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Stock Market Outlook for February 16, 2018

Seasonal adjustments cloud another upbeat report on the economy.

 

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:

Kraft Heinz Co. (NASD:KHC) Seasonal Chart

Kraft Heinz Co. (NASD:KHC) Seasonal Chart

Dollar Tree, Inc.  (NASDAQ:DLTR) Seasonal Chart

Dollar Tree, Inc. (NASDAQ:DLTR) Seasonal Chart

Reading Intl, Inc. (NASD:RDI) Seasonal Chart

Reading Intl, Inc. (NASD:RDI) Seasonal Chart

NRG Energy Inc. (NYSE:NRG) Seasonal Chart

NRG Energy Inc. (NYSE:NRG) Seasonal Chart

Devon Energy Corporation  (NYSE:DVN) Seasonal Chart

Devon Energy Corporation (NYSE:DVN) Seasonal Chart

Verint Systems, Inc. (NASD:VRNT) Seasonal Chart

Verint Systems, Inc. (NASD:VRNT) Seasonal Chart

Neenah Paper Inc. (NYSE:NP) Seasonal Chart

Neenah Paper Inc. (NYSE:NP) Seasonal Chart

Forrester Research, Inc. (NASD:FORR) Seasonal Chart

Forrester Research, Inc. (NASD:FORR) Seasonal Chart

Exelon Corporation  (NYSE:EXC) Seasonal Chart

Exelon Corporation (NYSE:EXC) Seasonal Chart

 

 

The Markets

Stocks posted strong gains for a fifth day in a row on Thursday, making tremendous progress in recouping the losses recorded in the weeks prior.  The S&P 500 Index gained 1.21% during the session, closing slightly above its 50-day moving average.  Reaction to this moving average will be key to provide insight as to whether the correction in stocks back to the 200-day moving average, as seen on the S&P 500 Index, is part of a more intermediate-term move or merely a short-term blip.

Despite the strong gains during the session, the day had a risk-off feel as consumer staples and utilities rallied, outperforming the market return on the day.  Utility stocks topped the leaderboard, gaining 2.12%, according to the S&P 500 Utilities Sector Index.  Resistance at the declining 20-day moving average is directly overhead.  Looking at the daily momentum indicators for the utilities benchmark, a short-term positive momentum divergence has just been recorded, suggesting that selling pressures have waned, reverting to this spurt of buying pressure.   The sector has been slightly outperforming the market over the past month, through the recent volatility, as investor dig through the rubble to find value in some of the producers, which have recently seen increased demand (see comments on utility production below).  While the longer-term path of the utilities sector remains very much uncertain given the trend of rising rates, a mean reversion trade back to longer-term moving averages may be underway as the period of seasonal strength for the sector gets underway.  The utilities index has posted gains 70% of the time in the month of March and 75% of the time in April, averaging a return of between 2.2% to 2.5% in each month.  Treasury prices and yields have charted parabolic moves since the end of last year, similar to what was seen on broad equity benchmarks prior to the recent correction, suggesting a correction of the move may follow, allowing for a short-term reprieve in bonds and bond proxies.  Treasury prices remain in a period of seasonal weakness though April.

Utilities Sector Seasonal Chart

UTILITIES Relative to the S&P 500
UTILITIES Relative to the S&P 500

UTILITIES Monthly Averages

On the economic front, a full slate of manufacturing data was released during Thursday’s session.  The first pertained to regional manufacturing conditions in Philadelphia and New York.  Starting with the Philadelphia Fed Business Outlook Survey, the headline print indicated that the general business conditions index increased to +25.8 from +22.2 previous.  The consensus was for a print of +21.0.  Stripping out the seasonal adjustments, the actual level was +31.5, well above the +7.9 that is average for the second month of the year.  In New York, the empire fed survey showed a slight decline in conditions from the month prior with the headline print showing +13.1 from +17.7 previous.  The forecast was for essentially no change at +17.5.  Before the seasonal adjustments, the actual level was +20.7, which is seven points above the average level for this time of year.  Both indicators suggest optimistic things ahead for the industry, which was a significant driver of economic momentum in the past year.  Growth in manufacturing typically hits a peak for the year in March as activity ramps up following the colder winter period.

