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Stock Market Outlook for April 2, 2019


Risk-on session fuels gap on the S&P 500 Index above previous resistance.

 

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:

Subscribers – Click on the relevant link to view the full profile. Not a subscriber? Signup here.

Merck & Co., Inc. (NYSE:MRK) Seasonal Chart

Merck & Co., Inc. (NYSE:MRK) Seasonal Chart

Capital Southwest Corp. (NASD:CSWC) Seasonal Chart

Capital Southwest Corp. (NASD:CSWC) Seasonal Chart

Liquidity Services Inc. (NASD:LQDT) Seasonal Chart

Liquidity Services Inc. (NASD:LQDT) Seasonal Chart

 

 

The Markets

Stocks surged on Monday as start of month inflows lifted broad market benchmarks to the highs of the year.  The S&P 500 Index added 1.16%, breaking above short-term resistance at 2860.  The large-cap benchmark is now around 70 points away from the all-time high realized in September around 2940 and Monday’s gap higher around 2860 creates a level of support in this path back to the previous high watermark. Seasonally, April is the second strongest month of the year for equity markets around the globe.  Looking to learn more about how to position your portfolio for the month ahead?  Signup now and we’ll send you our 61-page outlook, which contains our seasonal portfolio allocation to best position for the strength in this final month of the best six month trend for stocks.

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Trading action on the session was dominated by cyclical sectors as manufacturing reports out of China indicated that recent stimulus measures are having an impact.  The S&P 500 Industrial Sector Index added 2.07%, while the financial benchmark returned 2.42% as yields drifted higher.  Staples, Utilities, and REITs, the defensive sectors of the market, closed in the red.  This is characteristic of a risk-on market, often conducive to further gains ahead.  The month of April is seasonally dominated by cyclical market segments and so far we’re on the right track.  In the Seasonal Advantage Portfolio that we manage in partnership with Castlemoore, we ramped up our cyclical exposure at the end of last week in order to benefit from this start of month/quarter tendency.  Want to gain exposure to our strategy?  Email us at seasonalportfolio@equityclock.com for more information.

Cyclicals topping the tape

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Defensives close in the red

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And just like that, the fears over an inverted yield curve have abated.  Over recent week’s, investors had become hinged on the fact that the yield on the 3-month T-bill had surpassed the 10-year note.  The revelation brought out a new round of negative rhetoric from pronounced bears, proclaiming that we are still in the midst of a bear market.  The spread at the short-end of the curve has tuned back positive in recent sessions, although the trend is still firmly negative.  At some point, it appears inevitable, yields will invert across multiple points of the curve, not just the short-end, which will warrant scepticism pertaining to the strength of the economy and risk-sentiment overall.  However, we are still well away from this posing a concern.  Seasonally, treasury prices tend to decline in April, hitting a low in the middle of May, on average.

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30 Year U.S. Treasury Bonds Futures (US) Seasonality

On the economic front, it appears that manufacturing activity wasn’t the only segment of the economy impacted by unfavourable weather conditions in the month of February. Retail sales showed a headline decline of 0.2%, which was a miss versus expectations of a 0.3% increase. Less gas and autos, the decline was even more pronounced, down by 0.6%, missing estimates calling for a 0.4% rise. Stripping out the seasonal adjustments, retail sales were actually lower by 3.0% in February, which is well below the average change of -0.1% for this second month of the year. The year-to-date change is now nine-tenths of one percent above the seasonal average trend.  Subscribers received further insight on this important read of the US consumer, including how it relates to a couple of seasonal trades in our midst.  Want a copy?  Click on the following link to subscribe: https://charts.equityclock.com/subscribe

Retail Trade: Total Seasonal Chart

Monthly Retail Trade: Total Data

In other economic news, construction spending for February came in better than expected.  The headline print indicated that spending on construction projects increased by 1.0% in this winter month, catching analysts off guard with their predictions of a 0.2% decline.  Stripping out the seasonal adjustments, Total Construction Spending was actually higher by 2.0%, which is much stronger than the unchanged result that is average for the second month of the year.  The print places the year-to-to-date change 5.1% above the seasonal average trend, which represents the best start to a year in over 25 years.  While weather may have been a detriment to manufacturing and consumer spending in February, it doesn’t appear to have been a factor in private residential construction spending, which jumped by 3.8%, positively diverging from seasonal norms.  Private non-residential spending, meanwhile, was down 1.0%, negatively diverging from seasonal norms.  Seasonally, construction activity ramps up through the spring as the weather becomes more conducive to this type of activity.  Subscribers to Equity Clock can login and view the charts via the following link: https://charts.equityclock.com/u-s-construction-spending

Total Construction Spending  Seasonal Chart

Monthly Total Construction Spending  Data

Sentiment on Monday, as gauged by the put-call ratio, ended bullish at 0.84.

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Seasonal charts of companies reporting earnings today:

Altimmune, Inc. (ALT) Seasonal Chart AngioDynamics, Inc. (ANGO) Seasonal Chart Dave & Buster's Entertainment, Inc. (PLAY) Seasonal Chart EXFO Inc (EXFO) Seasonal Chart Gamestop Corporation (GME) Seasonal Chart Genius Brands International, Inc. (GNUS) Seasonal Chart Matinas Biopharma Holdings, Inc. (MTNB) Seasonal Chart Novagold Resources Inc. (NG) Seasonal Chart Walgreens Boots Alliance, Inc. (WBA) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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