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Stock Market Outlook for January 10, 2020


An end of year surge in continuing jobless claims has resulted in the largest calendar year increase since 2008!

 

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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ONEX Corp. (TSE:ONEX.TO) Seasonal Chart

ONEX Corp. (TSE:ONEX.TO) Seasonal Chart

American Woodmark Corp. (NASD:AMWD) Seasonal Chart

American Woodmark Corp. (NASD:AMWD) Seasonal Chart

Cineplex Inc. (TSE:CGX.TO) Seasonal Chart

Cineplex Inc. (TSE:CGX.TO) Seasonal Chart

Bed Bath & Beyond, Inc. (NASD:BBBY) Seasonal Chart

Bed Bath & Beyond, Inc. (NASD:BBBY) Seasonal Chart

Metro, Inc. (TSE:MRU.TO) Seasonal Chart

Metro, Inc. (TSE:MRU.TO) Seasonal Chart

Smith AO Corp. (NYSE:AOS) Seasonal Chart

Smith AO Corp. (NYSE:AOS) Seasonal Chart

Flowers Foods, Inc. (NYSE:FLO) Seasonal Chart

Flowers Foods, Inc. (NYSE:FLO) Seasonal Chart

Colgate-Palmolive Co. (NYSE:CL) Seasonal Chart

Colgate-Palmolive Co. (NYSE:CL) Seasonal Chart

Brown-Forman Corp. - Class B (NYSE:BF/B) Seasonal Chart

Brown-Forman Corp. – Class B (NYSE:BF/B) Seasonal Chart

Hershey Foods Corp. (NYSE:HSY) Seasonal Chart

Hershey Foods Corp. (NYSE:HSY) Seasonal Chart

Dunkin' Brands Group, Inc. (NASD:DNKN) Seasonal Chart

Dunkin’ Brands Group, Inc. (NASD:DNKN) Seasonal Chart

 

 

The Markets

Stocks pushed to new record highs on Thursday as the clamour amongst investors to get into equity positions continues.  The S&P 500 Index added two-thirds of one percent, achieving a fresh record close at 3274.70.  The benchmark is converging with the upper limit of its tight short-term rising trend channel that has been apparent over the past couple of months.  Major moving averages on the hourly look continue to point higher and negative momentum divergences that had been observed prior to the escalating US-Iran tensions have been violated. 

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Earnings reports ahead will provide the catalyst for stocks over the next month and a half.  With a forward P/E on the S&P 500 Index of 18.4, the valuation of the market is the same as it was during the January 2018 peak, which led to the sideways trading range for stocks through to October of this year.  Chatter in the media also highlights that the S&P 500 enterprise value to EBITDA ratio is back to the highest level since the tech bubble peak of 2000.  Valuations themselves are typically not reason to buy or sell as the factors of supply and demand will dictate what the multiple ultimately achieves, but certainly it gives reason to conclude that the market is expensive and it will be up to the earnings reports themselves to confirm the growth trajectory that investors are expecting of them.  Earnings reports will begin to flow next Tuesday, starting with some of the big banks.

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Before earnings season is unleashed, investors will have a payroll report to navigate through.  Looking for clues as to what to expect in the December payroll report, slated to be released on Friday morning, weekly jobless claims are suggesting that there were strains in the labour market during the last month of the year.  Continuing claims spiked in the last week of the year, a move that is not clear as to why.  As a result, the change in continuing claims in 2019 was +3.33%, which is the largest calendar year increase since 2008! In 2009, the tally for continuing claims increased by 3.29%, but that was following an over 60% rise in the year prior.  The average calendar year increase over the past 50 years is 1.0%.  The precedent of this indicator is not encouraging as continuing claims have only turned higher ahead of economic recessions, albeit sometimes well in advance of a peak in GDP itself and the eventual peak in equity prices.  We must keep in mind, however, that weekly economic data, such as this, can show anomalies surrounding the end of year holidays.  Therefore, given that the spike in continuing claims was only realized during the holiday week (ending December 27), we must take the ominous indicator with a grain of salt, for now.  We’ll  have a complete breakdown of the monthly non-farm payroll report for subscribers intraday on Friday.  Subscribe now so you don’t miss out!

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Sentiment on Thursday, as gauged by the put-call ratio, ended overly bullish at 0.67.  This is on par with some of the lowest levels of the past few years, suggesting investor complacency.  Over the past couple of months, a few complacent readings have been observed, however, a catalyst to shake investors loose of their bullish bets was not achieved and the equity market continued to grind higher.  Effectively, what a complacency classification entails is that the risk-reward of the market is weighed heavily towards the risks in the short-term given that the guard of investors is down and market participants are vulnerable to selling should a negative catalyst materialize.  As Warren Buffett once exclaimed “Be fearful when others are greedy and greedy when others are fearful.”  This may be good advice.

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Seasonal charts of companies reporting earnings today:

Infosys Limited Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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