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Stock Market Outlook for February 5, 2020


Healthcare one of the top performing sectors during Tuesday’s session, leading to the belief that the rally in equity markets was predicated on much more than the alleviation of concerns surrounding the coronavirus.

 

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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HanesBrands, Inc. (NYSE:HBI) Seasonal Chart

HanesBrands, Inc. (NYSE:HBI) Seasonal Chart

HealthEquity, Inc. (NASD:HQY) Seasonal Chart

HealthEquity, Inc. (NASD:HQY) Seasonal Chart

ACI Worldwide Inc. (NASD:ACIW) Seasonal Chart

ACI Worldwide Inc. (NASD:ACIW) Seasonal Chart

 

 

The Markets

Stocks surged on Tuesday as coronavirus fears faded and investors used the recent weakness to load up on risk, speculating that the worst is behind us.  The S&P 500 Index closed higher by 1.50%, breaking above short-term declining trendline resistance and surpassing the upper limit of the previous gap around 3290.  The momentum burst effectively concludes the short-term declining trend that had resulted in the series of lower-lows and lower-highs that had been in place over the past couple of weeks.  Support is confirmed at the 50-day moving average.  Next hurdle on the upside is, quite obviously, the all-time high around 3337.  Momentum indicators are starting to show signs of bottoming after moving lower since the end of last month.  While the recent low has proven to not be the short-term washout that we were hoping for, it is the low that we are given and therefore must react accordingly.  Seasonally, equity market volatility peaks in the first week of February, on average.

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While the rally on Tuesday was unofficially attributed to the alleviation of fears surrounding the coronavirus, as well as news that China’s central bank could cut its lending rate in order to support the economy, it would be difficult to dismiss the disaster with Monday’s Iowa caucus as factor behind the pronounced move in stocks.  As of the time of writing, the results of the polls have yet to be released almost a full day after the event took place.  The problem reportedly stems from an issue with the app being used to collect and report caucus results.  The chaos seemingly bolsters the hopes of president Trump’s re-election, particularly with previously less popular candidates, such as Pete Buttigieg, declaring victory before the official results have been released.  It appears that the only criteria that the Democratic party is using to pick a candidate is whether or not he/she can beat Donald Trump, rather than whether they agree with his/her policies.  This is according to a poll conducted by CNN.  With voters not fully invested in their candidate, like the Republicans are with theirs, it would be difficult to get the support necessary for the candidate to win come election day.  Health care stocks were one of the sector leaders during Tuesday’s session, likely amidst the perception that some of the more left leaning candidates had not achieved a definitive victory.  We provided more commentary on the tendencies of the health care sector during election years in our monthly outlook that was sent out to subscribers last week.  Don’t have a copy yet?  Signup now and we’ll send you this timely insight on how to allocate your portfolio for the month(s) ahead.

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Healthcare Sector Seasonal Chart

The political headlines continue into Tuesday night with the President’s State of the Union address in front of Congress.  We dusted of an old study regarding market reaction following past State of the Union Addresses during an election year and while the tendency for the S&P 500 Index in the session following the speech may be negative, returns 7 and 30 days out are firmly positive.  The large-cap benchmark has shed 0.18% the day after the event, but then swung to gains of 0.62% and 0.85%, respectively, over the course of the next week and month.  Areas to watch in the sessions following are energy, financials, infrastructure, health care, and trade sensitive stocks.  Comments delivered during Tuesday night’s address could influence the performance of these market segments in the days ahead.

S&P 500 Index returns following the State of the Union Address during Election Years

1-Day Following 7-Days Following 30-Days Following
2012 0.87% -0.17% 3.71%
2008 0.62% 1.98% 1.92%
2004 0.78% 0.46% 0.73%
2000 -2.75% 1.89% -4.66%
1996 1.17% 2.83% 7.52%
1992 -1.11% -0.27% -0.27%
1988 -1.03% 1.14% 4.86%
1984 -0.36% -1.27% -4.45%
1980 -0.53% 2.45% 3.90%
1976 0.55% 1.38% 1.56%
1972 -0.22% -0.37% 1.35%
1968 -0.08% -2.58% -5.94%
Average -0.18% 0.62% 0.85%

