Contact | RSS Feed

Stock Market Outlook for January 21, 2020


The Forward P/E of the S&P 500 Index is now at the highest level of this economic expansion, but there is nothing to stop the multiple expansion until the demand for equities falls below supply.

 

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:

Subscribers – Click on the relevant link to view the full profile. Not a subscriber? Signup here.

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

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

Hasbro, Inc. (NASD:HAS) Seasonal Chart

Hasbro, Inc. (NASD:HAS) Seasonal Chart

Bonavista Energy Corp. (TSE:BNP.TO) Seasonal Chart

Bonavista Energy Corp. (TSE:BNP.TO) Seasonal Chart

Painted Pony Petroleum Ltd. (TSE:PONY.TO) Seasonal Chart

Painted Pony Petroleum Ltd. (TSE:PONY.TO) Seasonal Chart

BJ's Restaurants Inc. (NASD:BJRI) Seasonal Chart

BJ’s Restaurants Inc. (NASD:BJRI) Seasonal Chart

Paycom Software, Inc. (NYSE:PAYC) Seasonal Chart

Paycom Software, Inc. (NYSE:PAYC) Seasonal Chart

First Australia Fund, Inc. (AMEX:IAF) Seasonal Chart

First Australia Fund, Inc. (AMEX:IAF) Seasonal Chart

Cincinnati Financial Corp. (NASD:CINF) Seasonal Chart

Cincinnati Financial Corp. (NASD:CINF) Seasonal Chart

EQT Corp. (NYSE:EQT) Seasonal Chart

EQT Corp. (NYSE:EQT) Seasonal Chart

ARC Resources Ltd. (TSE:ARX.TO) Seasonal Chart

ARC Resources Ltd. (TSE:ARX.TO) Seasonal Chart

Wells Fargo & Co. (NYSE:WFC) Seasonal Chart

Wells Fargo & Co. (NYSE:WFC) Seasonal Chart

Zumiez Inc. (NASD:ZUMZ) Seasonal Chart

Zumiez Inc. (NASD:ZUMZ) Seasonal Chart

Canadian Natural Resources (NYSE:CNQ) Seasonal Chart

Canadian Natural Resources (NYSE:CNQ) Seasonal Chart

SPDR S&P Bank ETF (NYSE:KBE) Seasonal Chart

SPDR S&P Bank ETF (NYSE:KBE) Seasonal Chart

Allegheny Technologies (NYSE:ATI) Seasonal Chart

Allegheny Technologies (NYSE:ATI) Seasonal Chart

VFCorp (NYSE:VFC) Seasonal Chart

VFCorp (NYSE:VFC) Seasonal Chart

Best Buy Co, Inc. (NYSE:BBY) Seasonal Chart

Best Buy Co, Inc. (NYSE:BBY) Seasonal Chart

Canadian National Railway Co. (TSE:CNR.TO) Seasonal Chart

Canadian National Railway Co. (TSE:CNR.TO) Seasonal Chart

VanEck Vectors Mortgage REIT Income ETF (NYSE:MORT) Seasonal Chart

VanEck Vectors Mortgage REIT Income ETF (NYSE:MORT) Seasonal Chart

Vanguard Financials ETF (NYSE:VFH) Seasonal Chart

Vanguard Financials ETF (NYSE:VFH) Seasonal Chart

 

 

The Markets

Stocks closed marginally higher on Friday as investors reacted to strong economic data out of the US and China.  The S&P 500 Index added just less than four-tenths of one percent, continuing a grind higher that has been relentless for the past three and a half months.  The large-cap benchmark remains overbought, but that means little to investors that have been underweight/underallocated to stocks through the middle of last year.  The 60-day rate of change of the large-cap benchmark is hovering around 10%, the highest level since April of last year.  A 10% 60-day rate of change approximately marks the upper limit of range that has been apparent throughout the economic expansion since the 2009 low.  While little can be derived on the rate of change on its own at such levels given that gains for the equity benchmark typically continue even after the 10% hurdle has been touched, at some point, quite obviously, the sustainability of the pace comes into question.

image

For the week, the large-cap benchmark gained just less than two percent, continuing to advance beyond the rising trading range that dominated activity in 2019.  The upper limit of the previous trading range had acted as support at the lows over the past couple of weeks, suggesting that this is an enticing level for investors to pick up equities if/when the market pulls back.  That level hovers just above 3200.  The 20-week moving average, which has provided consistent support throughout the bull market trend, hovers around 3100, presenting the downside risk if investor sentiment towards stocks were to change significantly.  It has been 14 weeks since the 20-week moving average was last tested, which is prolonged compared prior runs away from the hurdle.  The Relative Strength Index, according to this weekly look, is the highest level since January of 2018, but signs of rolling over are not yet apparent.  The risk-reward of the market is increasingly leaning towards the risk side of the equation, but this is not preventing the continuing drift higher in stocks given the lack of appealing alternatives.  Seasonally, stocks tend to become choppy over the coming month.

image

On the economic front, a report on US Industrial Production was released before Friday’s opening bell.  The headline print of December’s report indicated that activity declined by 0.3% last month, which was inline with the consensus analyst estimate. The manufacturing component reported an increase of 0.2%, a beat versus the consensus analyst estimate that called for a decline of the same margin. Stripping out the seasonal adjustments, industrial production in the US actually declined by 0.1% in December, which is weaker than the 0.1% increase that is average for the month. The result caps of a 0.9% calendar year decline, which is well below the 20 year average increase of 1.1%. This is the weakest pace since 2015 and only the second negative calendar year performance in this present economic recovery.  We sent out further insight to subscribers intraday on Friday, including what the results have to say about the outcome of the approaching presidential election.  Subscribe now and we’ll send it to you.

