Stock Market Outlook for October 31, 2018
S&P 500 Index on track to close out the weakest October since 2008.
*** 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:
Aetna Inc. (NYSE:AET) Seasonal Chart
Zoetis Inc. (NYSE:ZTS) Seasonal Chart
First Majestic Silver Corp. (TSE:FR) Seasonal Chart
Aegion Corp. (NASD:AEGN) Seasonal Chart
Jazz Pharmaceuticals plc (NASDAQ:JAZZ) Seasonal Chart
Express Scripts, Inc. (NASDAQ:ESRX) Seasonal Chart
The Markets
Happy Halloween! Strong day for stocks on Tuesday saw major equity benchmarks in the US regain the losses from the session prior. The S&P 500 Index gained 1.57%, the Nasdaq Composite was higher by 1.58%, and the Dow Jones Industrial Average added 1.77%. A bounce-back in cyclical stocks as investors pared negative bets ahead of the close of the month led the advance on the session. The S&P 500 Index remains lower on the month by around 8%, which, if realized as the end of month return, would present the weakest October since 2008. It would also be the fourth weakest October performance in the past 50 years, trailing behind the 21.76% decline in October of 1987, the 16.94% decline in October of 2008, and the 9.16% decline in October of 1978. In two of the three weaker Octobers, the heavy losses continued into the month of November, while the other saw a minor retracement of 1.66% in the month that followed. The months of November and December are a seasonally strong time of year for stocks, but, given that the performance of the market this year has been somewhat contrary to seasonal norms, it remains prudent to stay on your toes through the period ahead as volatility to the magnitude recorded in the past month typically doesn’t go away in an instant.
On the economic front, after a few concerning reports on the housing market from a sales and inventory perspective, there is now increasing evidence that strength is fading with regards to home prices. The headline print of the Case-Shiller Home Price Index indicated that prices increased by 0.1% in August, inline with the consensus analyst estimate. Stripping out the seasonal adjustments, home prices were flat (0.0%) in the month, which is well below the 0.5% increase that is average for August. The year-to-date change is now a mere three-tenths of one percent above the seasonal average trend, which is the weakest performance through this point in the year since 2011. Typically home prices peak for the year in September, but July’s high may become the watermark for this year. Parsing the cities, the weakness continues to be embedded in the areas where prices were elevated to begin with, making them more vulnerable to a pullback. San Francisco, New York, San Diego, and Washington all recorded abnormal declines in prices for the month, while Boston, Los Angeles, and Denver showed a flat results, despite strongly positive tendencies for this summer month. The only city to buck the trend of flat to negative returns through the summer is Las Vegas, which continues to show price gains that are well above average. Prices in this city are up 10.2% through August versus the average gain by this point in the year of 3.5%. Seasonally, prices tend to fall or stagnate across the country in the fourth quarter. For a breakdown of the price momentum across the cities, the seasonal charts are available in the database at https://charts.equityclock.com/sp-corelogic-case-shiller-home-price-index-city-breakdown.
Sentiment on Tuesday, as gauged by the put-call ratio, ended bearish at 1.18.
Seasonal charts of companies reporting earnings today:
S&P 500 Index
TSE Composite
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