Stock Market Outlook for June 6, 2019
Ratio of the Junk Bond ETF versus the Investment Grade ETF bouncing from long-term support; seasonal tendencies, however, turn negative between June and November.
*** 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:
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Cobiz Financial Inc. (NASD:COBZ) Seasonal Chart
Tompkins Financial Corp. (AMEX:TMP) Seasonal Chart
Verizon Communications (NYSE:VZ) Seasonal Chart
The Bank of Nova Scotia (TSE:BNS.TO) Seasonal Chart
The Markets
Stocks rallied for a second day as investors reallocate portfolios following dovish comments from Fed officials in recent days. The S&P 500 Index added just over eight-tenths of one percent, trading back to its 20-day moving average, now at 2828. Defensive sectors, including staples, utilities, and REITs, topped the leaderboard, suggesting risk-aversion amongst investors. The S&P 500 Utilities Sector Index closed at a new all-time high as investors continue to seek shelter amidst ongoing trade uncertainties. The consensus in the market remains that there are downside risks for stocks.
One of the factors that have helped to fuel the strength in the broad equity market over the past couple of sessions has been the improvement of risk sentiment in the bond market. The ratio of the Junk bond ETF versus Investment Grade Bond ETF collapsed in the month of May, moving lower from a significant level of resistance that spans the past six months. The ratio retraced the gains from the December low, finding support around multi-year lows. For the time-being, a trading range is implied, however, a breakdown could send a strong signal that bond market sentiment has soured, likely to coincide with a further downshift in risk in equity portfolios. Seasonally, the ratio between Junk and Investment Grade tends to decline between June and November as risk sentiment turns negative more generally through the third quarter.
On schedule for the Wednesday session, the weekly petroleum status for the US was released. The EIA is reporting that oil inventories increased by 6.8 million barrels last week, while gasoline and distillate stockpiles grew by 3.2 million and 4.6 million barrels, respectively. The result elevated the days of supply of each with oil rising by two-tenths of a day to 28.9 and gasoline rising by half of a day to 22.5. The average for each at this time of year is 23.1 and 24.4, respectively. For oil, this remains one of the highest days of supply for this time of year on record. We sent out further analysis of this critical gauge of the oil market to subscribers intraday, including what to look for in order to become aggressive in the energy sector. Subscribe now to receive this and future reports that provide guidance on how to allocate your seasonal portfolio.
Sentiment on Wednesday, as gauged by the put-call ratio, ended neutral at 0.99. Investors continue to use the options market to hedge their portfolios, which has been very beneficial to the stock of CME, the world’s leading derivatives exchange. Recall, CME was a top pick of ours on the May 10th episode of BNN’s Market Call; the stock is up over 11% since that date, while the broader market, as gauged by the S&P 500 Index, is down by 1.55%.
Seasonal charts of companies reporting earnings today:
S&P 500 Index
TSE Composite
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