Stock Market Outlook for February 10, 2020
Non-farm payrolls actually declined by 2,832,000, or 1.9%, in January, which is stronger than the 2.1% decline that is average for this time of year.
*** 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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Advantage Oil Gas Ltd. (TSE:AAV.TO) Seasonal Chart
Delphi Energy Corp. (TSE:DEE.TO) Seasonal Chart
Companias Cervecerias (NYSE:CCU) Seasonal Chart
Crescent Point Energy Corp. (NYSE:CPG) Seasonal Chart
iShares MSCI Eurozone ETF (NYSE:EZU) Seasonal Chart
Quanta Services, Inc. (NYSE:PWR) Seasonal Chart
Gartner Group, Inc. (NYSE:IT) Seasonal Chart
Vermilion Energy Inc. (NYSE:VET) Seasonal Chart
Wayfair Inc. (NYSE:W) Seasonal Chart
Morgan Stanley A Share Fund (NYSE:CAF) Seasonal Chart
Vanguard FTSE Developed Markets ETF (NYSE:VEA) Seasonal Chart
Caterpillar, Inc. (NYSE:CAT) Seasonal Chart
iShares MSCI EAFE Index Fund (NYSE:EFA) Seasonal Chart
Sasol Ltd. (NYSE:SSL) Seasonal Chart
Activision Blizzard Inc. (NASD:ATVI) Seasonal Chart
Anheuser-Busch InBev ADR (NYSE:BUD) Seasonal Chart
Nordic American Tanker Shipping Ltd. (NYSE:NAT) Seasonal Chart
Cardinal Energy Ltd. (TSE:CJ.TO) Seasonal Chart
Vanguard FTSE All-World ex-US ETF (NYSE:VEU) Seasonal Chart
The Markets
Stocks traded lower on Friday as investors booked some gains after a very profitable week for stocks to start the month of February. The S&P 500 Index traded down by just over half of one percent, giving back the gain achieved in the prior day’s session. The hourly chart continues to provide a reliable guide. Following a number of gaps that were opened to the upside in the past week (one between 3255 and 3280 and another between 3305 and 3320), a gap lower was opened on Friday. The benchmark opened at 3335, approximately ten points below Thursday’s close. The almost 10-point span was tested as resistance at the highs of Friday’s session, but it was unable to be surpassed, leading to a dip lower through the afternoon trade. First level of support to the downside is the gap that peaks around 3320. Momentum indicators on the hourly chart have rolled over from short-term overbought levels.
For the week, the large-cap benchmark was higher by a whopping 3.17%, achieving the best weekly return since June of last year. The benchmark found support around the upper limit of the previously broken rising trend channel, leading to this impressive result. Momentum indicators on the weekly chart did tick higher, however, indications of them rolling over remains apparent. Stochastics and RSI have rolled over from overbought levels charted in the middle of January and MACD continues to show evidence of converging on its signal line. The 20-week moving average, now at 3143, has gone untested for 17 weeks, which is a fairly long period of time without a check-back of intermediate support. The 20-week moving average remains an appealing risk-reward level to accumulate equity exposure should the benchmark pull back to this zone.
The decline in stocks on Friday follows a much stronger than expected employment report for January. The Bureau of Labor Statistics indicates that 225,000 payrolls were added last month, which is firmly better than the consensus analyst estimate that called for an increase of 160,000. The unemployment rate ticked higher by a tenth of a percent to 3.6% and average hourly earnings were higher by 0.2%, a miss versus the consensus analyst estimate that called for a 0.3% gain. Stripping out the seasonal adjustments, payrolls actually declined by 2,832,000, or 1.9%, in January, which is stronger than the 2.1% decline that is average for this time of year. We sent out further insight and analysis to subscribers intraday. Subscribe now and we’ll send you our report.
North of the border, Statscan released an employment report of its own. The headline print of January’s Labour Force Survey in Canada indicates that employment increased by 34,500, which is better than the consensus estimate that called for a gain of 10,000. The unemployment rate fell by one-tenth of one percent to 5.5%, which is also better than the estimate of 5.7%. Stripping out the seasonal adjustments, employment actually declined by 257,800, or 1.3%, which is better than the 1.6% decline that is average for this time of year. Subscribers received further analysis sent directly to their inbox, including the implications for the Canadian dollar. Don’t miss out on future distributions. Subscribe now.
Despite the seemingly bearish implications that the stronger than average employment reports would have on the bond market, treasury bond prices gapped higher following the report. The iShares 20+ year Treasury Bond ETF gained 1.25%, bouncing off of support at the 20-day moving average. Activity in the bond market was something that we flagged in Thursday’s Market Outlook as a point of concern. With equity prices around all-time highs and investors shaking off fears relating to the coronavirus, the high level of the price of bonds just doesn’t equate. Investors remain stubbornly nervous, causing them to lean on rates, leading to another inversion of the yield curve between the 10-year and 3-month. The curve originally became inverted last summer leading to the proliferation of recession calls. Despite US data proving that the economy is not on the precipice of falling into a recession, the yield of the longer-term bond continues to fall below the short-term term note. An inversion of the yield curve has typically preceded an economic recession and equity market downturn by an average of a year, depending on what point of the curve is being analyzed, therefore it is understandable why it captures such attention. We’ll continue to monitor accordingly.
Sentiment on Friday, as gauged by the put-call ratio, ended bullish at 0.95.
Seasonal charts of companies reporting earnings today:
S&P 500 Index
TSE Composite
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