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Stock Market Outlook for October 2, 2018

Small-cap Russell 2000 Index rolling over, poised to test the lower limit of its long-term narrowing trading range.

 

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:

Compass Minerals International, Inc. (NYSE:CMP) Seasonal Chart

Compass Minerals International, Inc. (NYSE:CMP) Seasonal Chart

Skyworks Solutions Inc (NASDAQ:SWKS) Seasonal Chart

Skyworks Solutions Inc (NASDAQ:SWKS) Seasonal Chart

Visa Inc (NYSE:V) Seasonal Chart

Visa Inc (NYSE:V) Seasonal Chart

Monsanto Company (NYSE:MON) Seasonal Chart

Monsanto Company (NYSE:MON) Seasonal Chart

Manpower Inc.  (NYSE:MAN) Seasonal Chart

Manpower Inc. (NYSE:MAN) Seasonal Chart

Deere & Company  (NYSE:DE) Seasonal Chart

Deere & Company (NYSE:DE) Seasonal Chart

Cisco Systems, Inc.  (NASDAQ:CSCO) Seasonal Chart

Cisco Systems, Inc. (NASDAQ:CSCO) Seasonal Chart

Costco Wholesale Corporation  (NASDAQ:COST) Seasonal Chart

Costco Wholesale Corporation (NASDAQ:COST) Seasonal Chart

Korn Ferry Intl (NYSE:KFY) Seasonal Chart

Korn Ferry Intl (NYSE:KFY) Seasonal Chart

Companhia Brasileira de Distribuicao (NYSE:CBD) Seasonal Chart

Companhia Brasileira de Distribuicao (NYSE:CBD) Seasonal Chart

 

 

The Markets

Stocks started the new month and quarter on a positive note as investors reacted positively to the trilateral trade agreement between the US, Canada, and Mexico.  The S&P 500 Index closed the session higher by just over a third of a percent, which is less than half of the gain that was shown at the highs of the session.  The TSX Composite returned just less than two-tenths of a percent, also a fraction of the gains seen earlier in the day.  Weakness in rate sensitive areas of the market, such as REITs and Utilities, dragged on the broad market performance as yields moved higher on the session.  Seasonally, these bond proxies tend to be the weakest segments of the market in October and so far this tendency is playing out according to historical norms.

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Utilities Sector Seasonal Chart

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

UTILITIES Monthly Averages

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MSCI US REIT Index Seasonality

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

Monthly Seasonal MSCI US REIT Index

Investors were seen buying into material, industrial, and energy stocks, the sectors most exposed to the strength of the broader economy.  These are also the areas that have lagged the market performance this year, in part due to trade concerns.  The S&P 500 Industrial Sector Index bounced firmly from support around its rising 20-day moving average, seemingly poised to take a run at the all-time high charted in January at 680.  A double-bottom pattern charted in the middle of the year around 595 suggests an upside target beyond 690, or another 3.8% above present levels.  The benchmark has been outperforming the broader market since July.  Seasonally, the sector enters its period of strength in the present month.

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Industrials Sector Seasonal Chart

INDUSTRIAL Relative to the S&P 500
INDUSTRIAL Relative to the S&P 500

INDUSTRIAL Monthly Averages

But while those sectors and broad market benchmarks that ended in the green attracted attention through the session, those areas that finished in the red are rather striking.  The Nasdaq Composite closed lower by 0.11% and the Small-cap Russell 2000 Index closed down by 1.39%, ending firmly below its 50-day moving average.  Momentum indicators for the small-cap benchmark have been negatively diverging from price for the past few months and are now into bearish territory. Seasonally, the Russell 2000 Index has tended to lag the S&P 500 Index performance in this first month of the fourth quarter given the sensitivity that many stocks in this space have towards the rising cost of borrowing.  The Russell 2000 Index has been trading within a narrowing range since the start of 2016 and the all-time charted in August tested the upper limit of this span.  Trendline support hovers around 1625, a level that if tested may setup well for the seasonally favourable time of year through November and into the new year.

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RUSSELL 2000 Index Seasonal Chart

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

$RUT Monthly Averages

On the economic front, a report on construction spending in the US was released after Monday’s opening bell.  The headline print indicated that construction spending increased by 0.1% in August, which was short of the 0.4% increase forecasted by analysts.  Stripping out the seasonal adjustments, total construction spending actually increased by 0.8%, which is weaker than the 2.5% increase that is average for what is typically the peak month for construction activity.  Year-to-date, construction spending is higher by 26.1% so far in 2018, which is 2.3% below average through this time of year.  Private spending was the weight as both residential and non-residential spending lag average trends; public spending, meanwhile, is trending well above average through the month of August, driven by a surge in office and highway/street construction.  The only segment on the public side that is showing below average activity is power construction.  On the private non-residential side, commercial, health care, education, transportation, communication, power, and manufacturing are all showing below average performance in 2018.  The only categories that are trending above average on the private side are office, religious, and amusement construction.  Overall, the breadth of private construction spending leaves much to be desired, particularly in a year where companies have committed to investing back in the US following the passage of the more business friendly tax plan at the end of last year.  Public spending has attempted to pick up the slack, preventing a more pronounced lag compared with seasonal norms.  Seasonally, construction spending tends to decline through the last four months of the year as projects are put off until the spring.

Total Construction Spending  Seasonal Chart

Monthly Total Construction Spending  Data

Total Construction Spending Seasonal Chart

Private Construction Spending: Nonresidential  Seasonal Chart Private Construction Spending: Residential  Seasonal Chart Public Construction Spending Seasonal Chart

Sentiment on Monday, as gauged by the put-call ratio, ended bearish at 1.01.  Typically during news events where an overhang has been lifted from the market, investors will typically strip off portfolio hedges, leading to periods of complacency  This is clearly not the case presently as investors continue to look for ways to protect portfolio positions.  Fortunately for investors, this cautious stance tends to mitigate the impact of market shocks, should one be realized.

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Sectors and Industries entering their period of seasonal strength:

Dow Jones Transportation Average Seasonality

$TRAN Relative to the S&P 500

Monthly Seasonal Dow Jones Transportation Average

 

 

Seasonal charts of companies reporting earnings today:

Landec Corporation (LNDC) Seasonal Chart Novagold Resources Inc. (NG) Seasonal Chart Paychex, Inc. (PAYX) Seasonal Chart Pepsico, Inc. (PEP) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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