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Stock Market Outlook for July 19, 2018

After a week of volatility, petroleum inventories are back on track with seasonal norms.

 

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:

3M Company  (NYSE:MMM) Seasonal Chart

3M Company (NYSE:MMM) Seasonal Chart

TAL Education Group (NYSE:TAL) Seasonal Chart

TAL Education Group (NYSE:TAL) Seasonal Chart

Lear Corp. (NYSE:LEA) Seasonal Chart

Lear Corp. (NYSE:LEA) Seasonal Chart

Diageo plc (ADR) (NYSE:DEO) Seasonal Chart

Diageo plc (ADR) (NYSE:DEO) Seasonal Chart

FleetCor Technologies Inc. (NYSE:FLT) Seasonal Chart

FleetCor Technologies Inc. (NYSE:FLT) Seasonal Chart

 

 

The Markets

Stocks drifted higher on Wednesday, fuelled by strength in earnings in the industrial and financial sectors.  The Industrial and Financial sector ETFs were up by 1.1% and 1.6%, respectively, while each of the other sectors showed flat to negative results.  The S&P 500 Index added just over two-tenths of one percent, moving beyond previous resistance at 2800.

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Despite the positive fundamental backdrop in the economy and stock prices charting multi-month highs, the louder chatter seems to pertain to the flattening yield curve.  The spread between treasury 10’s over 2’s is now less than a quarter of a percent.  The spread between 30’s over 10’s is hovering around a tenth of a percent.   Historically, the yield curve has inverted prior to the onset of a recession and equity market downturn.  While the inversion of the yield curve appears imminent, it is important not to count your chickens before they’re hatched.  Take treasury 10’s over 2’s, for example.  In the early 1990’s the spread between the notes was on a similar trend lower that it is now, but after hitting a low of a mere tenth of a percent in the middle of the decade, the spread traded sideways for another five years.  Economic activity subsequently flourished amidst the tech boom and stocks, as gauged by the S&P 500 Index, more than tripled before a yield curve inversion was finally realized in March of 2000.  So while easy to say that the flattening yield curve is reason to be cautious of equities, it is best not to position for a downturn until after the inversion is realized, whenever that may be.

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On the economic front, a report on housing starts released before Wednesday’s opening bell provided some concern pertaining to the health of the housing market.  The headline print indicated that starts fell by 12.3% in June  to a seasonally adjusted annual rate of 1.173 million.  The consensus analyst estimate was for a rate of 1.32 million.  Stripping out the seasonal adjustments, starts actually fell by 9.9%, which is a significant divergence compared to the 2.3% increase that is average for the month.  Year-to-date, the increase in starts is running 6.4% below average through the first half of the year, a significant shift from the above average pace realized just one month prior.  Declines in activity were broad based, spanning each of the four regions within the US.  Permits were also weak, falling 4.2% in the month, also diverging from the average increase of 6.2%.  Permits are now trending 8.3% below average on the year.  While starts and permits fall below seasonal trends, completions are maintaining an above average pace, running 8.2% above the seasonal norm.  Completions tend to be the steadier component of the report compared to starts, primarily due to the impact that weather, the availability of supplies, and the ability to obtain workers.  Seasonally, starts decline through the back half of the year as the window to start new projects ahead of the winter narrows.

Housing Starts Seasonal Chart

Monthly Housing Starts Data

Housing Starts Seasonal Chart

Housing Starts: Northeast Region Seasonal Chart Housing Starts: Midwest Region Seasonal Chart Housing Starts: South Region Seasonal Chart Housing Starts: West Region Seasonal Chart Building Permits Seasonal Chart Housing Units Authorized, But Not Started Seasonal Chart Housing Units Completed Seasonal Chart

On schedule for the Wednesday session, the weekly petroleum status report was released shortly after the opening bell.  The EIA indicated that oil stockpiles rebounded by 5.8 million barrels, while gasoline inventories shrank by 3.2 million barrels.  The net result is that half of a day of supply was added to the oil market, placing the level at 23.4.  The average level for this time of year is 21.8.  Imports saw a large snap-back and domestic production jumped to another record high at an even 11 million barrels per day, giving rise to inventories in the latest week.  On the product side, the days of supply of gasoline is shrinking back to normal levels, now at 24.4, as the level of product supplied shows a rebound of its own following the holiday interrupted week.  This is primarily the story behind the report where holiday disruptions attributed to the July 4th week wreaked some havoc in overall activity.  Net-net, supplies of both oil and gas over the past two weeks are shrinking, moving line with seasonal norms for this time of year.  Demand for product remains strong, albeit it has stagnated since the spring.  The results remain supportive for energy commodities through the summer months, barring any headline shifts to the contrary.

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 oil tested the lower limit of its rising trend channel prior to the report’s release, then reversed higher into the afternoon trade.  Trend channel resistance presently hovers around $76.  Oil tends to trade slightly higher, on average, through the remainder of summer.

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Crude Oil Futures (CL) Seasonal Chart
FUTURE_CL1 Relative to the S&P 500FUTURE_CL1 Relative to Gold

FUTURE_CL1 Monthly Averages

Sentiment on Wednesday, as gauged by the put-call ratio, ended bullish at 0.85.

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Seasonal charts of companies reporting earnings today:

ABB Ltd (ABB) Seasonal Chart Alliance Data Systems Corporation (ADS) Seasonal Chart Bank Of New York Mellon Corporation (The) (BK) Seasonal Chart BB&T Corporation (BBT) Seasonal Chart Brandywine Realty Trust (BDN) Seasonal Chart Capital One Financial Corporation (COF) Seasonal Chart Celanese Corporation (CE) Seasonal Chart Cintas Corporation (CTAS) Seasonal Chart Danaher Corporation (DHR) Seasonal Chart Domino's Pizza Inc (DPZ) Seasonal Chart Dover Corporation (DOV) Seasonal Chart E*TRADE Financial Corporation (ETFC) Seasonal Chart Fifth Third Bancorp (FITB) Seasonal Chart Genuine Parts Company (GPC) Seasonal Chart Intuitive Surgical, Inc. (ISRG) Seasonal Chart KeyCorp (KEY) Seasonal Chart Microsoft Corporation (MSFT) Seasonal Chart Nucor Corporation (NUE) Seasonal Chart Philip Morris International Inc (PM) Seasonal Chart PPG Industries, Inc. (PPG) Seasonal Chart Rogers Communication, Inc. (RCI) Seasonal Chart SAP SE (SAP) Seasonal Chart Scholastic Corporation (SCHL) Seasonal Chart Skechers U.S.A., Inc. (SKX) Seasonal Chart Skyworks Solutions, Inc. (SWKS) Seasonal Chart Snap-On Incorporated (SNA) Seasonal Chart Sonoco Products Company (SON) Seasonal Chart Taiwan Semiconductor Manufacturing Company Ltd. (TSM) Seasonal Chart The Blackstone Group L.P. (BX) Seasonal Chart The Travelers Companies, Inc. (TRV) Seasonal Chart Tile Shop Hldgs, Inc. (TTS) Seasonal Chart Unilever PLC (UL) Seasonal Chart Union Pacific Corporation (UNP) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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