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Stock Market Outlook for October 9, 2018

Average hourly earnings (wages) up 3.1% year-to-date, higher than the 2.8% YOY rate that the market is focussed on.

 

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:

Ethan Allen Interiors Inc.  (NYSE:ETH) Seasonal Chart

Ethan Allen Interiors Inc. (NYSE:ETH) Seasonal Chart

SEI Investments Company  (NASDAQ:SEIC) Seasonal Chart

SEI Investments Company (NASDAQ:SEIC) Seasonal Chart

Owens-Illinois, Inc.  (NYSE:OI) Seasonal Chart

Owens-Illinois, Inc. (NYSE:OI) Seasonal Chart

Northern Trust Corporation  (NASDAQ:NTRS) Seasonal Chart

Northern Trust Corporation (NASDAQ:NTRS) Seasonal Chart

Nucor Corporation  (NYSE:NUE) Seasonal Chart

Nucor Corporation (NYSE:NUE) Seasonal Chart

AK Steel Holding Corporation (NYSE:AKS) Seasonal Chart

AK Steel Holding Corporation (NYSE:AKS) Seasonal Chart

Cogeco, Inc. (TSE:CGO.TO) Seasonal Chart

Cogeco, Inc. (TSE:CGO.TO) Seasonal Chart

Universal Forest Products (NASD:UFPI) Seasonal Chart

Universal Forest Products (NASD:UFPI) Seasonal Chart

Investment Technology Group (NYSE:ITG) Seasonal Chart

Investment Technology Group (NYSE:ITG) Seasonal Chart

Royal Caribbean Cruises (NYSE:RCL) Seasonal Chart

Royal Caribbean Cruises (NYSE:RCL) Seasonal Chart

UnitedHealth Group Inc.  (NYSE:UNH) Seasonal Chart

UnitedHealth Group Inc. (NYSE:UNH) Seasonal Chart

Omnicom Group Inc.  (NYSE:OMC) Seasonal Chart

Omnicom Group Inc. (NYSE:OMC) Seasonal Chart

Alaska Air Group, Inc. (NYSE:ALK) Seasonal Chart

Alaska Air Group, Inc. (NYSE:ALK) Seasonal Chart

T. Rowe Price Group, Inc.  (NASDAQ:TROW) Seasonal Chart

T. Rowe Price Group, Inc. (NASDAQ:TROW) Seasonal Chart

Ameriprise Financial Inc. (NYSE:AMP) Seasonal Chart

Ameriprise Financial Inc. (NYSE:AMP) Seasonal Chart

Domtar, Inc. (TSE:UFS.TO) Seasonal Chart

Domtar, Inc. (TSE:UFS.TO) Seasonal Chart

Bunge Ltd. (NYSE:BG) Seasonal Chart

Bunge Ltd. (NYSE:BG) Seasonal Chart

Canadian General Investments, Ltd. (TSE:CGI) Seasonal Chart

Canadian General Investments, Ltd. (TSE:CGI) Seasonal Chart

USG Corporation (NYSE:USG) Seasonal Chart

USG Corporation (NYSE:USG) Seasonal Chart

IGM Financial Inc.  (TSE:IGM) Seasonal Chart

IGM Financial Inc. (TSE:IGM) Seasonal Chart

Vodafone Group Plc (ADR) (NASDAQ:VOD) Seasonal Chart

Vodafone Group Plc (ADR) (NASDAQ:VOD) Seasonal Chart

 

 

The Markets

Stocks sold off on Friday as investors reacted to a weaker than expected non-farm payroll report for September.  The headline print indicated that payrolls increased by 134,000 in September, missing estimates that called for a 180,000 rise.  But the focus for investors was likely centered on the wage figure, which rose 0.3% in the month, matching estimates, or a 2.8% increase year-over-year.  The year-over-year result is down one-tenth of a percent from last month’s multi-year high of 2.9%.  Stripping out the seasonal adjustments, payrolls actually increased by 350,000, or 0.2%, which is short of the average increase for September of 0.6%.  The year-to-date change has now converged with its seasonal average trend, higher by 0.8% through the first three quarters.  Construction and retail trade are starting to lag their average trends, while utilities and health care show trends that are firmly below average year-to-date.  The strength in the report continues to center around manufacturing, which is showing employment growth this year that is 1.6% above average, the best performance since 2012.  The inputs into the manufacturing process, such as mining, are also growing well above seasonal norms as demand for commodities remains strong. And once the goods are produced, the demand to ship the products has fuelled above average growth in air, rail, and truck transportation employment, each showing growth not seen in years.  Overall, suggestions of a strong economy are apparent in the results and this is acting as a catalyst for wage growth as the labor market tightens.  Average Hourly Earnings of Production and Nonsupervisory Employees was higher by 1.5% last month, which is well above the 1.2% increase that is average for the period.  This is the largest September increase since 1989 and justifies the reaction seen in the bond market in recent sessions as investors price in the risks of a more aggressive Fed policy.  The year-to-date increase in average hourly earnings of 3.1% is the best pace through the first three quarters since 2007.  Back then (2007), wages achieved a 4.2% calendar year increase, which is not out of the realm of possibilities for this year given the performance recorded thus far.  If the market spasms with expectations of a year-over-year increase in wages of around 3%, investors will certainly be on edge should hourly earnings surpass 4% on a year-over-year basis.  Seasonally, average hourly earnings rise by an average of six-tenths of one percent in the fourth quarter.  For a complete breakdown of the results, the charts are available in the database at  https://charts.equityclock.com/u-s-employment-situation.

