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Stock Market Outlook for August 5, 2016

 

Natural gas shows a rare summer drawdown as the summer heat fuels demand.

 

Real Time Economic Calendar provided by Investing.com.

 

**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:

Citrix Systems, Inc. (NASDAQ:CTXS) Seasonal Chart

 

 

The Markets

Another flat day for stocks as investors wait for the non-farm payroll report that is scheduled to be released on Friday morning.  While the reaction to the seasonally adjusted headline print will likely be immediate, particularly in the currency market, the non-seasonally adjusted data will hold greater importance to us.  Over the past couple of months, the momentum in the labour market has noticeably slowed, leading to a dip in the year-to-date trend below the seasonal average pace.  Friday’s report will provide some confirmation pertaining to whether this below average growth is becoming a trend or merely a blip leading into the typical summer slowdown.  July is the second weakest month for employment, declining by nine-tenths of one percent as factory shutdowns take a bite out of economic activity.  Not a single July over the past 50 years has shown a non-adjusted gain in payrolls, emphasising the consistency of the economic slowdown over this period.  Employment typically rebounds over the three months that follow as employers gear up for back to school and the end of year holiday season.  We’ll have the complete breakdown of the report relative to seasonal trends in Monday’s report.

While waiting for the key gauge of employment, the weekly read of employment claims was released on Thursday, the result of which showed initial claims remain around the recovery lows.  The pace of change of first-time claimants continues to decline below the seasonal average though the end of July, a sign of labour market strength.  Continuing claims, which lag by a week, also dipped in this latest read, remaining inline with the seasonal trend at it tip-toes out of the factory slowdown period.  Overall, claims are suggesting that the labour market is on the right track, but, the question remains, will the pace of payroll growth confirm the same.

Elsewhere in the economy, a report on factory orders for June continued to reiterate the slowdown in this segment of the economy.   The headline print indicated that orders declined by 1.5% in this last month of the second quarter, a result that was better than the expected decline of 1.8%.  Stripping out seasonal adjustments, the Value of Manufacturers’ New Orders for All Manufacturing Industries increased by 4.0%, which was light compared to the 4.8% average gain in the month of June.  The year-to-date change remains below the seasonal average through the first half of the year and it has now fallen below the pace set last year.  While orders and shipments remain below average across the board, the dip in inventories is, to a certain degree, encouraging as inventory levels have been bloated for some time, limiting the ability of producers to manufacture additional product.  The pace of inventory gains through the first half of the year is almost a third of the average gain and half of last year’s as manufacturers take steps to reign in the level goods unsold.

And finally, the weekly report of natural gas in storage showed something that hasn’t been seen in 10 years.  According to the Energy Information Administration, natural gas recorded a draw of 6 billion cubic feet last week, the first time a weekly contraction in storage levels has been recorded during the summer since 2006.  The year-to-date change has now ticked slightly below the average trend, which typically rises through to October and November; it is now inline with the change recorded this time last year.  Part of the reason for the decline is lower than average production combined with better than average consumption amidst the hot weather.  The latest read on consumption, for the month of May, suggested that demand was hovering around 10% above average, even before the summer heat hit with force in the month of July.  These trends remain conducive to eat away at  storage levels that remain around 464 billion cubic feet above the five year average for this time of year.  The price of natural gas was little changed on the day, although there had been a rather pronounced jump over the five sessions that preceded Thursday’s report.  The price of natural gas typically moves higher between the start of September and the middle of December.

Sentiment on Thursday, as gauged by the put-call ratio, ended bullish at 0.93.

 

 

 

Sectors and Industries entering their period of seasonal strength:

S5AGRI INDEX Relative to the S&P 500

 

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

 

TSE Composite