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Stock Market Outlook for July 13, 2018

Dow Jones Industrial Average may be in a position to outperform the S&P 500 over the next month.

 

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 Clorox Company  (NYSE:CLX) Seasonal Chart

The Clorox Company (NYSE:CLX) Seasonal Chart

Northwest Healthcare REIT (TSE:NWH-UN) Seasonal Chart

Northwest Healthcare REIT (TSE:NWH-UN) Seasonal Chart

Community West Bancshares (NASD:CWBC) Seasonal Chart

Community West Bancshares (NASD:CWBC) Seasonal Chart

Cintas Corporation  (NASDAQ:CTAS) Seasonal Chart

Cintas Corporation (NASDAQ:CTAS) Seasonal Chart

DSW Inc. (NYSE:DSW) Seasonal Chart

DSW Inc. (NYSE:DSW) Seasonal Chart

Umpqua Holdings Corp. (NASD:UMPQ) Seasonal Chart

Umpqua Holdings Corp. (NASD:UMPQ) Seasonal Chart

Payment Data Systems, Inc. (NASD:PYDS) Seasonal Chart

Payment Data Systems, Inc. (NASD:PYDS) Seasonal Chart

Citrix Systems, Inc.  (NASDAQ:CTXS) Seasonal Chart

Citrix Systems, Inc. (NASDAQ:CTXS) Seasonal Chart

Applied Industrial Technologies (NYSE:AIT) Seasonal Chart

Applied Industrial Technologies (NYSE:AIT) Seasonal Chart

 

 

The Markets

Stocks rebounded from Wednesday’s decline as investors once again look past the risks posed by a global trade war.  The S&P 500 Index added around three-quarters of one percent, led by health care, industrials, and technology.  Other sectors of the market were predominantly flat on the day, including Financials, which will see a number of critical earnings reports released before Friday’s opening bell.  The market and a number of sectors are at a pivotal point, waiting for a catalyst to fuel the next intermediate move.  The S&P 500 Index is knocking on the door of resistance around 2800, reaction to which will be warranted in the days ahead.

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As stocks have rebounded in recent days amidst waning trade fears, the Dow Jones Industrial Average has slightly outperformed the market and there may be reason to expect the outperformance to continue over the month ahead.  Between July 15th and August 12th, on average, the blue-chip benchmark has outperformed the S&P 500 Index 70% of the time over the past two decades, producing alpha of 0.85%, on average.  The Dow tends to show choppy performance, in general, compared to the S&P 500 Index over the summer due to the cyclical constituents included within, but during this earnings period the breakdown of the benchmark tends to hold up relatively well.  The Dow Jones Industrial Average has essentially been range-bound for the past five months, finding support around 23,400 and resistance around 25,400.  Should the benchmark breakout from this range, whether higher or lower, the calculated move is an additional 2,000 points in the direction of the break.  Seasonally, the benchmark tends to be weaker than the broader market through the back half of the third quarter.

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Dow Jones Industrial Average Seasonality

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

Monthly Seasonal Dow Jones Industrial Average

On the economic front, Thursday’s report on consumer prices brought some relief to fears that inflation is surging out of control.  The headline print indicated that CPI increased by 0.1% in June, missing the consensus analyst estimate that called for a 0.2% rise.  Less food and energy, the 0.2% increase for the month was inline with estimates.  Stripping out the seasonal adjustments, CPI actually increased by 0.2% in the month, which is inline with the average increase for June.  The gain for the month puts the year-to-date change at +2.2%, which is a tenth of a percent above the seasonal average trend.  The spread versus the average trend is more apparent in the so-called "core reading" with CPI less food and energy showing a pace so far this year that is three-tenths of one percent above average, representing the fourth strongest increase in consumer prices through the first half of the year in the past two decades.  Food and beverages are acting as a drag on the aggregate result, as is the fuels and utilities category, despite the rise in energy commodity prices over the past few months.  The increase in household energy CPI is running 2.5% below average and energy services is running 2.9% below average.  Fuel oil and other fuels, meanwhile, are running 2.9% above the seasonal norm.  Transportation and information processing CPI are two standouts in the report.  Transportation CPI is up 5.7% through the first half of the year, representing the strongest result since 2011.  The average change through the first six months of the year is +4.8%.  As for information processing, the gauge of CPI for hardware and services is hugging the flatline on the year, which is a significant divergence compared to the 4.5% decline that is average through the first half of the year.  Prices for technology have fallen quite consistently over the past couple of decades, but exceptionally strong demand this year is helping to keep prices supported.  Seasonally, aggregate CPI tends to peak for the year in September, declining through the final months of the year as a wide variety of categories see prices fall.  For a complete breakdown of the results, the charts can be accessed via the chart database at https://charts.equityclock.com/u-s-consumer-price-index-cpi-producer-price-index-ppi.

Consumer Price Index for All Urban Consumers: All Items Seasonal Chart

Monthly Consumer Price Index for All Urban Consumers: All Items Data

CPI - Food and beverages Seasonal ChartCPI - Housing Seasonal ChartCPI - Fuels and utilities Seasonal ChartCPI - Transportation Seasonal ChartCPI - Information and information processing Seasonal Chart

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

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Seasonal charts of companies reporting earnings today:

Citigroup Inc. (C) Seasonal Chart FIRST REPUBLIC BANK (FRC) Seasonal Chart Infosys Limited (INFY) Seasonal Chart J P Morgan Chase & Co (JPM) Seasonal Chart PNC Financial Services Group, Inc. (The) (PNC) Seasonal Chart Wells Fargo & Company (WFC) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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