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Stock Market Outlook for May 1, 2018

S&P 500 Index has averaged a gain of 0.5% in May; positive in 60% of periods.

 

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:

General Mills, Inc.  (NYSE:GIS) Seasonal Chart

General Mills, Inc. (NYSE:GIS) Seasonal Chart

Northern Technologies Intl Corp. (NASD:NTIC) Seasonal Chart

Northern Technologies Intl Corp. (NASD:NTIC) Seasonal Chart

Agree Realty Corp. (NYSE:ADC) Seasonal Chart

Agree Realty Corp. (NYSE:ADC) Seasonal Chart

TransCanada Corporation (TSE:TRP) Seasonal Chart

TransCanada Corporation (TSE:TRP) Seasonal Chart

Utah Medical Products, Inc. (NASD:UTMD) Seasonal Chart

Utah Medical Products, Inc. (NASD:UTMD) Seasonal Chart

Merit Medical Systems, Inc. (NASD:MMSI) Seasonal Chart

Merit Medical Systems, Inc. (NASD:MMSI) Seasonal Chart

NVE Corp. (NASD:NVEC) Seasonal Chart

NVE Corp. (NASD:NVEC) Seasonal Chart

Omnicell Inc. (NASD:OMCL) Seasonal Chart

Omnicell Inc. (NASD:OMCL) Seasonal Chart

 

 

The Markets

Stocks closed firmly lower on Monday amidst rising geopolitical concerns.  The S&P 500 Index shed just over eight-tenths of one percent, reversing from its 50-day moving average, which is showing signs of turning lower again.  The descending triangle pattern that has loomed over equity benchmarks since mid January remains at play.

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Looking back on the month that was, the S&P 500 Index recorded a slight gain in April, well short of the return that is average for this last month of the best six months for stocks.  The large-cap benchmark added 0.27%, charting a rather indecisive monthly candlestick for what is traditionally a strong month for equity indices.  The benchmark has returned 1.4%, on average, in April over the last 50 years.  The energy sector was by far the clear winner for the month, gaining an impressive 9.29%.  This is the third best gain for the energy sector in April in the past two decades, only lagging the results recorded in April of 1999 and April of 2008 at 14.51% and 10.87%, respectively.  Above average demand for energy product has helped boost the prices of the producers during a seasonally strong time for the market segment. Seasonally, the energy sector tends to reach an important peak around the start of May.  Weighing on the broader market performance was consumer staples, which fell by 4.52%, the largest April decline in the past two decades.  The sector enters its period of seasonal strength at the end of April as investors transition from cyclical to defensive assets during the period of volatility for equity markets between May and October. From a sector winner and loser perspective, the activity in the month was inline with seasonal norms, although the breadth of gains leaves much to be desired.  Headline risks have significantly overshadowed what have been strong fundamentals, whether looking at earnings or economic data.  The activity emphasizes the soured sentiment of investors, who remain skittish following the first quarter weakness.

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Energy Sector Seasonal Chart

ENERGY Relative to the S&P 500
ENERGY Relative to the S&P 500

ENERGY Monthly Averages

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For the month of May, a notorious transition month, the S&P 500 Index has averaged a gain of 0.5% over the past 50 years. Positive results were shown in 60% of periods. Returns have ranged from a loss of 8.2% in May of 2010 to a gain of 9.2% in May of 1990. The average pattern of the benchmark shows that once most of the earnings reports have been released by the start of May, the benchmark tends to stall and dip into the back half of the month. The benchmark then averages strong performance in the last few days of May. Earnings have provided a much needed distraction from the headlines that dominated the tape through the first quarter and the risk is with the conclusion of this reporting period that the headline risks once again push and pull stocks as investors transition to this period where positive fundamental catalysts are typically fewer.

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From a sector standpoint, a number of areas of the market see the average peak to their periods of strength in May, including energy, materials, and industrials. And on the more defensive side, REITs tend to take a pause following strength recorded earlier in the spring. Historically, the month has typically warranted a defensive shift, trimming exposure to cyclical sectors of the market and accumulating defensive assets. Consumer staples and health care see the average start to their seasonal trends at the end of April. Outside of the equity market, treasury bonds have historically added yield during what is typically a more volatile period for stocks. The summer is an ideal time to reduce portfolio beta by accumulating yield, whether it be in the bond or equity market, allowing investors to mitigate the swings in this timeframe when recurring fundamental catalysts are typically few.

