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Stock Market Outlook for October 19, 2018

A shift from growth to value appears to be taking hold.

 

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:

FLIR Systems, Inc.  (NASDAQ:FLIR) Seasonal Chart

FLIR Systems, Inc. (NASDAQ:FLIR) Seasonal Chart

Lannett Co., Inc. (NYSE:LCI) Seasonal Chart

Lannett Co., Inc. (NYSE:LCI) Seasonal Chart

Covenant Transportation Group Inc. (NASD:CVTI) Seasonal Chart

Covenant Transportation Group Inc. (NASD:CVTI) Seasonal Chart

Hologic, Inc. (NASD:HOLX) Seasonal Chart

Hologic, Inc. (NASD:HOLX) Seasonal Chart

Canfor Corporation  (TSE:CFP) Seasonal Chart

Canfor Corporation (TSE:CFP) Seasonal Chart

Imperial Oil Limited  (TSE:IMO) Seasonal Chart

Imperial Oil Limited (TSE:IMO) Seasonal Chart

 

 

The Markets

Stocks showed another volatile session on Thursday as stocks took their cue from markets overseas.  The S&P 500 Index shed 1.44%, closing almost precisely at its rising 200-day moving average.  A shift from growth to value appears to be taking hold, which is having a toll on the momentum areas of the market, particularly FANG (Facebook, Amazon, Netflix, and Google).  Plotting the Russell 1000 Value index against its growth counterpart, value has clearly lagged growth for a number of years, but positive momentum divergences with respect to RSI and MACD suggests that the outperformance of growth is waning and value may have its time in the sun, at least temporarily.  The ratio is attempting to move above major moving averages at the 20 and 50-day.  The signal that it sends to the market is that there is an expectation that the growth phase in the economy is maturing, which would lead to more variable results for the broader equity market moving forward.  Seasonally, the ratio of the value index relative to growth tends to decline, on average, through to late November; value then tends to outperform growth between late November and early April.

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As a result of the shift from growth to value, the consumer discretionary and technology sectors presented the largest drag on the broad market benchmarks on Thursday.  Both benchmarks were down by over 2% on the day, which is continuing to take a toll on the relative performance of these two areas of the market that typically see positive seasonal tendencies starting around this time of year.  For now, they’ve provided little incentive to allocate towards them versus a position in the broader market, but the fundamentals for each sector continue to suggest that further gains in these two market segments should be expected.  Within the Seasonal Advantage Portfolio that we manage in partnership with CastleMoore, we have opted to stick to a core position that continues to outperform the S&P 500 Index as opposed to sending allocations down to the technology and discretionary sectors.  To find out more about this portfolio, email us at seasonalportfolio@equityclock.com.

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Consumer Discretionary Sector Seasonal Chart

DISCRETIONARY Relative to the S&P 500
DISCRETIONARY Relative to the S&P 500

DISCRETIONARY Monthly Averages

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Technology Sector Seasonal Chart

TECHNOLOGY Relative to the S&P 500
TECHNOLOGY Relative to the S&P 500

TECHNOLOGY Monthly Averages

On the economic front, the Philadelphia Fed released its monthly gauge of the sentiment of manufacturers within its region.  The headline print indicated that the Business Conditions Index of the Philadelphia Business Outlook Survey fell slightly to +22.2 in October from +22.9 previous.  Analysts were expecting a level of +20.0.  Stripping out the seasonal adjustments, the manufacturing business outlook survey came in at +20.7, which is almost double the average level of +10.6 for this time of year.  The below average result that was recorded in August appears to be an anomaly when looking at the longer-term trend, which suggests robust manufacturing activity in the US.  Seasonally, this sentiment gauge tends to drift lower through the fourth quarter as activity shifts more toward spending, as opposed to producing.

Philadelphia Manufacturing Business Outlook Survey Seasonal Chart

Receiving a boost from strong manufacturing conditions is the transportation industry, a recent survey of which indicated that spending on freight continues to rise above average.  Cass Information Systems indicated that shipments increased by 1.1% in September, while expenditures expanded by 2.5%.  The average change in shipments and expenditures for the month is +1.3% and +3.1%, respectively.  The growth in shipments has started to lag the seasonal average trend in recent months, but this may be with respect to the ongoing capacity issue within the shipping industry as shippers struggle to hire the workers required.  Expenditures, meanwhile, are trending well above average (3.3% above the seasonal norm as of the latest look), confirming that demand and pricing power remains intact.  Cass states that “ demand is exceeding capacity in most modes of transportation by a significant margin.”  Altogether, freight activity is pointing to an extraordinarily strong economy and we are still a ways off from the next economic downturn.  Freight has historically been an effective leading indicator with this regard.  Seasonally, both the shipments and expenditures gauge tend to drift lower through the last quarter of the year.

Cass Freight Index: Shipments  Seasonal Chart

Monthly Cass Freight Index: Shipments  Data

Cass Freight Index: Shipments Seasonal Chart

Cass Freight Index: Expenditures Seasonal Chart

Sentiment on Thursday, as gauged by the put-call ratio, ended bearish at 1.30.  This is the highest level since the end of June, just prior to the 7% to 10% rally that followed amongst major equity benchmarks.

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Seasonal charts of companies reporting earnings today:

Citizens Financial Group, Inc. (CFG) Seasonal Chart Cleveland-Cliffs Inc. (CLF) Seasonal Chart Euronet Worldwide, Inc. (EEFT) Seasonal Chart Gentex Corporation (GNTX) Seasonal Chart Honeywell International Inc. (HON) Seasonal Chart Interpublic Group of Companies, Inc. (The) (IPG) Seasonal Chart Kansas City Southern (KSU) Seasonal Chart ManpowerGroup (MAN) Seasonal Chart Procter & Gamble Company (The) (PG) Seasonal Chart Rogers Communication, Inc. (RCI) Seasonal Chart Schlumberger N.V. (SLB) Seasonal Chart Sensient Technologies Corporation (SXT) Seasonal Chart State Street Corporation (STT) Seasonal Chart SunTrust Banks, Inc. (STI) Seasonal Chart Synchrony Financial (SYF) Seasonal Chart V.F. Corporation (VFC) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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Seasonal Advantage Portfolio by CastleMoore

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