Also released to subscribers is our fundamental view of the Transportation Industry.  The Dow Jones Transportation Average has been attempting to break out of a 52-week trading range and the period of seasonal strength is approaching.  We provide a gauge of how the sector looks going into this seasonally strong period ahead.  Signup now.

We are nearing the completion of our annual database refresh, where all seasonal profiles have been updated to reflect the addition of last year’s data; optimal holding periods have been re-tabulated to include the past period results.  We are also excited to announce the addition of new features that have been frequent requests from our audience:

  • ETFs – At long last, we have included all ETFs listed in Canada and the US that have sufficient historical data.  ETFs had been a common request given the frequency with which investors use these vehicles to execute their sector and seasonal bets.  Previously, our stance was that the amount of historical data for these investments was too limited for inclusion and instead would refer viewers to the seasonal profiles of the benchmarks that these ETFs track given the more robust history involved.  Now you can find the ETF seasonal profile along with its optimal holding period, according to our proprietary algorithm.
  • Data downloads – Available on all profiles for exchange listed investments are downloadable data, in spreadsheet format, of the arithmetic and geometric seasonal average charts, along with the historical prices that we used in the tabulation of our seasonal analysis.  This is available for both monthly and yearly subscribers. 
  • New daily distribution – In addition to our monthly and intraday reports that we distribute, we now deliver our daily outlook right to the inbox of subscribers in an ad-free, full screen format.  Subscribers receive our insight as soon as it is published.

Interested in participating in our growing offering to subscribers?  Signup now by selecting either the monthly or yearly subscription option on the following page: https://charts.equityclock.com/subscribe

 

Thanks to all those that requested and/or pushed us to pursue these initiatives.  As always, we are open to the suggestion of new features.  Simply email us and we’ll do our best to accommodate.

With markets continuing to push towards all-time highs, we continue to monitor some of the laggards.  While technology has been the obvious beneficiary of the recent bull market run, the lag in the performance of the other cyclical areas suggests that investors are not that enticed by pro-cyclical bets across the board.  Materials, Industrials, Consumer Discretionary, Financials, and Energy have all lagged the broad market performance over the past few months as investors continue to desire exposure to last year’s sector winner, Technology.  The sector is up around 50% in the past year and valuations have reached the highest level since the early 2000’s; at some point it must be expected that buying pressures will be exhausted.   Energy, Industrials, Materials, Financials, and Health Care are showing 12-month forward price/earnings ratios of between 13.3 and 18.3, below the S&P 500 multiple of 18.6, which is the highest level of this economic expansion.  For reference, the forward P/E of the technology sector currently sis at 22.7.  Valuations, on their own, do not overcome the laws of supply and demand for sector constituents, but, as price moves higher, demand would be expected to wane relative to supply and prices would then be forced to a new equilibrium in order to balance the two forces, once again.

image

Source: FactSet

Sentiment on Friday, as gauged by the put-call ratio, ended bullish at 0.66.  The ongoing revelation of overly bullish readings below 0.70 continues to suggest investor complacency.

image

 

 

Sectors and Industries entering their period of seasonal strength:

Energy Sector Seasonal Chart

ENERGY Relative to the S&P 500
ENERGY Relative to the S&P 500

ENERGY Monthly Averages

Railroads Industry Seasonal Chart


S5RAIL Index Relative to the S&P 500S5RAIL Index Relative to the Sector

S5RAIL Index Monthly Averages

 

 

Seasonal charts of companies reporting earnings today:

Netflix, Inc. Seasonal Chart Capital One Financial Corporation Seasonal Chart UBS AG Seasonal Chart TAL Education Group Seasonal Chart TD Ameritrade Holding Corporation Seasonal Chart United Airlines Holdings, Inc. Seasonal Chart Halliburton Company Seasonal Chart Interactive Brokers Group, Inc. Seasonal Chart Comerica Incorporated Seasonal Chart Zions Bancorporation N.A. Seasonal Chart Signature Bank Seasonal Chart Pinnacle Financial Partners, Inc. Seasonal Chart F.N.B. Corporation Seasonal Chart Wintrust Financial Corporation Seasonal Chart Old National Bancorp Seasonal Chart Navient Corporation Seasonal Chart Atlantic Union Bankshares Corporation Seasonal Chart Fulton Financial Corporation Seasonal Chart First Midwest Bancorp, Inc. Seasonal Chart United Community Banks, Inc. Seasonal Chart WSFS Financial Corporation Seasonal Chart Renasant Corporation Seasonal Chart ServisFirst Bancshares, Inc. Seasonal Chart Triumph Bancorp, Inc. Seasonal Chart Great Southern Bancorp, Inc. Seasonal Chart Peoples Bancorp Inc. Seasonal Chart Mercantile Bank Corporation Seasonal Chart SmartFinancial, Inc. Seasonal Chart

 

 

S&P 500 Index

image

image

 

 

TSE Composite

image

image

 

Sponsored By...
Seasonal Advantage Portfolio by CastleMoore

Comments are closed.