Total Nonfarm Seasonal Chart

Monthly Total Nonfarm Data

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

Flipping to results north of the border, the headline print indicated that employment in Canada increased by 63,000 last month, the result of a large increase in part-time employment.  Stripping out the seasonal adjustments, employment actually declined by 85,200, or 0.5%, which is better than the 1.1% decline that is average for September.  The year-to-date change in employment is trending 1.1% below average, which is the weakest performance since the last recession.  Both full and part-time employment are showing an equivalent lag, underperforming average trends by 1.1%. The broader labour market appears sluggish, at least compared to results out of the US.  The trends in Canadian employment are almost opposite to those recorded in the US.  Manufacturing employment is down on the year, trending well below average.  Utilities employment is showing the largest increase through the first three quarters of the year since 1980.  Construction employment ticked higher in September, as opposed to the decline that was reported in the US.  The results in Canada show a clear divergence with the performance recorded south of the border as the more favourable tax environment draws activity into the US.  This weakness continues to be picked up in the trend of those that are unemployed, which, albeit down quite notably in September, is still trending above average year-to-date.  Seasonally, employment in Canada tends to gyrate lower through the fourth quarter as commodity sensitive employment declines.  For the rest of the charts, the results are available in the seasonal chart database at https://charts.equityclock.com/canada-labour-force-survey

Canada Employment Seasonal Chart

Canada Employment full-time Seasonal Chart Canada Employment part-time Seasonal Chart Canada Unemployment Seasonal Chart

Reaction to the employment report continued to place pressure on the bond market, resulting in another bump up in the cost of borrowing.  The yield on the 10-year treasury hit 3.25%, which is the highest level since the first half of 2011.  Drawing the lines on the monthly charts, a clear breakout has been recorded.  Looking at the past decade, 3% had proven to be a significant hurdle, a level that the rate had consolidated around this past summer.  And on a multi-decade look, the yield has broken out of a long-term declining trend channel, suggesting the conclusion of the long-term bull market in bonds.  Given the pace of increase over the past week, some digestion may be inevitable in order to solidify and confirm the advance.

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Rate fears took their toll on stocks to end the week with the S&P 500 Index shedding 0.55%.  The benchmark touched its rising 50-day moving average intraday, bouncing quite firmly from the lows of the session.  Daily momentum indicators, which had previously stalled, are now showing signs of rolling over as buyers step to the sidelines. Next week brings the start of the third quarter earnings season and investors may set aside rate fears, for the time-being, while they scrutinize the results from the past three months.  FactSet estimates the earnings growth rate for S&P 500 companies will be 19.2% once the third quarter results are tallied, keeping the 12-month forward multiple of the large-cap benchmark around 16.7.  The 5-year average forward P/E is 16.3.  Earnings per share remains on an upward trajectory and investors will be looking for confirmation that this trend can continue.  Seasonally, stock prices have gained on average between now and the end of the year over the past 20 years.

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Sentiment on Friday, as gauged by the put-call ratio, ended bearish at 1.19.  This is the highest level since the middle of August, just prior to the rally that pushed the S&P 500 Index to new highs.

 

 

Sectors and Industries entering their period of seasonal strength:

Soybeans Futures (S) Seasonal Chart
FUTURE_S1 Relative to the S&P 500FUTURE_S1 Relative to Gold

FUTURE_S1 Monthly Averages

Computer Hardware Industry Seasonal Chart
S5CMHW Index Relative to the S&P 500S5CMHW Index Relative to the Sector

S5CMHW Index Monthly Averages

Software & Services Industry Seasonal Chart
S5SFTW Index Relative to the S&P 500S5SFTW Index Relative to the Sector

S5SFTW Index Monthly Averages

Transportation Industry Seasonal Chart
S5TRAN Index Relative to the S&P 500S5TRAN Index Relative to the Sector

S5TRAN Index Monthly Averages

Railroads Industry Seasonal Chart
S5RAIL Index Relative to the S&P 500S5RAIL Index Relative to the Sector

S5RAIL Index Monthly Averages

 

 

Seasonal charts of companies reporting earnings today:

AZZ Inc. (AZZ) Seasonal Chart Helen of Troy Limited (HELE) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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