Stock Market Outlook for July 12, 2019
The parabolic state of the bond market showing signs of unwinding.
*** 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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Curtiss Wright Corp. (NYSE:CW) Seasonal Chart
The Markets
Stocks pushed higher on Thursday as bond prices fell lower, signalling an unwind of the previous defensive trade. The S&P 500 Index added around a quarter of one percent, achieving a new all-time closing high. The benchmark is now less than a tenth of a point from the psychologically important level of 3000. Joining the large-cap benchmark in record high territory was the Dow Jones Industrial Average, which crossed a psychological level of its own at 27,000. The level had been a critical barrier over the past year and a half and while Thursday’s break is not definitive as of yet, it is further evidence that this market is willing to make an attempt to move beyond the previous prolonged trading range. Financials topped the leaderboard as bond yields increased from recent 52-week lows.
Bond yields have been on the decline for the past nine months, creating one of the largest gaps below major moving averages in years. Presently at 2.1%, the 10-year treasury note is a full half of a percent below its 200-day moving average. The last time that a similar situation was apparent was in July of 2016 when the yield on the 10-year bond fell to a record low 1.37%. The lending rate more than doubled in the 15 months that followed as the stretched downside condition unwound. Parabolic trends, whether it be with respect to price or, in this case, yields are often unsustainable and a check-back is typically required. Seasonally, bond yields typically decline through the summer as prices move higher, however, given the stretched condition, a move lower in yields in the near-term may be difficult to achieve.
On the economic front, a report on the Consumer Price Index (CPI) in the US was released before Thursday’s opening bell. The headline print indicated that prices increased by 0.1% in June, slightly stronger than the consensus estimate that called for no change. The year-over-year change ticked lower from 1.8% to 1.6%, falling short of the Fed’s two percent target. Core inflation (excluding food and energy), meanwhile, was higher by 0.3% in the month, surpassing the 0.2% estimate, elevating the year-over-year pace to 2.1%. Stripping out the seasonal adjustments, the Consumer Price Index for All Urban Consumers was essentially unchanged in June, which is weaker than the 0.2% increase that is average for this period. The year-to-date change remains higher by 1.9%, which is two-tenths of a percent below the seasonal average trend. We sent out further analysis to subscribers intraday. Subscribe now to be included on future distributions.
Sentiment on Thursday, as gauged by the put-call ratio, ended bullish at 0.88.
Seasonal charts of companies reporting earnings today:
S&P 500 Index
TSE Composite
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