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Stock Market Outlook for September 24, 2018

S&P 500 Index back testing the upper limit of its rising intermediate trend channel.

 

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:

State Street Corporation  (NYSE:STT) Seasonal Chart

State Street Corporation (NYSE:STT) Seasonal Chart

Aegon NV (NYSE:AEG) Seasonal Chart

Aegon NV (NYSE:AEG) Seasonal Chart

Euronet Services, Inc. (NASD:EEFT) Seasonal Chart

Euronet Services, Inc. (NASD:EEFT) Seasonal Chart

Generac Holdings Inc. (NYSE:GNRC) Seasonal Chart

Generac Holdings Inc. (NYSE:GNRC) Seasonal Chart

The Walt Disney Company  (NYSE:DIS) Seasonal Chart

The Walt Disney Company (NYSE:DIS) Seasonal Chart

Dynacor Gold Mines Inc. (TSE:DNG) Seasonal Chart

Dynacor Gold Mines Inc. (TSE:DNG) Seasonal Chart

Oshkosh Corporation  (NYSE:OSK) Seasonal Chart

Oshkosh Corporation (NYSE:OSK) Seasonal Chart

Rockwell Automation  (NYSE:ROK) Seasonal Chart

Rockwell Automation (NYSE:ROK) Seasonal Chart

 

 

The Markets

Stocks closed mixed on Friday as weakness in technology and consumer discretionary amidst the reconstitution of the new communications services sector dragged on market performance.  The S&P 500 Index shed a mere four basis points (0.04%), reversing gains seen throughout much of the day.  The benchmark is back to the upper limit of its rising intermediate trend channel, suggesting that it is reasonable to expect short-term profit taking around present levels.  While signs of rotation have become apparent, the typical tendency of declines going into the last week and a half of the quarter is predominantly absent.  It is very difficult to send the market lower when investors are continuously finding places to rotate to.  The outperformers in the technology sector (particularly FANG) are giving way to outperformance in the industrial, materials, and financial sectors as investors look for areas that have not participated in the broader market move since the beginning of May.  This rotation is a sign of a healthy market as investors let down their guard and take on risk assets.  Still, we cannot help but think that caution will re-emerge at some point before the mid-term elections as investors price in the risk of the Republicans losing control of congress.  The transition of power from one party to the other in mid-term election years has historically resulted in weak equity market performance between April and October, but so far a trend opposite to the norms has been realized.  The month of October, while historically positive, on average, has shown volatile results in the past and trends can change.  The technicals will provide us with the appropriate signal, rather than relying on the calendar date tendencies alone.

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With economic news in the US light on Friday, we turn to data released out of Canada, where Statscan released data pertaining to consumer prices and retail sales.  First up, the consumer price index (CPI).  The gauge of inflation, which is one of the rare reports where the headline print is the non-seasonally adjusted result, fell by 0.1% in August, negatively diverging from the 0.1% increase that is average for the summer month.  Year-to-date, CPI for all items is higher by 2.6% through the month of August, which is six-tenths of one percent above the seasonal average trend.  This is the strongest pace through the first two thirds of the year since 2008.  Mortgage Interest, transportation, and fuel remain as standouts in the report, supporting the above average gains in the aggregate result.  Other highlights include a much larger than average increase in dry cleaning services, which rose by 1.2% in the month, more than double the 0.5% average increase.  Financial services also came up on the radar, showing an abnormal jump of 0.8% when no change has been the norm for August over the past 15 years.  Typically, the price of financial services jump in the month of September.  Also important to highlight, the rate of change of rent prices is steepening as mortgage rates rise.  The increase in rent is running around two-tenths of a percent above the seasonal average trend, which may not seem like much, but it is the strongest pace since 2013.  The increasing cost of mortgage financing is having an impact whether you are a home owner or not.  The strength in total CPI is likely to continue to pressure the Bank of Canada to raise  rates as it attempts to normalize policy, much like the US.  Seasonally, the consumer price index tends to peak in the month of September, declining thereafter.  For a breakdown of the results, the charts are available in the database at https://charts.equityclock.com/canada-consumer-price-index-cpi.

Canada CPI - All-items Seasonal Chart

Monthly Canada CPI - All-items Data

Also released by Statscan was retail trade for the month of July.  The headline print indicated that retail sales increased by 0.3% in this summer month, missing estimates that called for a rise of 0.4%.  Stripping out the seasonal adjustments, retail trade actually fell by 4.0%, weaker than the average change for this time of year of –1.0%.  The year-to-date change now sits 4.6% above the seasonal average trend, which is about inline with last year’s pace.  Helping to support the above average change are sales at furniture, electronics, building materials, clothing, and general merchandise stores, each of which are trending firmly above normal through the end of July.  The drag comes in the areas of gasoline stations and automobile dealers, which may be seeing the impacts of higher gas prices.  The price of the energy commodity showed gains into this summer month that were well above average, but yet sales at gasoline stations are running below the seasonal norm, an indication that consumers cut back on driving activity in order to constrain expenses.  Overall, the consumer in Canada is still managing to hold on, continuing to spend while supporting the broader economy, but there are serious question marks as to how long.  Rising housing and transportation costs threaten to encroach on some of these other areas that are fuelling growth.  The problem would get even worse if NAFTA is not resolved and energy investment falters as a result of the limitations surrounding pipeline construction.  The Canadian economy is vulnerable as activity is increasingly drawn south of the border given the more competitive tax landscape.  But if you are thinking that you will be able to see weakness in consumer spending before economic activity turns lower, think again.  The consumer is typically a lagging indicator of broader economic activity as they will typically continue to spend even if it entails using debt to fund the habit.  Seasonally, retail sales in Canada tend to gravitate lower into the fourth quarter before spiking in November and December surrounding the holiday season.  For a breakdown of the results, the charts are available in the database at https://charts.equityclock.com/canada-retail-trade-sales.

Retail trade Seasonal Chart

Monthly Retail trade Data

Sentiment on Friday, as gauged by the put-call ratio, ended close to neutral at 0.98.

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Sectors and Industries entering their period of seasonal strength:

SMI Seasonal Chart

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

$SMI Monthly Averages

Soft Drinks Industry Seasonal Chart
S5SOFD Index Relative to the S&P 500S5SOFD Index Relative to the Sector

S5SOFD Index Monthly Averages

 

 

Seasonal charts of companies reporting earnings today:

Ascena Retail Group, Inc. (ASNA) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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