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Stock Market Outlook for August 1, 2018

Over the past 20 years, only one sector has averaged a gain in August: Utilities.

 

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:

Adobe Systems Incorporated  (NASDAQ:ADBE) Seasonal Chart

Adobe Systems Incorporated (NASDAQ:ADBE) Seasonal Chart

Exxon Mobil Corporation  (NYSE:XOM) Seasonal Chart

Exxon Mobil Corporation (NYSE:XOM) Seasonal Chart

SEACOR Holdings Inc. (NYSE:CKH) Seasonal Chart

SEACOR Holdings Inc. (NYSE:CKH) Seasonal Chart

SYSCO Corporation  (NYSE:SYY) Seasonal Chart

SYSCO Corporation (NYSE:SYY) Seasonal Chart

SM Energy Co. (NYSE:SM) Seasonal Chart

SM Energy Co. (NYSE:SM) Seasonal Chart

 

 

The Markets

Stocks rebounded on Tuesday as selling pressures abated into the final hours of the month of July.  For the day, the S&P 500 Index was higher by around half of one percent, holding support at its rising 20-day moving average.  For the month, the benchmark realized a gain of 3.6%, representing the best return for the month of July since 2013.  The average return for the seventh month of the year is 0.4%, based on the past 50 years of data.

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Looking ahead, the S&P 500 Index has averaged a return of a mere 0.1% in August, however positive results have been realized 58% of the time over the past 50 years. Returns have ranged from a loss of 14.6% in August of 1998 to a gain of 11.6% in August of 1982. Volatility is the dominant theme. The volatility index (VIX) rises by 11.4%, on average, in this eighth month of the year, showing gains in 55% of the past 20 Augusts.  Volatility can create buying and selling opportunities, so best to stay on your toes through this uncertain period ahead.

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Volatility Index (VIX) Seasonality

Monthly Seasonal Volatility Index (VIX)

Over the past 20 years, only one sector has averaged a gain for this last full month of summer.  The S&P 500 Utilities Sector Index has gained an average of 0.6% in the month with positive results shown in 70% of periods.  While weakness is fairly broad based across the cyclical sectors, the financial and consumer discretionary sectors have historically weighed the most on the broader market, shedding an average of 1.5%.  Defensive sectors have historically been favoured in this timeframe as investors seek to trim beta and add yield to portfolios, attempting to weather the market storm.  For a list of stocks that start or end their periods of strength in the month of August, subscribers have access to Advanced Search functionality within the Seasonal Chart Database at https://charts.equityclock.com/search.

Utilities Sector Seasonal Chart

UTILITIES Relative to the S&P 500
UTILITIES Relative to the S&P 500

UTILITIES Monthly Averages

On the economic front, Statscan released reports on Gross Domestic Product (GDP) and Industrial Product Prices (IPPI) in Canada.  First up, GDP in Canada is indicated to have grown by 0.5% in May, exceeding the consensus analyst estimate calling for a 0.3% gain.  Stripping out the seasonal adjustments, GDP actually increased by 1.4% in the month, half of a percent above the average change for this time of year.  The year-to-date performance now sits higher by 1.8%, which is below the average increase through this point in the year of 2.3%.  Weakness in the industrial production, utilities, and finance categories is offsetting strength in the energy, technology, and retail.  One of the standouts in the report is the significant year-to-date decline in the contribution from petroleum refineries.  The category is down 30.4% year-to-date, much more than the 11.4% decline that is average through this point in the year.  StatsCan noted in April that “partial shutdowns at a number of refineries across the country for maintenance work reduced the subsector’s production capacity.”  The declines in the industry have yet to show signs of rebounding, resulting in the largest decline in the contribution form this category in over a decade.  This capacity is expected to show a return to more normal levels in the months ahead given the restart of Suncor’s refining operations in June.  The report provided much to be encouraged of, despite the below average trend in 2018 realized with respect to the aggregate tally.  Threats pertaining to the US pulling out of NAFTA and the shift in activity in the manufacturing sector away from Canada and into the US are arguably apparent within the results, but other categories are picking up the slack, helping to elevate activity in this spring month.  Seasonally, the months of June, July, and August are a bit of a roller coaster for the economy in Canada as activity gyrates around the factory shutdown period in July.  For a complete breakdown of all of the categories in the report, from a seasonal perspective, the charts can be accessed via the chart 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 - Industrial production Seasonal ChartCanada GDP - Information and communication technology sector Seasonal ChartCanada GDP - Energy sector Seasonal ChartCanada GDP - Utilities Seasonal ChartCanada GDP - Retail trade Seasonal ChartCanada GDP - Finance and insurance Seasonal Chart