On the economic front, Factory Orders for December were released during Tuesday’s session.  The report expands on the Durable Goods report that we provided analysis on for subscribers just last week.  The final tally indicates that factory orders expanded by 1.8% in December, which was much stronger than the 1.3% increase that was expected.  Stripping out the seasonal adjustments, the Value of Manufacturers’ New Orders for All Manufacturing Industries actually increased by 4.3% in the last month of 2019, which is stronger than the 3.5% increase that is average for December.  For the year overall, factory orders were essentially unchanged in 2019, higher by a mere 0.1%, which is the weakest pace since 2015.  The average annual increase is 2.5%.  We’ve uploaded the seasonal charts from this report for subscribers to access at the following link: https://charts.equityclock.com/u-s-factory-orders

Value of Manufacturers' New Orders for All Manufacturing Industries Seasonal Chart

Sentiment on Tuesday, as gauged by the put-call ratio, ended bullish at 0.83.  One of the indicators that we were looking for to gauge a flush in bullish positioning was in various sentiment indicators.  Prior to the recent uptick in volatility and weakness in equity markets, investors had gravitated to excessive bullish positioning, as indicted by multi-year low levels in the put-call ratio.  During washout events, sentiment swings back in the other direction as investors hedge their books, thereby supporting equity prices.  While slightly bearish sentiment readings were achieved, they were nowhere near levels that would be considered to be definitely bearish, indicative of a contrarian buy signal.  The last peak in the put-call ratio on October 3rd at 1.37 provided an excellent contrarian buy signal ahead of the surge in equity prices through the end of the year.  As a result of the lack of a “flush”, the risk-reward of the equity market remains skewed toward the risk side of the equation, albeit less so than what was apparent in the middle of January.

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Seasonal charts of companies reporting earnings today:

Merck & Company, Inc. Seasonal Chart Novo Nordisk A/S Seasonal Chart GlaxoSmithKline PLC Seasonal Chart QUALCOMM Incorporated Seasonal Chart Banco Bradesco Sa Seasonal Chart Boston Scientific Corporation Seasonal Chart ABB Ltd Seasonal Chart General Motors Company Seasonal Chart Suncor Energy Inc. Seasonal Chart MetLife, Inc. Seasonal Chart Humana Inc. Seasonal Chart Cognizant Technology Solutions Corporation Seasonal Chart O'Reilly Automotive, Inc. Seasonal Chart AvalonBay Communities, Inc. Seasonal Chart DTE Energy Company Seasonal Chart Fox Corporation Seasonal Chart AMTEK, Inc. Seasonal Chart IAC/InterActiveCorp Seasonal Chart Paycom Software, Inc. Seasonal Chart Cincinnati Financial Corporation Seasonal Chart Credicorp Ltd. Seasonal Chart FMC Corporation Seasonal Chart The Carlyle Group Inc. Seasonal Chart Lincoln National Corporation Seasonal Chart Omega Healthcare Investors, Inc. Seasonal Chart UGI Corporation Seasonal Chart Coty Inc. Seasonal Chart Monolithic Power Systems, Inc. Seasonal Chart Royal Gold, Inc. Seasonal Chart Amerco Seasonal Chart Performance Food Group Company Seasonal Chart Cousins Properties Incorporated Seasonal Chart Zynga Inc. Seasonal Chart Nuance Communications, Inc. Seasonal Chart Radian Group Inc. Seasonal Chart GrubHub Inc. Seasonal Chart Flowers Foods, Inc. Seasonal Chart Capri Holdings Limited Seasonal Chart Arrowhead Pharmaceuticals, Inc. Seasonal Chart Cabot Microelectronics Corporation Seasonal Chart Two Harbors Investments Corp Seasonal Chart FirstService Corporation Seasonal Chart ANGI Homeservices Inc. Seasonal Chart Timken Company (The) Seasonal Chart Rayonier Inc. Seasonal Chart Penske Automotive Group, Inc. Seasonal Chart FireEye, Inc. Seasonal Chart Coherent, Inc. Seasonal Chart Energizer Holdings, Inc. Seasonal Chart Enersys Seasonal Chart Nustar Energy L.P. Seasonal Chart Spirit Airlines, Inc. Seasonal Chart Taylor Morrison Home Corporation Seasonal Chart LiveRamp Holdings, Inc. Seasonal Chart Werner Enterprises, Inc. Seasonal Chart Summit Materials, Inc. Seasonal Chart Norbord Inc. Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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