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Stock Market Outlook for April 17, 2018

Consumer spending returns despite adverse weather conditions in March.

 

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:

Franco-Nevada (TSE:FNV) Seasonal Chart

Franco-Nevada (TSE:FNV) Seasonal Chart

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

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

 

 

The Markets

Stocks rallied on Monday as investors set aside concerns pertaining to Syria following the precision strike on the region on Friday.  The S&P 500 Index added eight-tenths of one percent, testing its declining 50-day moving average at the highs of the session.  The move breaks a short-term level of horizontal resistance around 2672, which represents the neckline to a reverse head-and-shoulders bottoming pattern.  The bullish setup, if fulfilled, presents upside potential of around 4% above the neckline, or back to around the highs charted in March closer to 2800.  Gap resistance around 2700 is the next hurdle to overcome.

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Despite the strong gains to start the week, Monday’s session had a risk-off bias with utilities and consumer staples topping the market return.   Among the industry groups contributing to the strength in the consumer staples sector was drug retailers following headlines that Amazon was shelving pans to sell and distribute drugs to hospitals.  The news release indicates that “the change in plan comes partly because Amazon has not been able to convince big hospitals to change their traditional purchasing process.”  The Dow Jones US Drug Retailers Index closed higher by 3.70%, breaking out of a short-term consolidation range and testing resistance around the 50-day moving average.  Seasonally, the US Drug Retail Industry benefits from positive seasonal tendencies through to mid-June.  Sales at health and personal care stores have shown above average strength in 2018, rebounding from the declining results recorded in the 2016 and 2017 calendar years.  Positive momentum divergences on the chart of the benchmark provide an interesting setup through the remainder of the period of seasonal strength ahead.

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On the economic front, encouraging news pertaining to the consumer provided renewed optimism that 2018 will be a strong year for spending following the recently enacted tax cuts.  The headline print indicated that Retail Sales for March increased by 0.6%, surpassing the 0.4% consensus estimate forecasted by analysts.  Less gas and autos, the increase was a more subdued 0.3%, missing the consensus estimate.  Stripping out the seasonal adjustments, sales actually increased by 16.7%, much better than the 13.4% gain that is average in this last month of the first quarter.  The year-to-date change is now above the seasonal average trend by 2.2%; sales ex-autos are even better at 4.0% above the seasonal norm.  Parsing the details, while it would be easy to suggest that slightly earlier than average Easter spending powered the results, the underlying details suggest more is at play.  Gains for the month were strong across the board, including the bigger-ticket items, which are less likely to be influenced by the Easter holiday specifically.  The results are consistent with the traditional tendency for the spring when consumers go out and buy cars and items for the home following the colder winter months.  This is rather surprising given the below average temperatures and snow storms that swept the US east-coast, threatening to diminish activity.  One category that may have received a boost from the roving Easter holiday was food services and drinking places, which jumped by a whopping 14.9% for March.  This is a full three percent above average for this point in the year.  The result almost immediately returns the year-to-date change to the seasonal average trend.  Readers of this site will know that we like to highlight this category due to its gauge of the strength of discretionary spending of consumers.  Restaurant spending can be highly influenced by weather during the summer as patios account for an increasing share of revenues, therefore the strong result during a month where weather was less than favourable is highly optimistic of the strength of the consumer through the remainder of the year.  Seasonally, restaurant sending tends to hit the highs of the year in May as consumer flock to get their first taste of patio weather following the winter.  For a breakdown of all of the categories of the report, the seasonal charts can be accessed via the database at https://charts.equityclock.com/u-s-retail-trade-sales.

Retail Trade: Total Seasonal Chart

Monthly Retail Trade: Total Data

Retail Trade and Food Services, excluding Auto Seasonal ChartRetail Trade: Food Services and Drinking Places Seasonal Chart

Meanwhile, another report on manufacturing suggests continued strength in this segment of the economy.  The headline print of April’s Empire State Manufacturing Survey showed that conditions fell back slightly versus the month prior, moving from +22.5 to +15.8.  The consensus analyst estimate was +18.2.  Stripping out the seasonal adjustment, the actual level was +26.7, which is well above the average level for this time of year of +17.3.  Keep in mind that this is more of a gauge of sentiment rather than indication of what actual results will show.  We’ll obtain the latest read of industrial production and manufacturing activity on Tuesday.  Thus far, this segment of the economy has been running above average on the year, showing no signs of fading following last year’s strong performance.  Seasonally, we are now past the peak period of optimism for the manufacturing sector; sentiment typically declines through the second quarter, hitting a low in July amidst the typically factory shutdown period.

Empire State General Business Conditions Index Seasonal Chart

One of the concerns with the recent strength in manufacturing activity was the struggling pace of sales compared to inventories.  February’s report on Business Sales and Inventories  does little to ease those concerns.  The headline print indicated that total business sales increased by 0.4% in February, while inventories increased by 0.6%, inline with estimates.  Stripping out the seasonal adjustments, business sales actually fell by 2.6% and inventories rose by 0.9%.  The average change for each is +0.9% and +0.8%, respectively.  On the year, sales are running 1.2% below average, while inventories are 0.8% above the seasonal norm, the strongest start to the year for inventories since 2012.  Fortunately, the strong March result for retail sales raises some optimism that inventories will be met with sufficient demand as the year progresses, but it would certainly raise flags pertaining to the strength of the broader economy if sales fail to materialize to the degree that businesses are expecting.  Seasonally, March is the strongest month of the year for business sales, rebounding following the winter slowdown.

Total Business Sales Seasonal Chart

Monthly Total Business Sales Data

Total Business Sales Seasonal Chart

Manufacturers Sales Seasonal Chart Retailers Sales Seasonal Chart Merchant Wholesalers Sales Seasonal Chart

Total Business Inventories Seasonal Chart

Total Business Inventories Seasonal Chart

Manufacturers Inventories Seasonal Chart Retailers Inventories Seasonal Chart Merchant Wholesalers Inventories Seasonal Chart

Sentiment on Monday, as gauged by the put-call ratio, ended bullish at 0.91.

 

 

Sectors and Industries entering their period of seasonal strength:

Technology Sector Seasonal Chart

TECHNOLOGY Relative to the S&P 500
TECHNOLOGY Relative to the S&P 500

TECHNOLOGY Monthly Averages

 

 

Seasonal charts of companies reporting earnings today:

ADTRAN, Inc. (ADTN) Seasonal Chart Badger Meter, Inc. (BMI) Seasonal Chart Comerica Incorporated (CMA) Seasonal Chart CSX Corporation (CSX) Seasonal Chart Goldman Sachs Group, Inc. (The) (GS) Seasonal Chart Interactive Brokers Group, Inc. (IBKR) Seasonal Chart International Business Machines Corporation (IBM) Seasonal Chart Intuitive Surgical, Inc. (ISRG) Seasonal Chart Johnson & Johnson (JNJ) Seasonal Chart Lam Research Corporation (LRCX) Seasonal Chart Mellanox Technologies, Ltd. (MLNX) Seasonal Chart Northern Trust Corporation (NTRS) Seasonal Chart Omnicom Group Inc. (OMC) Seasonal Chart Progressive Corporation (The) (PGR) Seasonal Chart Prologis, Inc. (PLD) Seasonal Chart United Community Financial Corp. (UCFC) Seasonal Chart United Continental Holdings, Inc. (UAL) Seasonal Chart UnitedHealth Group Incorporated (UNH) Seasonal Chart WesBanco, Inc. (WSBC) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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