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Stock Market Outlook for June 28, 2019


Ratio of financials versus REITs suggesting a leadership change may be in the works, even with rates around multi-year lows.

 

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:

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Goldman Sachs Group, Inc. (NYSE:GS) Seasonal Chart

Goldman Sachs Group, Inc. (NYSE:GS) Seasonal Chart

CrossAmerica Partners LP (NYSE:CAPL) Seasonal Chart

CrossAmerica Partners LP (NYSE:CAPL) Seasonal Chart

Element Financial Corp. (TSE:EFN.TO) Seasonal Chart

Element Financial Corp. (TSE:EFN.TO) Seasonal Chart

Rogers Communications, Inc. (TSE:RCI/B.TO) Seasonal Chart

Rogers Communications, Inc. (TSE:RCI/B.TO) Seasonal Chart

Belo Sun Mining Corp. (TSE:BSX.TO) Seasonal Chart

Belo Sun Mining Corp. (TSE:BSX.TO) Seasonal Chart

WSFS Financial Corp. (NASD:WSFS) Seasonal Chart

WSFS Financial Corp. (NASD:WSFS) Seasonal Chart

Walgreens Boots Alliance, Inc. (NASD:WBA) Seasonal Chart

Walgreens Boots Alliance, Inc. (NASD:WBA) Seasonal Chart

 

 

The Markets

Stocks drifted higher on Thursday as investors jockeyed for position ahead of the end of the month and quarter, as well as ahead of the G20 event this weekend.  The S&P 500 Index added just less than four-tenths of one percent, buoyed by strength in the Financial sector.  the S&P 500 Financial Sector added nine-tenths of one percent, continuing to grind around its rising 50-day moving average.  With yields at multi-year lows, the financials don’t appear to be suffering much.  While the sector has underperformed the market for almost a year and a half, the absolute trend is trying to firm, maintaining a pace of higher-highs and higher-lows from the December low.  By comparison, those beneficiaries of lower rates, such as REITs, are looking a little vulnerable around these multi-year high levels.  The trend in these interest rate sensitive securities remains that of higher-highs and higher-lows, however, the swift downturn in the industry benchmark over the past week as yields remained around the lows of the year suggests some twitchiness on the part of investors to maintain lofty allocations.  A simple relative chart of the S&P 500 Financial Sector Index versus the MSCI US REIT Index shows a bottoming pattern as the beneficiaries of lower rates (the REITs) start to see their relative performance fade compared to those stocks that are typically hindered by the low cost of borrowing.  The fact that yield spreads at the long end of the curve have not compressed as they have on the short end would be a benefit to lending institutions.  Momentum indicators on the relative chart have been trending higher since the fourth quarter, suggesting a change in leadership may be in the works, away from the REITs and into the financials.  Of course, the implication of what investors expect rates will do seems fairly obvious; investors may be pricing in a potential low for yields.  Seasonally, REITs tend to remain strong through the third quarter, while financials tend to weaken in August and September following strength in July.

imageFinancial Sector Seasonal Chart

imageMSCI US REIT Index Seasonality

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With financials accounting for the largest sector in the Small Cap Russell 2000 index, perhaps it is no surprise to see this beleaguered benchmark rally on the day.  The small cap index was higher by almost 2% in the second to last trading day of the month, finding support around around its 20-day moving average.  The benchmark closed the day at its 50-day moving average, which, if you followed our work you’ll know, is a logical place to pin to going into an uncertain event.  The Russell has been indicative of risk sentiment, underperforming the broader market as investors trim beta from portfolios.  The outcome of this weekend will be key.  Despite the domestic focus of the companies represented in this benchmark, the lag in performance in the midst of the tariff war has been significant, suggesting that if there is any alleviation to the trade woes that this segment of the market could flourish.  The relative trend remains that of lower-lows and lower-highs, an indication that buying demand remains absent. The defensive positioning in the market suggests that cyclical sectors have the most to gain if positive news is revealed.  Seasonally, the Russell 2000 Index tends to underperform in the month of July, in the midst of the broader summer equity market rally.

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RUSSELL 2000 Index Seasonal Chart

Sentiment on Thursday, as gauged by the put-call ratio, ended bullish at 0.89.

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Seasonal charts of companies reporting earnings today:

Constellation Brands Inc (STZ) Seasonal Chart JinkoSolar Holding Company Limited (JKS) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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