As for the gauge of inflation amongst industrial products, Canada’s Industrial Product Price Index rose 0.5% in June, positively diverging form the 0.1% decline that is average for the sixth month of the year.  The index is up by 4.0% through the first half of the year, more than double the average increase of 1.7% over this timeframe.  Excluding energy and petroleum products, the increase in prices is running 2.1% above the seasonal norm.  Above average trends are ubiquitous amongst the charts as prices rise for a number of products sold by Canadian manufacturers.  Yet again, further signs that inflation is firmly embedded in the economy.  For further seasonal charts from the report, they can be accessed via the chart database at https://charts.equityclock.com/canada-industrial-product-price-index-ippi-by-north-american-product-classification-system-napcs.

Canada Total, Industrial product price index (IPPI) Seasonal Chart

Monthly Canada Total, Industrial product price index (IPPI) Data

Turning north of the border, a report on home prices in the US confirms a trend that we have been witnessing with respect to sales.  Home prices in 20 of the largest cities in the US increased by 0.2% in May, which is short of the 0.3% increase that was forecasted by analysts.  Stripping out the seasonal adjustments, the increase was actually 0.7%, four-tenths of one percent below the average change for the fifth month of the year.  But the below average result on the month did little to narrow the gap compared to the average year-to-date change.  Prices are up 3.7% through the month of May, more than double the average change by this point in the year of 1.8% and the strongest pace since 2013.  Out of all of the cities that we track, only one has reverted to a below average pace on the year.  Prices in New York are higher by 0.6% through the first five months, which is half of the average increase for this period. The city may be the poster child for the housing affordability problem in the US following a number of years of above average increases.  The year-to-date increase in Los Angeles and Washington, two more expensive cities for real estate, are showing signs of converging with seasonal average trends as the price momentum wanes.  A recent report on existing home sales indicated that inventories are rising at an above average rate as prices continue to climb.  The laws of supply and demand may soon catch up to the real estate market, potentially leading to a correction in prices in the year(s) ahead.

 S&P/Case-Shiller 20-City Composite Home Price Index Seasonal Chart

Monthly  S&P/Case-Shiller 20-City Composite Home Price Index Data

S&P/Case-Shiller NY-New York Home Price Index© Seasonal Chart

Sentiment on Tuesday, as gauged by the put-call ratio, ended neutral at 1.00.

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Seasonal charts of companies reporting earnings today:

Aegion Corp (AEGN) Seasonal Chart Alamos Gold Inc. (AGI) Seasonal Chart Allstate Corporation (The) (ALL) Seasonal Chart AMC Entertainment Holdings, Inc. (AMC) Seasonal Chart American Railcar Industries, Inc. (ARII) Seasonal Chart American Water Works (AWK) Seasonal Chart Apache Corporation (APA) Seasonal Chart Aqua America, Inc. (WTR) Seasonal Chart ArcelorMittal (MT) Seasonal Chart Automatic Data Processing, Inc. (ADP) Seasonal Chart Ballard Power Systems, Inc. (BLDP) Seasonal Chart Bunge Limited (BG) Seasonal Chart Cedar Fair, L.P. (FUN) Seasonal Chart CF Industries Holdings, Inc. (CF) Seasonal Chart CGI Group, Inc. (GIB) Seasonal Chart Chesapeake Energy Corporation (CHK) Seasonal Chart DaVita Inc. (DVA) Seasonal Chart Dominion Energy, Inc. (D) Seasonal Chart Entergy Corporation (ETR) Seasonal Chart Express Scripts Holding Company (ESRX) Seasonal Chart Hanesbrands Inc. (HBI) Seasonal Chart Herbalife Nutrition Ltd. (HLF) Seasonal Chart Humana Inc. (HUM) Seasonal Chart Kinross Gold Corporation (KGC) Seasonal Chart Marathon Oil Corporation (MRO) Seasonal Chart Molson Coors Brewing Company (TAP) Seasonal Chart Nutrien Ltd. (NTR) Seasonal Chart Public Storage (PSA) Seasonal Chart Restaurant Brands International Inc. (QSR) Seasonal Chart Sturm, Ruger & Company, Inc. (RGR) Seasonal Chart United States Steel Corporation (X) Seasonal Chart Wynn Resorts, Limited (WYNN) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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