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Stock Market Outlook for October 5, 2018

Investors may have reason for concern pertaining to the payroll report: September is typically the strongest month for wage growth.

 

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:

Summit Financial Group Inc. (NASD:SMMF) Seasonal Chart

Summit Financial Group Inc. (NASD:SMMF) Seasonal Chart

DXC Technology Company (NYSE:DXC) Seasonal Chart

DXC Technology Company (NYSE:DXC) Seasonal Chart

Synopsys, Inc. (NASD:SNPS) Seasonal Chart

Synopsys, Inc. (NASD:SNPS) Seasonal Chart

United Technologies Corporation  (NYSE:UTX) Seasonal Chart

United Technologies Corporation (NYSE:UTX) Seasonal Chart

Chesapeake Lodging Trust (NYSE:CHSP) Seasonal Chart

Chesapeake Lodging Trust (NYSE:CHSP) Seasonal Chart

Centene Corp (NYSE:CNC) Seasonal Chart

Centene Corp (NYSE:CNC) Seasonal Chart

Enercare Inc. (TSE:ECI) Seasonal Chart

Enercare Inc. (TSE:ECI) Seasonal Chart

Home Capital Group Inc (TSE:HCG) Seasonal Chart

Home Capital Group Inc (TSE:HCG) Seasonal Chart

S&P Global Inc. (NYSE:SPGI) Seasonal Chart

S&P Global Inc. (NYSE:SPGI) Seasonal Chart

CI Financial Corp.  (TSE:CIX) Seasonal Chart

CI Financial Corp. (TSE:CIX) Seasonal Chart

Nutrien Ltd. (TSE:NTR.TO) Seasonal Chart

Nutrien Ltd. (TSE:NTR.TO) Seasonal Chart

 

 

The Markets

The bears emerged from hibernation on Thursday as fear fuelled by a spike in rates had investors trimming risk within portfolios.  The S&P 500 Index closed down by eight-tenths of one percent, representing the largest one-day drawdown since the end of June.  Momentum stocks were a clear driver of the weakness, particularly those in the technology, consumer discretionary, and communication services sectors.  The momentum ETF (MTUM) realized a decline of close to 1.6%, almost double the loss of broad market benchmarks.  Rising 20-day moving averages were pierced on both the S&P 500 Index and momentum ETF, hinting of possible short-term pains ahead.  While momentum indicators remain in bullish territory, they have stalled in recent months, perhaps setting up for a retracement ahead.  The roll-over on the S&P 500 index follows a test of the upper limit of a rising trading range that has been intact through the spring and summer; trend channel support presently hovers around 2850.

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The “shock in stocks” comes ahead of the release of the non-farm payroll report for September, which analysts anticipate will show the addition of 180,000 payrolls for the month.  The average increase for the month is 0.6%, which would imply the actual, non-seasonally adjusted addition of 895,000 payrolls.  Total non-farm payrolls has held a fairly consistent above average trend in 2018 as employers seek to expand their workforce in this booming economy.  But it is not the payroll number that investors have their eye on, but rather average hourly earnings.  Following last month’s 2.9% year-over-year change in the wage gauge, the concern in the market is that another “hot” number could entice the Fed to be more aggressive in its normalization policy.  September is typically the strongest month of the year for wage gains as lower paid summer hires fall out of the tally and higher paid full-time hires are added.  The average increase of hourly earnings is 1.2% in the month, but, with the low inflation environment, it has been a number of years since we’ve seen a print around that norm.  Actual hourly earnings have essentially remained unchanged since the spring, certainly not reflecting the strength that has been portrayed in the seasonally adjusted result.  We’ll have the breakdown of September’s results in our next report.

Total Nonfarm Seasonal Chart

Monthly Total Nonfarm Data

http://charts.equityclock.com/seasonal_charts/economic_data/CEU0500000008_seasonal_chart.PNG

On the economic front, a report on factory activity indicated a much larger than average increase of new orders for the month of August.  The headline print indicated that factory orders increased by 2.3% in the last full month of summer, edging past estimates that called for a 2.1% increase.  Stripping out the seasonal adjustments, the Value of Manufacturers’ New Orders for All Manufacturing Industries actually increased by 10.1% for the month, firmly above the 7.9% increase that is average for August.  The year-to-date change of the aggregate result is now running 6.2% above average, the best performance since 2011.  Parsing the details, orders for computers and related products continues to stand out, showing a pace this year that is 22.4% above average, the best performance on record.  Also standing out is orders of motor vehicles and parts, which surged in August to the highest level of the year.  Orders in this category are now running 13.2% above average through the end of August, representing the best performance since 2002.  The outperformance across the categories remains quite broad, encompassing everything from fertilizers to metals; some of the weaker areas of the report are merely showing trends that are inline with seasonal norms.  Manufacturing activity has flourished in the US as the Trump administration enacts its America First agenda, thereby pulling activity away from other countries around the globe.  While manufacturing sentiment indicators have shown variable results in recent months, in part due to concerns pertaining to trade, the actual data has yet to show any signs of strain.  Seasonally, factory orders continue to rise through the month of September, then decline through the fourth quarter as activity shifts from production to end of year spending.  For a complete breakdown of the results, the seasonal charts are available at https://charts.equityclock.com/u-s-factory-orders

Value of Manufacturers' New Orders for All Manufacturing Industries Seasonal Chart

Monthly Value of Manufacturers' New Orders for All Manufacturing Industries Data

Sentiment on Thursday, as gauged by the put-call ratio, ended bearish at 1.07.

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Seasonal charts of companies reporting earnings today:

  • No significant earnings scheduled

 

S&P 500 Index

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TSE Composite

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