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Stock Market Outlook for June 1, 2018

Preview of Friday’s Employment Situation report.

 

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:

Pembina Pipeline Corp (TSE:PPL) Seasonal Chart

Pembina Pipeline Corp (TSE:PPL) Seasonal Chart

BioSpecifics Technologies Corp. (NASD:BSTC) Seasonal Chart

BioSpecifics Technologies Corp. (NASD:BSTC) Seasonal Chart

Johnson & Johnson  (NYSE:JNJ) Seasonal Chart

Johnson & Johnson (NYSE:JNJ) Seasonal Chart

Eli Lilly & Co.  (NYSE:LLY) Seasonal Chart

Eli Lilly & Co. (NYSE:LLY) Seasonal Chart

Baldwin & Lyons, Inc. (NASD:BWINB) Seasonal Chart

Baldwin & Lyons, Inc. (NASD:BWINB) Seasonal Chart

 

 

The Markets

Stocks dipped on Thursday as the imposition of US tariffs on steel and aluminum reignited fears of a trade war.  The S&P 500 fell by almost seven-tenths of one percent, closing around its rising 20-day moving average.  The last trading day of the month, the alleviation of concerns in Italy, and the monthly employment report due on Friday morning likely prevented a more severe downturn.  Stocks with the greatest international exposure, particularly consumer staples and industrials, were particularly vulnerable.

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As mentioned, the monthly employment report is due to be released on Friday morning, likely another catalyst that could keep investors on their toes as they determine the intermediate direction of broad market indices.  Analysts are forecasting the addition of 190,000 payrolls, keeping the unemployment rate unchanged at 3.9%.  Average hourly earnings are forecast to show a 0.2% rise.  On average, payrolls increase by 0.7%, non-seasonally adjusted, in May, suggesting the actual addition of approximately 1.04 million positions.  Growth in payrolls has been running around three-tenths of one percent above average so far in 2018 and the above average pace is likely to be maintained at least through the middle of the year.  The latest read of initial jobless claims indicates that individuals applying for employment insurance are running almost two percent below average through the month of May, representing the best performance since 2007, just prior to the recession.  But with the tight labor market and demand for skilled workers, employers may be required to pay up for workers, as gauged by average hourly earnings.  At 1.9% year-to-date, average hourly earnings are on pace to show the strongest growth since 2006.  As always, we’ll have a complete breakdown of the results in our next report.

Total Nonfarm Seasonal Chart

Monthly Total Nonfarm Data

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On the economic front, Statscan released Gross Domestic Product (GDP) figures for the month of March.  The headline print indicated that GDP in Canada increased by 0.3% in the third month of the year, edging out forecasts calling for a 0.2% rise.  The year-over-year result for this monthly statistic now sits at +2.9%.  Stripping out the seasonal adjustments, GDP was actually lower by 0.1% in March, mildly better than the 0.2% decline that is average for the month.  For the first quarter overall, GDP is higher by a mere 0.1%, around half of one percent below average for the first three months of the year.  Sluggish results in goods-producing industries, which is trending 1.6% below average through the first quarter, accounts for the weakness behind the aggregate result.  Service producing industries, meanwhile, are trending inline with the seasonal norm.  A below average contribution from mining, utilities, industrial machinery, rail transportation, and real estate dragged upon the overall tally.  A number of the lagging categories in the quarter were  above average performers in just that past year as the global synchronized recovery lifted economies around the world.  However, since the implementation of the tax cuts south of the border, the US has carried on with the torch, drawing activity away from global counterparts.  One area that is destined to take a hit in future results is iron and steel mills, which saw a contribution to GDP in the first quarter that was almost 7% above average.  Tariffs imposed by the US threaten to dampen demand for Canadian steel.  Strength in the report stems from the technology, energy, and construction sectors, which are showing the best growth through the first quarter in years.  Of course, strength in technology categories has been apparent in both the Canadian and US data, suggesting growth equivalent to the late 1990’s.  Overall, the pluses and the minuses across the categories make this a middle ground report.  Activity in some categories is being drawn away from Canada and into the US, but other categories, such as technology and energy, are attempting to pick up the slack.   For a complete breakdown of the report, the charts are available via the database at https://charts.equityclock.com/canada-monthly-gross-domestic-product-gdp-by-industry.

Canada GDP - All industries Seasonal Chart

Monthly Canada GDP - All industries Data

Canada GDP - Goods-producing industries Seasonal Chart Canada GDP - Service-producing industries Seasonal ChartCanada GDP - Information and communication technology sector Seasonal ChartCanada GDP - Energy sector Seasonal ChartCanada GDP - Mining, quarrying, and oil and gas extraction Seasonal ChartCanada GDP - Utilities Seasonal ChartCanada GDP - Construction Seasonal ChartCanada GDP - Manufacturing Seasonal ChartCanada GDP - Retail trade Seasonal ChartCanada GDP - Transportation and warehousing Seasonal ChartCanada GDP - Pipeline transportation Seasonal ChartCanada GDP - Finance and insurance Seasonal ChartCanada GDP - Real estate Seasonal Chart

Also released on Thursday was the weekly petroleum status report, one day delayed due to the Memorial Day holiday.  The EIA indicated that oil stockpiles fell by 3.6 million barrels last week, while gasoline inventories gained 500,000 barrels.  The result stripped four-tenths of a day of supply of oil from the market, hinting that the recent trend of rising days of supply may have reached a peak.  The market has entered the time of year when stockpile drawdowns become the norm through September, so we’ll be monitoring this closely in the weeks ahead to confirm that inventories are holding up to this seasonal average.  As for gasoline, the days of supply of the refined product has fallen below average for the first time since last November as demand ticked higher ahead of the long weekend in the US.  Just as oil stockpiles are at an important pivot point, leading to declines through the months ahead, gasoline is at a pivot point of its own.  Gasoline inventories typically rise between now and the end of June as production continues to ramp up through the remainder of spring.

Weekly U.S. Days of Supply of Crude Oil excluding SPR  (Number of Days) Seasonal Chart

Weekly U.S. Days of Supply of Crude Oil excluding SPR (Number of Days) Seasonal Chart

Weekly U.S. Ending Stocks excluding SPR of Crude Oil Seasonal ChartWeekly U.S. Field Production of Crude Oil Seasonal ChartWeekly U.S. Commercial Crude Oil Imports Excluding SPR Seasonal Chart

Weekly U.S. Days of Supply of Total Gasoline  (Number of Days) Seasonal Chart

Weekly U.S. Days of Supply of Total Gasoline (Number of Days) Seasonal Chart

Weekly U.S. Ending Stocks of Total Gasoline Seasonal Chart Weekly U.S. Refiner and Blender Adjusted Net Production of Finished Motor Gasoline Seasonal Chart Weekly U.S. Product Supplied of Finished Motor Gasoline Seasonal Chart

The price of WTI crude was lower by 1.72% on the session, moving back below its rising 50-day moving average.  Horizontal support at $66 remains intact, a break of which could see a swift move lower to the 200-day as the massive long-bet on the commodity unwinds.  Seasonal tendencies for the commodity turn positive again at the end of June.

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Crude Oil Futures (CL) Seasonal Chart

FUTURE_CL1 Monthly Averages

Sentiment on Thursday, as gauged by the put-call ratio, ended bearish at 1.13.

 

 

Seasonal charts of companies reporting earnings today:

Abercrombie & Fitch Company (ANF) Seasonal Chart Big Lots, Inc. (BIG) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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