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Stock Market Outlook for April 16, 2018

Loan growth exhausted following years of easy monetary policy.

 

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:

Waters Corporation  (NYSE:WAT) Seasonal Chart

Waters Corporation (NYSE:WAT) Seasonal Chart

Sypris Solutions, Inc. (NASD:SYPR) Seasonal Chart

Sypris Solutions, Inc. (NASD:SYPR) Seasonal Chart

Vertex Pharmaceuticals Inc. (NASD:VRTX) Seasonal Chart

Vertex Pharmaceuticals Inc. (NASD:VRTX) Seasonal Chart

Jabil Circuit, Inc.  (NYSE:JBL) Seasonal Chart

Jabil Circuit, Inc. (NYSE:JBL) Seasonal Chart

Dollar General Corp. (NYSE:DG) Seasonal Chart

Dollar General Corp. (NYSE:DG) Seasonal Chart

Franco-Nevada Corporation (NYSE:FNV) Seasonal Chart

Franco-Nevada Corporation (NYSE:FNV) Seasonal Chart

Layne Christensen Co. (NASD:LAYN) Seasonal Chart

Layne Christensen Co. (NASD:LAYN) Seasonal Chart

 

 

The Markets

Stocks hovered close to the flatline on Friday as investors reacted negatively to earnings beats from some of the big banks in the US.  The S&P 500 Index shed just less than three-tenths of one percent, continuing to hold below short-term resistance around 2672.  The Financial Sector ETF shed 1.51%, trading lower from declining 50-day moving average resistance that was tested in the moments following the opening bell; sellers took over in the minutes following the opening print.  The sector has been underperforming the market since the middle of February, diverging from seasonal norms, as interest rates fall amidst increasing geopolitical concerns.  Seasonally, the sector concludes its period of strength on April 13th, on average.

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Financial Sector Seasonal Chart

FINANCIAL Relative to the S&P 500
FINANCIAL Relative to the S&P 500

FINANCIAL Monthly Averages

One of the areas of concern for investors in the bank stocks was loan growth, which appears to be struggling in this rising rate environment.  Loan growth is something we flagged a few months ago as commercial and industrial loans in 2017 saw one of the weakest years on record, outside of a recessionary period.  Data obtained through February suggests that results have not improved much.   Loans are higher by 0.5% in the first two months of the year, marginally below the 0.6% increase that is average in this timeframe. While loan growth flourished in the low interest rate environment, it arrears borrowers may be exhausted.  While exceptions exist, the languishing growth of loans has typically coincided with periods of economic weakness, therefore one must wonder what it is saying now.  So while the consensus may have pegged rising rates as being a good thing for the banks, languishing loan growth suggest that it is not as easy as simply highlighting net interest margins as reason for the bank stocks to move higher.

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Looking at the week overall, the S&P 500 Index still managed to hold onto a gain of 1.99%.  Major moving averages on this weekly look continue to point higher and support has remained evident around the 50-week average at 2571.  Momentum indicators are attempting to curl higher following this multi-month downdraft that has alleviated one of the most overbought states, with respect to the Relative Strength Index (RSI), in the history of the benchmark.  Drawing trendlines to encompass the significant peaks and troughs since the 2009 low, the level of the benchmark is hovering around the mid-point to a rising trend channel, the upper and lower limits of which sit around 3100 and 2250, respectively.  The benchmark has held very close to the middle of this span for the past couple of years as investors analyze the strength of the economy at this late point in the economic recovery.

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On the economic front, a report on job openings and labour turnover provided insight as to the strength of the labour market.  The headline print indicated that openings fell 2.8% in February to 6.052 million, missing the consensus analyst estimate that called for 6.143 million.  Stripping out the seasonal adjustments, openings actually fell by 4.2%, which is much better than the 8.2% average decline for the second month of the year.  The year-to-date change now sits 2.5% above the seasonal norm.  But while the number of opportunities are increasing at an above average rate so far this year, the change in hires is merely inline with the seasonal average trend, a testament to the skills mismatch in this evolving digital economy.  Information and financial activity openings actually showed very rare increases in February as the difficulty of employers to fill these often high-tech positions becomes apparent.  This is only the third February in the history of the report that information openings have increased, while it is only the second time that financial activities have increased, emphasizing how rare the event its.  The other category to show an abnormal gain in the month was manufacturing, which continues to reiterate the strength that this segment of the economy is realizing.  Turning to the gauge of confidence of the American worker, the quit rate continues to run below average on the year, now seven percent below the seasonal norm.  One of the drags on the quit rate is retail, which perhaps is no surprise given the lack of upside opportunities in brick-and-mortar retail.  Entertainment, meanwhile is running above the average pace, somehow brining to mind the recent departure of our good friend Michael Hainsworth from BNN.  The quit rate can often provide good insight as to the sentiment of employees within various sectors, in many cases leading the activity of the industry itself.  A flood of quits from the retail sector were apparent in 2014, well ahead of the peak in activity and the peak in the stocks of brick and mortar stores.  Real estate saw a flood of quits last year, ahead of the slow down in sales activity seen so far in 2018, which has coincided with the rise in mortgage rates.  And now, if the pace continues, entertainment appears under threat as the media industry increasingly becomes more fragmented.  Overall, the report suggests that jobs are out there and that demand for labor is solid, but the ability of employers to fill these positions could hinder the growth potential that the economy might have seen if there was a perfect skills match.  Seasonally, openings tend to hit the highest level of the year in April as employers put out the help wanted signs ahead of the summer season.

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

Sentiment on Friday, as gauged by the put-call ratio, ended close to neutral at 0.98.

 

Sectors and Industries entering their period of seasonal strength:

Home Furnishings Industry Seasonal Chart
S5HOMF Index Relative to the S&P 500S5HOMF Index Relative to the Sector

S5HOMF Index Monthly Averages

S&P/TSX Capped Utilities Index Seasonal Chart

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

$SPTUT Monthly Averages

 

 

Seasonal charts of companies reporting earnings today:

Bank of America Corporation (BAC) Seasonal Chart Celanese Corporation (CE) Seasonal Chart First Defiance Financial Corp. (FDEF) Seasonal Chart Lakeland Industries, Inc. (LAKE) Seasonal Chart M&T Bank Corporation (MTB) Seasonal Chart Netflix, Inc. (NFLX) Seasonal Chart Pinnacle Financial Partners, Inc. (PNFP) Seasonal Chart SeaChange International, Inc. (SEAC) Seasonal Chart ServisFirst Bancshares, Inc. (SFBS) Seasonal Chart Wintrust Financial Corporation (WTFC) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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