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Stock Market Outlook for August 27, 2018

Inventories of durable goods rising at an above average pace as consumer demand fails to match pace with production.

 

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:

ConAgra Foods, Inc.  (NYSE:CAG) Seasonal Chart

ConAgra Foods, Inc. (NYSE:CAG) Seasonal Chart

McGrath RentCorp (NASD:MGRC) Seasonal Chart

McGrath RentCorp (NASD:MGRC) Seasonal Chart

Progress Software Corp. (NASD:PRGS) Seasonal Chart

Progress Software Corp. (NASD:PRGS) Seasonal Chart

Exponent, Inc. (NASD:EXPO) Seasonal Chart

Exponent, Inc. (NASD:EXPO) Seasonal Chart

Texas Capital Bancshares, Inc. (NASD:TCBI) Seasonal Chart

Texas Capital Bancshares, Inc. (NASD:TCBI) Seasonal Chart

FedEx Corporation  (NYSE:FDX) Seasonal Chart

FedEx Corporation (NYSE:FDX) Seasonal Chart

DaVita Inc.  (NYSE:DVA) Seasonal Chart

DaVita Inc. (NYSE:DVA) Seasonal Chart

United Continental Holdings (NYSE:UAL) Seasonal Chart

United Continental Holdings (NYSE:UAL) Seasonal Chart

Mercury Systems Inc. (NASD:MRCY) Seasonal Chart

Mercury Systems Inc. (NASD:MRCY) Seasonal Chart

China Automotive Systems Inc. (NASD:CAAS) Seasonal Chart

China Automotive Systems Inc. (NASD:CAAS) Seasonal Chart

Raymond James Financial Inc. (NYSE:RJF) Seasonal Chart

Raymond James Financial Inc. (NYSE:RJF) Seasonal Chart

The Travelers Companies, Inc.  (NYSE:TRV) Seasonal Chart

The Travelers Companies, Inc. (NYSE:TRV) Seasonal Chart

Delta Air Lines Inc. (NYSE:DAL) Seasonal Chart

Delta Air Lines Inc. (NYSE:DAL) Seasonal Chart

 

 

The Markets

Stocks gained on Friday, resulting in new all-time closing highs for the S&P 500 Index, Russell 2000 Index, and Nasdaq Composite.  The large-cap benchmark closed higher by just over six-tenths of one percent.  The Fed’s Jerome Powell noted in his speech at Jackson Hole that the economy is strong and that further, gradual rate hikes are foreseen.  Performance of the the S&P 500 Index in the so-called off-season for stocks continues on the best pace since 2009, up 9.18%, including dividends, since the start of May.  The VIX remains at exceptionally low levels for this time of year, which could be argued as a sign of complacency, but the elevated put option activity suggests that investors are hedging their books, limiting downside risk.  Just looking at the sector activity over the past month and a half, the relative performance of cyclical and defensive equity sectors has been on par with the market performance, suggesting neither a risk-on nor risk-off trading environment.  The summer is typically dominated by risk aversion as investors seek to sidestep trading volatility. 

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Perhaps for technical analysts, the more important close for the large-cap benchmark will be the weekly one given the more intermediate implications.  The all-time closing high for the week could draw in further intermediate term investors that were perhaps sidelined given the weakness presented in the first half of the year.  On the weekly look, the benchmark had been grinding along the mid-point to a long-term trend channel for a few years, but now it is showing signs of elevating above it, perhaps tracking towards the upper limit of the rising span closer to 3100. 

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On the economic front, a report on durable goods orders showed a rather weak headline result.  The headline showed that durable goods orders declined by 1.7% in July, missing the analyst consensus estimate calling for a decline of 0.8%.  However, analysts were encouraged by the 1.4% increase in core capital goods orders, which beat the consensus estimate that called for a 0.5% rise.  Stripping out the seasonal adjustments, the Value of Manufacturers’ New Orders for Durable Goods Industries actually fell by 16.9%, worse than the average decline for this time of year of 16.4%.  Orders of durable goods are running 4.1% above average year-to-date, buoyed, in part, by strength in computers and related products industries.  Weakness in commercial aircraft has been weighing on the aggregate result, running 37.8% below average year-to-date.  New Orders of motor vehicles showed surprising strength in the month, down 17.7% in the period.  The average decline for this time of year is 29.2% as factory shutdowns in this summer month limit activity.  The upbeat factory orders have yet to be met by strong consumer sales of vehicles, which are trending below average year-to-date.  As a result, inventories are on the rise, climbing by the fastest pace through the first seven months of the year since 2014.  The industry is becoming vulnerable to price discounting through the back half of the year unless consumer sales can catch up with growing supplies.  Once again, it is unclear if tariffs are taking a toll, but what is becoming clear is that the temperature is fading on the once red hot manufacturing sector.  Seasonally, durable goods orders rebound from the summer slump in August and September as the last push to complete products for shipping prior to the end of the year gets underway.  Further perspective on the state of durable manufacturing in the US can be obtained via the seasonal chart database at https://charts.equityclock.com/u-s-durable-goods-orders.

Value of Manufacturers' New Orders for Durable Goods Industries Seasonal Chart

Monthly Value of Manufacturers' New Orders for Durable Goods Industries Data

Value of Manufacturers' Total Inventories for Durable Goods Industries Seasonal Chart

Value of Manufacturers' New Orders for Capital Goods Industries  Seasonal ChartValue of Manufacturers' Total Inventories for Capital Goods Industries  Seasonal ChartValue of Manufacturers' New Orders for Computers and Related Products Industries Seasonal ChartValue of Manufacturers' New Orders for Motor Vehicles and Parts Industries  Seasonal Chart

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

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Seasonal charts of companies reporting earnings today:

American Woodmark Corporation (AMWD) Seasonal Chart  Heico Corporation (HEI) Seasonal Chart  Phibro Animal Health Corporation (PAHC) Seasonal Chart 

 

 

S&P 500 Index

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TSE Composite

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