Vialoux's Stock Market Outlook - Friday May 27, 2016
by Don Vialoux, EquityClock.com
Durable Goods Orders well above average, helped by strength in defense spending.
**NEW** As part of the ongoing process to offer new and up-to-date information regarding seasonal and technical investing, we are adding a section to the daily reports that details the stocks that are entering their period of seasonal strength, based on average historical start dates. 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:
- No stocks identified for today
The Markets
Stocks were little changed on Thursday as traders begin to step away from their desks ahead of the Memorial Day long weekend. Volume was light as the S&P 500 ETF (SPY) hovers around the all-time highs, waiting for a catalyst to fuel the next move. The day had a slightly defensive tilt with Consumer Staples and Utilities topping the leaderboard, while treasury bonds caught a bid after a week of hovering around the lowest levels since the end of April. When traders return to their desks next week, if they return, they will be looking at an equity market that typically has a positive bias as stocks drift higher on low volumes. For the Memorial Day week, the S&P 500 Index has gained in 59.6% of periods since 1990, averaging a gain of 0.53%. Investors in Canada have the advantage of being able to trade while markets in the US are closed on the holiday Monday. For the opportunity, investors in the TSX Composite are rewarded with gains 73% of the time on the Memorial Day Monday, averaging a return of 0.30%. For the week, the frequency of gains is slimmed down to 58.5%, averaging a gain of 0.53%, based on data from the past 26 years.
On the economic front, weekly jobless claims came in lower than expected last week. Initial claims declined by 10,000 to 268,000, better than the forecasted decline of 3,000. Stripping out seasonal adjustments, initial claims were lower by 4,001 to 240,868, remaining close to the recovery lows. The year-to-date change remains above the seasonal trend as claims show signs of flatlining following 7 years of declines. Continuing claims, on the other hand, continue to trend lower, below the seasonal average, suggesting strength in the labour market. Employment statistics are one again at the forefront of investors minds due to the perception that strength in these economic indicators will force the Fed to raise rates when it meets in the months ahead. The monthly non-farm employment report will be released next Friday.
Also on the economy, a report on Durable Goods Orders showed an encouraging jump to start the second quarter. The headline print indicated that New Orders of Durable Goods rose 3.4% in April, much better than analyst estimates that forecasted a gain of 0.3%. Prior months also saw upward revisions. Ex-transportation, the gain was trimmed down to 0.4%, inline with analyst estimates. Stripping out seasonal adjustments, the Value of Manufacturers’ New Orders for Capital Goods Industries actually declined by 11.3% last month, much better than the 19.3% decline that has become average for this time of year. The year-to-date gap versus the seasonal average continues to widen, primarily the result of strength in Defense spending. In addition to increased activity, factories are also doing a good job at reigning in inventories with the year-to-date change of stockpiled capital goods trending below average through April. The recent string of better than expected reports is once again putting upward pressure on the Citigroup Economic Surprise Index, which is rebounding from the early spring lows.
Sentiment on Thursday, as gauged by the put-call ratio, ended bullish at 0.93.
Seasonal charts of companies reporting earnings today:
S&P 500 Index
TSE Composite
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