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Stock Market Outlook for August 17, 2018

Housing starts in the West showing the weakest growth through July in over five decades.

 

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:

Bristol Myers Squibb Co. (NYSE:BMY) Seasonal Chart

IntercontinentalExchange Group (NYSE:ICE) Seasonal Chart

United Natural Foods, Inc. (NASD:UNFI) Seasonal Chart

LSI Industries, Inc. (NASD:LYTS) Seasonal Chart

Stratasys, Inc. (NASD:SSYS) Seasonal Chart

Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) Seasonal Chart

Forestar Group Inc. (NYSE:FOR) Seasonal Chart

HudBay Minerals Inc. (TSE:HBM) Seasonal Chart

 

 

The Markets

Stocks rebounded on Thursday as news crossed the tape that trade talks between the US and China would resume at the end of the month.  The Dow Jones Industrial Average posted its largest one-day gain since April, adding 1.58% on the back of strong earnings from Walmart.  The move filled the open gap that was charted during Friday’s session amidst increasing geopolitical risks.  The S&P 500 Index, on the other hand, recorded a gain of around half of its blue-chip counterpart, testing the important pivot point around 2850 at the highs of the session.  The level warrants monitoring as the market eats away at supply presented around the all-time high.

Despite the risk-on rally, defensive sectors still dominated the session.  The Consumer Staples ETF (XLP) added 1.43%, in part from its contribution from Walmart.  The Utilities ETF (XLU) was higher by 1.08%, despite the fact that yields were slightly higher on the session.  Following the market action over the past few days, investors are remaining cautious, using the strength in equity markets to take down portfolio beta.  They appear to be anticipating further broad market weakness ahead.

On the economic front, concerning results pertaining to housing continue.  July’s report on housing starts indicated that activity increased by 0.9% to a seasonally adjusted annual rate of 1.168 million.  Stripping out the seasonal adjustments, starts actually declined by 0.2%, which is actually better than the 2.0% decline that is average for the month of July.  The concern comes with respect to the year-to-date change, now 4.4% below the seasonal norm.  Activity in June was sharply negative, diverging from seasonal norms that call for increased activity.  The lack of rebound in July suggests something more is at play than just temporary factors, such as weather.  A limited supply of workers to build the homes has been an ongoing issue, restricting activity at a time that should essentially be the height of the building season.  Much of the weakness can be attributed to one region, the west.  The south and mid-west are showing activity that is above average, while the north-east shows a trend that is inline with the seasonal norm.  Starts in the west are up by 1.6% year-to-date, representing the weakest performance in over five decades.  The tight supply of plots of land on which to build may be a factor, although the number of units authorized but not started in the West did rise in this summer month.  As for the steadier gauge of housing activity, completions across the country are running seven-tenths of one percent above average.  This is well off of the 10.4% above average rate seen last year.  Gradually, signs are emerging that the housing market is slowing as consumers choose to stay put rather than battle with the high prices of homes in the market.  Housing activity typically acts as a leading indication to broader economic activity and, in turn, strength of the equity market.  Further monitoring is required.

Housing Starts Seasonal Chart

On the manufacturing side of the economy, the Philadelphia Federal Reserve reported that conditions deteriorated in August.  The headline print indicated that the general business conditions index fell to +11.9 from +25.7 previous.   The consensus was for a print of +22.5.  Stripping out the seasonal adjustments, the level was actually +8.5, which is below the +10.6 that is average for this point in the year.  This is the fist time since the US presidential election that a below average print has been recorded.  September of 2016 was the last time the level was below the seasonal norm.  The result comes a day after the New York region reported that results remain above average, suggesting ongoing strength in the manufacturing economy.  Philadelphia’s result certainly gives pause to expectations of future manufacturing strength.  It is unclear if the ongoing trade war is taking a toll.  Seasonally, the Philadelphia Fed Index typically rises into the month of September, then declines through the remaining quarter of the year.

North of the border, Statscan released a manufacturing report of its own.  Canada manufacturing sales are indicated to have gained 1.1% in June, edging past the 1.0% consensus estimate.  Stripping out the seasonal adjustments, sales of goods manufactured actually fell by 1.2%, a divergence compared to the 0.4% increase for the month of June.  For the first half overall, the 16.2% increase is a full three percent above the seasonal average trend, the best performance through the first half since 2008.  New orders are running 5.7% above average and unfilled orders are running 6.6% above the seasonal norm.  Petroleum manufacturing is a significant influence, surging a whopping 25.0% in the month.  The average change for this time of year is +3.0%.  Petroleum and coal product manufacturing is now running 9.1% above average on the year.  The other categories in the report are showing trends that are inline with historical averages.  Seasonally, manufacturing sales tend to plunge in the month of July amidst factory shutdowns.

Sales of goods manufactured (shipments) Seasonal Chart

Sentiment on Thursday, as gauged by the put-call ratio, ended bullish at 0.94.

 

 

 

Seasonal charts of companies reporting earnings today:

 

 

 

S&P 500 Index

 

 

TSE Composite