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Stock Market Outlook for April 24, 2018

Yield on the 10-year Treasury Note back testing the psychologically important 3% level.

 

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:

The J. M. Smucker Co. (NYSE:SJM) Seasonal Chart

The J. M. Smucker Co. (NYSE:SJM) Seasonal Chart

Quad Graphics Inc. (NYSE:QUAD) Seasonal Chart

Quad Graphics Inc. (NYSE:QUAD) Seasonal Chart

Luminex Corp. (NASD:LMNX) Seasonal Chart

Luminex Corp. (NASD:LMNX) Seasonal Chart

 

 

The Markets

Stocks gyrated around the flatline on Monday as investors battled with higher rates.  The S&P 500 Index closed essentially unchanged, holding above its 20-day moving average at the lows of the session.  But it was not the equity market that captured attention, but rather the treasury market at the forefront of investor minds as the yield on the 10-year note hit a high of 2.99%, just a hair below the psychologically important 3% level.  Investors have unofficially declared this level to confirm the conclusion to the multi-decade bull market in bonds, which in recent years resulted in some of the lowest rates on record.  A double-top pattern on the price chart of the 10-year treasury suggests a downside target of around $113, or over 5% below present levels.  If fulfilled, this would see treasury prices move back to the 2008 lows when yields were just a tad over 4%.  The increase in the cost of borrowing has many equity investors on edge due to the indirect influence on valuations, as well as the obvious added expense that highly levered companies will be exposed to.  With the 12-month forward P/E on the S&P 500 Index hovering at 16.6, compression of this multiple would be expected and the “E" (earnings) of the equation will now have to do the heavy lifting in order to keep the positive trend in prices alive.  Sustainable longer-term impacts to the equity market are typically not realized until rates are between 4% to 5%.  Seasonally, treasury prices tend to rise during the summer months, resulting in lower yields.

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10 Year U.S. Treasury Notes Futures (TY) Seasonality

The strength in US treasuries fuelled an upward move in the US Dollar Index, which broke out of a multi-month range.  The currency benchmark found solid support in recent months around 88.5 and the breakout suggests an upside target towards the declining 200-day moving average around 92.  Previous horizontal support, now expected as resistance, also can be seen at the equivalent level.  In addition to higher yields, dollar strength is also a headwind to S&P 500 companies, which generate 31% of their revenue internationally, according to FactSet.  Seasonally, the US Dollar Index tends to strengthen in May, rising by an average of 0.6% over the past 20 years.

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U.S. Dollar Index Futures (DX) Seasonal Chart

FUTURE_DX1 Monthly Averages

On the economic front, one of the reports that we place a great deal of emphasis on was released during Monday’s session.  The National Association of Realtors is indicating that existing home sales increased by 1.1% last month to a seasonally adjusted annual rate of 5.6 million.  The consensus estimate was for a slight decline to a rate of 5.513 million.  Stripping out the seasonal adjustments, sales of existing homes were actually higher by 36.1%, which is 2.9% above the average change for the month of March.  For the first quarter, sales are higher by 1.6%.  While below the 4.2% gain seen by this time last year, sales are still running above the seasonal average trend, now at two-tenths of one percent above the seasonal norm.  Breaking down the activity in each of the regions, sales in the northeast and midwest are running below average through first three months of the year, while the south and west are realizing gains that are above average.  Weather is suspected to have played a factor in March’s activity with cold and snow dominating the US northeast.  The ramp in sales activity continues through to June, leaving plenty of time for sales impacted by weather to improve prior to the summer slowdown.  Much like other economic reports released in recent months, inventory is starting to become an issue.  While the months of supply of existing homes is only 3.6, firmly below what would be considered a balanced market at 6 months, inventory levels are higher by 14.0% on the year, which is 7.5% above the seasonal average trend.  Inventories were a problem in 2017, showing the third largest calendar year decline in the past two decades as demand significantly outweighed supply.  Now, it appears, the tide may be changing, which would theoretically be a positive to alleviate the pricing pressures making the housing market unaffordable to many.  The change in the median price of existing homes is trending above average, continuing a strong pace that has been in place for the past six years.

Existing Home Sales Seasonal Chart

Monthly Existing Home Sales Data

Existing Home Sales Seasonal Chart

Existing Home Sales - Northeast Seasonal Chart Existing Home Sales - Midwest Seasonal Chart Existing Home Sales - West Seasonal Chart Existing Home Sales - South Seasonal Chart

Inventory of Existing Homes for Sale Seasonal Chart

Inventory of Existing Homes for Sale Seasonal Chart

Median Sales Price of Existing Homes Seasonal Chart

Sentiment on Monday, as gauged by the put-call ratio, ended close to neutral at 0.93.

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Seasonal charts of companies reporting earnings today:

3M Company (MMM) Seasonal Chart Allegheny Technologies Incorporated (ATI) Seasonal Chart Biogen Inc. (BIIB) Seasonal Chart Boston Properties, Inc. (BXP) Seasonal Chart Capital One Financial Corporation (COF) Seasonal Chart Carlisle Companies Incorporated (CSL) Seasonal Chart Caterpillar, Inc. (CAT) Seasonal Chart Centene Corporation (CNC) Seasonal Chart Chubb Limited (CB) Seasonal Chart Coca-Cola Company (The) (KO) Seasonal Chart Corning Incorporated (GLW) Seasonal Chart Cree, Inc. (CREE) Seasonal Chart Edwards Lifesciences Corporation (EW) Seasonal Chart Eli Lilly and Company (LLY) Seasonal Chart Equity Residential (EQR) Seasonal Chart Freeport-McMoran, Inc. (FCX) Seasonal Chart Harley-Davidson, Inc. (HOG) Seasonal Chart JetBlue Airways Corporation (JBLU) Seasonal Chart Lockheed Martin Corporation (LMT) Seasonal Chart Packaging Corporation of America (PKG) Seasonal Chart Polaris Industries Inc. (PII) Seasonal Chart PulteGroup, Inc. (PHM) Seasonal Chart Restaurant Brands International Inc. (QSR) Seasonal Chart Ryder System, Inc. (R) Seasonal Chart SAP SE (SAP) Seasonal Chart Sherwin-Williams Company (The) (SHW) Seasonal Chart SuperValu Inc. (SVU) Seasonal Chart Teck Resources Ltd (TECK) Seasonal Chart Texas Instruments Incorporated (TXN) Seasonal Chart The Travelers Companies, Inc. (TRV) Seasonal Chart Total System Services, Inc. (TSS) Seasonal Chart United Technologies Corporation (UTX) Seasonal Chart Verizon Communications Inc. (VZ) Seasonal Chart Weatherford International plc (WFT) Seasonal Chart Wynn Resorts, Limited (WYNN) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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