Stock Market Outlook for October 17, 2019
Retail sales fell by 8.9% (NSA) in September, weaker than the 7.1% decline that is average for the month.
*** 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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OneSpan Inc. (NASD:OSPN) Seasonal Chart
Fastenal Co. (NASD:FAST) Seasonal Chart
Associated Banc-Corp. (NYSE:ASB) Seasonal Chart
Exchange Income Corp. (TSE:EIF.TO) Seasonal Chart
The Markets
Stocks closed mildly lower on Wednesday as investors reacted to a weaker than expected retail sales report for September. The headline print indicated that retail trade declined by 0.3% in September, which is a miss compared to the 0.3% increase that was expected by analysts. Less gas and autos, retail trade was unchanged, which was still a miss versus the 0.3% consensus increase. Stripping out the seasonal adjustments, retail sales actually declined by 8.9% in September, which is weaker than the 7.1% decline that is average for the month. The year-to-date change has now narrowed to 3.0% above the seasonal average trend, which remains the best performance through the first three-quarters in at least 27 years. We sent out further analysis to subscribers on Wednesday, including the investment implications pertaining to a seasonal trade that we initially highlighted in August. Subscribe now.
The S&P 500 Index dipped by two-tenths of one percent, led by technology and energy. The other sectors were essentially flat on the day as investors adopt a wait-and-see approach given the ongoing release of third quarter earnings reports. Thus far, the general perception is that earnings are coming in better than expected, alleviating fears that we are on the precipice of a recession. Seasonally, equity markets tend to be volatile in the middle of October as investors digest the results.
Taking a look at the volatility index (VIX), volatility is certainly not a concern at present. The VIX is hovering around 14, which is amongst the lowest levels of the past couple of months. The so-called “fear gauge” typically peaks by the middle of October then declines through the remainder of the fourth quarter as investors become comfortable with taking on risk; equity markets tend to rise over this timeframe, peaking in the fist week of the new year, on average, at which time the earnings digestion begins again. The fact that the VIX is at such a depressed level for the middle of October and stocks remain close to all-time highs suggests that opportunities for the best six months of the year may be limited and the risk-reward of accumulating higher beta assets may not be as ideal had seasonal norms played out into the current earnings season. As we’ve encouraged our readers to do during the summer, take advantage of volatility when it is presented to you, something that we have done in the Seasonal Advantage Portfolio that we manage in partnership with Castlemoore.
Sentiment on Wednesday, as gauged by the put-call ratio, ended slightly bullish at 0.93.
Sectors and Industries entering their period of seasonal strength:
DISCRETIONARY Relative to the S&P 500 
Seasonal charts of companies reporting earnings today:
S&P 500 Index
TSE Composite
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