Healthcare Sector Seasonal Chart

HEALTHCARE Relative to the S&P 500
HEALTHCARE Relative to the S&P 500

HEALTHCARE Monthly Averages

Diving through the sector performance, consumer staples has seen the best return in May over the past 20 years, returning an average of 1.4%.  The sector has seen gains in 80% of Mays, which is a significant result for any sector in any month, particularly for the slower summer period for stocks.  Health care is the runner-up, returning an average of 0.7%.  Both consumer staples and health care benefit from positive seasonal tendencies between the end of May through October. The other sectors average returns within three-tenths of one percent of the flatline, gyrating through the tail end of earnings season.

Consumer Staples Sector Seasonal Chart

STAPLES Relative to the S&P 500
STAPLES Relative to the S&P 500

STAPLES Monthly Averages

Notable stocks that see the average start to their optimal seasonal holding periods in the month include Goldcorp, Teck Resources, Fossil, Cisco, CME Group, salesforce.com, Amgen, Dominion Resources, Johnson & Johnson, Bank of Nova Scotia, Intuit, Celgene, Canadian REIT, Transcanada Corp, Electronic Arts, Humana, Rogers Sugar, Baxter, and Bank of Montreal.  The main theme amongst these stocks is fairly clear: defensive and in some cases high yielding.  Those stocks that enter their period of seasonal strength in the month that are not defensive will often have growth attributes, able to withstand the seasonal fluctuations that push and pull on broader market benchmarks.  Aiming for positions that are less exposed to the cyclicality of the economy is often a sound strategy in the summer months.  To search for further stocks that begin their seasonal run in the month, you can access the data via the seasonal chart database at https://charts.equityclock.com/.

Johnson & Johnson  (NYSE:JNJ) SeasonalityDominion Resources, Inc. (NYSE:D) SeasonalityCisco Systems, Inc.  (NASDAQ:CSCO) SeasonalityBaxter International Inc. (NYSE:BAX) Seasonality

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

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Seasonal charts of companies reporting earnings today:

Aetna Inc. (AET) Seasonal Chart Alamos Gold Inc. (AGI) Seasonal Chart Allstate Corporation (The) (ALL) Seasonal Chart American Railcar Industries, Inc. (ARII) Seasonal Chart American Tower Corporation (REIT) (AMT) Seasonal Chart Anadarko Petroleum Corporation (APC) Seasonal Chart Apple Inc. (AAPL) Seasonal Chart Archer-Daniels-Midland Company (ADM) Seasonal Chart Ashland Global Holdings Inc. (ASH) Seasonal Chart AutoNation, Inc. (AN) Seasonal Chart Ballard Power Systems, Inc. (BLDP) Seasonal Chart BP p.l.c. (BP) Seasonal Chart C.H. Robinson Worldwide, Inc. (CHRW) Seasonal Chart Cummins Inc. (CMI) Seasonal Chart Devon Energy Corporation (DVN) Seasonal Chart Eaton Corporation, PLC (ETN) Seasonal Chart Edison International (EIX) Seasonal Chart Emerson Electric Company (EMR) Seasonal Chart Encana Corporation (ECA) Seasonal Chart Fiserv, Inc. (FISV) Seasonal Chart Fortis Inc. (FTS) Seasonal Chart Frontier Communications Corporation (FTR) Seasonal Chart Gilead Sciences, Inc. (GILD) Seasonal Chart Hanesbrands Inc. (HBI) Seasonal Chart Imax Corporation (IMAX) Seasonal Chart Johnson Controls International plc (JCI) Seasonal Chart Juniper Networks, Inc. (JNPR) Seasonal Chart L3 Technologies, Inc. (LLL) Seasonal Chart Lumber Liquidators Holdings, Inc (LL) Seasonal Chart Marathon Petroleum Corporation (MPC) Seasonal Chart Merck & Company, Inc. (MRK) Seasonal Chart Mondelez International, Inc. (MDLZ) Seasonal Chart Nabors Industries Ltd. (NBR) Seasonal Chart Newfield Exploration Company (NFX) Seasonal Chart Noble Energy Inc. (NBL) Seasonal Chart NuVasive, Inc. (NUVA) Seasonal Chart Pfizer, Inc. (PFE) Seasonal Chart R.R. Donnelley & Sons Company (RRD) Seasonal Chart Scotts Miracle-Gro Company (The) (SMG) Seasonal Chart Seagate Technology PLC (STX) Seasonal Chart Suncor Energy Inc. (SU) Seasonal Chart Tapestry, Inc. (TPR) Seasonal Chart Xylem Inc. (XYL) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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