Philadelphia Manufacturing Business Outlook Survey Seasonal Chart

Empire State General Business Conditions Index Seasonal Chart

As for the government’s tally of industrial production in the US, activity is indicated to have fallen by 0.1% in January, according to the seasonally adjusted headline print.  This misses the consensus analyst estimate that called for a gain of 0.2%.  The manufacturing component, meanwhile, showed an unchanged result, still a miss versus forecasts of a 0.2% rise.  Stripping out the seasonal adjustments, another story becomes apparent.  Total industrial production was actually higher by 0.6% in January, well above the 0.2% average decline for the first month of the year.  The result follows the best year for industrial production since 2010 when the economy rebounded from the great recession.  Consumer goods were particularly strong in January’s report, higher by 2.7%, almost double the 1.4% average gain for the first month of the year.  Within the broad category of consumer goods, automotive products, home electronics, and appliances each showed strength as manufacturers appear to be betting on the strength of the consumer in the year ahead.  These areas had shown sluggish results in the 2017 calendar year as the consumer focussed their resources on experiences rather than things.  Elsewhere in the report, business equipment showed a very rare gain to start the year, as did the production of materials, key inputs to the manufacturing process.  Even utility production, which held the aggregate result back in the first month of last year, showed one of the best January gains in the past two decades as consumer turned up the heat amidst the colder weather.  Overall, this was a strong report that is being clouded by the seasonal adjustment factors, similar to yesterday’s report on retail sales.  The report is indicative of the strong manufacturing conditions that regional surveys have been suggesting for some time, helping to propel the economy forward as it attempts to meet the ambitious growth targets that many analysts have imposed on it.  Still, more evidence of the sell through rate is desired as recent indications have suggested that inventories are rising at a similarly above average pace.  Given the backdrop of lower taxes and reduced regulation, there is little reason to suspect that the buyers should not materialize to the pace that manufacturers appear to be expecting.  We still have yet to fully understand the flow of funds in this new tax era.  For a complete breakdown of the report, you can access the seasonal charts via the database at http://charts.equityclock.com/u-s-industrial-production.

Industrial Production: Total Seasonal Chart

Monthly Industrial Production: Total Data

Industrial Production: Consumer goods Seasonal ChartIndustrial Production: Business equipment Seasonal ChartIndustrial Production: Materials Seasonal ChartIndustrial Production: Utilities Seasonal Chart

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

 

 

Seasonal charts of companies reporting earnings today:

Ameren Corporation (AEE) Seasonal Chart American Axle & Manufacturing Holdings, Inc. (AXL) Seasonal Chart Barnes Group, Inc. (B) Seasonal Chart Campbell Soup Company (CPB) Seasonal Chart Coca-Cola Company (The) (KO) Seasonal Chart Deere & Company (DE) Seasonal Chart DTE Energy Company (DTE) Seasonal Chart Enbridge Inc (ENB) Seasonal Chart Granite Construction Incorporated (GVA) Seasonal Chart Iron Mountain Incorporated (IRM) Seasonal Chart ITT Inc. (ITT) Seasonal Chart J.M. Smucker Company (The) (SJM) Seasonal Chart Newell Brands Inc. (NWL) Seasonal Chart Pioneer Energy Services Corp. (PES) Seasonal Chart Portland General Electric Company (POR) Seasonal Chart Ryder System, Inc. (R) Seasonal Chart The Kraft Heinz Company (KHC) Seasonal Chart V.F. Corporation (VFC) Seasonal Chart Vulcan Materials Company (VMC) Seasonal Chart Wabco Holdings Inc. (WBC) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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