remain evident.  What continues to raise concerns, however, is the ongoing weakness in restaurant sales, which showed a decline in January that was 3.3% below the average change for the month.  Last year, sales at food services and drinking places showed one of the weakest growth rates in the past two decades, rising a mere 4.2%, over one percent below the seasonal norm.  The trend doesn’t look to be improving coming into the new year.  This category is arguably the most discretionary component of the report, perhaps indicative of the underlying sentiment of consumer.  Therefore, in an environment where the take-home pay of consumers should have increased, it is surprising to see this discretionary category continue to weaken.  Sales at restaurants typically spike through the spring as patios open up following the colder winter months, so it may be premature to say that sales are set for an even weaker path than last year’s dismal result.  The signal it sends regarding the broader economy is not encouraging as weakness in restaurant sales have typically preceded periods of economic weakness as consumers tighten their finances amidst the slowing conditions.

Retail Trade: Total Seasonal Chart

Monthly Retail Trade: Total Data

Retail Trade: Total Seasonal Chart

Retail Trade: Nonstore Retailers Seasonal Chart Retail Trade: Auto and Other Motor Vehicles Seasonal Chart Retail Trade and Food Services, excluding Auto Seasonal Chart Retail Trade: Furniture and Home Furnishings Stores Seasonal Chart Retail Trade: Building Materials, Garden Equipment and Supplies Dealers Seasonal Chart Retail and Food Services Sales Seasonal Chart Retail Trade: Food and Beverage Stores Seasonal Chart Retail Trade: Electronics and Appliance Stores Seasonal Chart Retail Trade: Health and Personal Care Stores Seasonal Chart Retail Trade: Sporting Goods, Hobby, Book, and Music Stores Seasonal Chart Retail Trade: Miscellaneous Store Retailers Seasonal Chart Retail Trade: General Merchandise Stores Seasonal Chart Retail Trade: Motor Vehicle and Parts Dealers Seasonal Chart Retail Trade: Clothing and Clothing Accessory Stores Seasonal Chart Retail Trade: Gasoline Stations Seasonal Chart Retail Trade: Department Stores (Excluding Leased Departments) Seasonal Chart Retail Trade: Grocery Stores Seasonal Chart Retail Trade: Food Services and Drinking Places Seasonal Chart

On schedule for this time of week is the petroleum status report from the Energy Information Administration (EIA).  The EIA notes that oil inventories expanded by 1.8 million barrels last week, while gasoline inventories expanded by 3.6 million barrels.  The result lifts the days of supply of crude by four-tenths of a day to 25.8, the highest level in two months.  The average level for this time of year is 22.6.  Domestic production of the raw commodity is once again pressuring supplies, threatening to renew the supply glut that has overhung the market for the past few years.  US production of crude oil is up 5.0% year-to-date, the strongest start to the year since 2009.  But while supplies are once again becoming concerning, demand for the end product is encouraging.  Gasoline product supplied is higher by 4.7%, diverging from the seasonal norm that calls for a decline of the same magnitude.  As a result, producers have been refining the finished product at an above average pace, helping to keep a lid on the pace of oil inventory gains.  The days of supply of gasoline currently sits at 27.7, inline with historical norms for this time of year.  Seasonally, gasoline stockpiles tend to decline between now and early spring, helping to “fuel” the share prices of integrated oil and gas companies, such as Chevron (CVX) and Exxon Mobil (XOM).

Weekly U.S. Days of Supply of Crude Oil excluding SPR  (Number of Days) Seasonal Chart

Weekly U.S. Days of Supply of Crude Oil excluding SPR (Number of Days) Seasonal Chart

Weekly U.S. Ending Stocks excluding SPR of Crude Oil Seasonal ChartWeekly U.S. Field Production of Crude Oil Seasonal ChartWeekly U.S. Commercial Crude Oil Imports Excluding SPR Seasonal Chart

Weekly U.S. Days of Supply of Total Gasoline  (Number of Days) Seasonal Chart

Weekly U.S. Days of Supply of Total Gasoline (Number of Days) Seasonal Chart

Weekly U.S. Ending Stocks of Total Gasoline Seasonal Chart Weekly U.S. Refiner and Blender Adjusted Net Production of Finished Motor Gasoline Seasonal Chart Weekly U.S. Product Supplied of Finished Motor Gasoline Seasonal Chart

The price of oil closed higher by 2.38% following the report, moving back to its 50-day moving average, which was broken as a level of support last week.  Reaction to this level will be critical to the trend of higher-highs and higher-lows.

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Crude Oil Futures (CL) Seasonal Chart
FUTURE_CL1 Relative to the S&P 500FUTURE_CL1 Relative to Gold

FUTURE_CL1 Monthly Averages

Sentiment on Wednesday, as gauged by the put-call ratio, ended bearish at 1.17.  Despite the strong session for stocks, it is comforting to see that investors are not reverting back to the complacent mentality that led into last week’s declines.  Portfolios that are hedged via put options are less prone to selling positions, thereby adding stability to equity markets.

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Sectors and Industries entering their period of seasonal strength:

AMEX OIL INDEX Seasonal Chart

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

$XOI Monthly Averages

 

 

Seasonal charts of companies reporting earnings today:

Aaron's, Inc. (AAN) Seasonal Chart Aegon NV (AEG) Seasonal Chart Allscripts Healthcare Solutions, Inc. (MDRX) Seasonal Chart Andeavor (ANDV) Seasonal Chart Avon Products, Inc. (AVP) Seasonal Chart CBS Corporation (CBS) Seasonal Chart Cenovus Energy Inc (CVE) Seasonal Chart Cincinnati Bell Inc (CBB) Seasonal Chart Coca-Cola European Partners plc (CCE) Seasonal Chart Cognex Corporation (CGNX) Seasonal Chart Consolidated Edison Inc (ED) Seasonal Chart Enbridge Energy, L.P. (EEP) Seasonal Chart Encana Corporation (ECA) Seasonal Chart EQT Corporation (EQT) Seasonal Chart Flowserve Corporation (FLS) Seasonal Chart Fortis Inc. (FTS) Seasonal Chart Hecla Mining Company (HL) Seasonal Chart Kimco Realty Corporation (KIM) Seasonal Chart Maxwell Technologies, Inc. (MXWL) Seasonal Chart Precision Drilling Corporation (PDS) Seasonal Chart Reliance Steel & Aluminum Co. (RS) Seasonal Chart  Sonoco Products Company (SON) Seasonal Chart TransCanada Corporation (TRP) Seasonal Chart Treehouse Foods, Inc. (THS) Seasonal Chart Waste Management, Inc. (WM) Seasonal Chart Yamana Gold Inc. (AUY) Seasonal Chart Zoetis Inc. (ZTS) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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