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Stock Market Outlook for November 28, 2016

 

Why the S&P 500 Index performance this year is similar to 1952

 

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:

Winpak Ltd. (TSE:WPK) Seasonal Chart

Saputo Inc. (TSE:SAP) Seasonal Chart

Dominion Diamond Corp (TSE:DDC) Seasonal Chart

Zimmer Holdings, Inc. (NYSE:ZMH) Seasonal Chart

Altius Minerals Corporation (TSE:ALS) Seasonal Chart

 

 

The Markets

The rally continues with the major equity benchmarks in the US achieving another round of all-time highs on Friday.  The S&P 500 Index gained around four-tenths of one percent to close at 2213.35,  increasingly moving above previous resistance at 2193.81  For the week, the benchmark was higher by 1.44%, resulting in the best Thanksgiving week return since 2012.  This follows a few years when returns on the large-cap index gave little to be thankful of during this seasonally favourable timeframe; gains were limited to no more than two-tenths of one percent during the holiday shortened week between 2013 and 2015.  Looking ahead, while the S&P 500 Index pushes further into the most overbought state since April, the technical backdrop remains favourable for further gains through the end of the year.  Following along the stair-step pattern that has been apparent since the spring, the recent breakout from the approximately 70-point range projects upside towards 2260, or just over 2% from present levels.  Major moving averages are curling higher, supporting the positive momentum into year-end.  Seasonally, December is another positive month for stocks with gains averaging 1.4% and positive results achieved in 70% of periods over the past 50 years; gains are dominated by the last half of the period as the notorious Santa Claus rally lifts stocks through the holiday period.

 

S&P 500 Index Returns around the US Thanksgiving
Year Thanksgiving Week Wednesday before Thanksgiving Friday after Thanksgiving
2016 1.44% 0.08% 0.39%
2015 0.05% -0.01% 0.06%
2014 0.20% 0.28% -0.25%
2013 0.06% 0.25% -0.08%
2012 3.62% 0.23% 1.30%
2011 -4.69% -2.21% -0.27%
2010 -0.86% 1.49% -0.75%
2009 0.01% 0.45% -1.72%
2008 12.03% 3.53% 0.96%
2007 -1.24% -1.59% 1.69%
2006 -0.02% 0.23% -0.37%
2005 1.60% 0.35% 0.21%
2004 1.05% 0.41% 0.08%
2003 2.21% 0.43% -0.02%
2002 0.62% 2.80% -0.27%
2001 1.03% -0.49% 1.17%
2000 -1.90% -1.85% 1.47%
1999 -0.38% 0.89% -0.03%
1998 2.47% 0.33% 0.46%
1997 -0.80% 0.09% 0.40%
1996 1.11% -0.13% 0.27%
1995 -0.02% -0.31% 0.26%
1994 -1.99% -0.04% 0.52%
1993 0.10% 0.29% 0.15%
1992 0.82% 0.37% 0.23%
1991 -0.24% -0.37% -0.35%
1990 -0.64% 0.23% -0.29%
1989 0.69% 0.68% 0.60%
1988 0.29% 0.67% -0.66%
1987 -0.69% -0.93% -1.54%
1986 1.37% 0.24% 0.18%
1985 0.32% 0.93% -0.18%
1984 1.72% 0.20% 1.46%
1983 1.27% 0.07% 0.13%
1982 -1.56% 0.71% 0.75%
1981 2.78% 0.44% 0.84%
1980 1.01% 0.60% 0.25%
1979 0.85% 0.19% 0.75%
1978 1.45% 0.49% 0.32%
1977 1.43% 0.42% 0.21%
1976 1.21% 0.44% 0.72%
1975 1.91% 0.25% 0.33%
1974 1.55% 0.68% 0.04%
1973 -4.27% 1.11% -0.32%
1972 1.54% 0.59% 0.32%
1971 0.36% 0.19% 1.78%
1970 2.64% 0.37% 0.99%
1969 -0.54% 0.36% 0.58%
1968 1.95% 0.47% 0.57%
1967 1.16% 0.59% 0.27%
1966 -0.50% 0.68% 0.80%
1965 -0.23% 0.17% 0.10%
1964 -1.30% -0.34% -0.33%
1963 5.20% -0.18% 1.36%
1962 2.29% 0.60% 1.20%
1961 0.31% -0.11% 0.20%
1960 0.56% 0.14% 0.59%
1959 1.28% 0.16% 0.45%
1958 -0.42% 1.72% 1.12%
1957 2.08% 2.89% 1.14%
1956 -1.31% -0.49% 1.05%
1955 0.31% 0.13% -0.09%
1954 3.29% 0.56% 0.96%
1953 0.90% 0.08% 0.57%
1952 1.54% 0.63% 0.55%
1951 -1.84% -0.18% -1.06%
1950 2.32% 1.41% 0.79%
Average 0.71% 0.35% 0.34%
Gain Frequency 68.18% 77.27% 72.73%

 

While looking forward technically and seasonally with regards to expected future returns, some striking comparisons have been made that suggest alternate paths ahead.  The first is courtesy of BNN/Andrew McCreath, who tweeted the comparison of the S&P 500 Index performance following Trump’s win versus Reagan’s win in 1980.  The chart shows that the post election day returns were given back in the month of December, eventually leading to a more prolonged decline into the new year as the enthusiasm surrounding the election faded.  By the time the trend of lower-highs and lower-lows concluded, the benchmark had shed around 28% as of August 1982.  Of course, the S&P 500 Index had achieved a return of around 30% by the end of November of the 1980 election year.

HT @ForgeFirst

We present an alternate comparison.  There has been two periods since 1950 when the Republicans swept the election with a newly-elected, first time president. The most recent was in 2000 when George W. Bush became president alongside a Republican dominated house and a senate that flip-flopped from democrat to republican.  The market comparison between the present period and the 2000 election year is non-existent as stocks sold off following the election of Bush and the selling pressures continued through to 2002/2003, the result of a recession.  The first instance of a republican sweep was realized in 1952 when Americans elected Dwight Eisenhower, alongside a republican majority in both chambers of congress.  During the 1952 election year, the S&P 500 Index performance was identical to this year’s, following the same ups-and-downs between March and the end of November.  Gains in 1952 continued through year-end, falling short of charting a new all-time high.  The benchmark retraced its election year return in the year that followed with a loss of over 14% by September of 1953.  The first few years of 1950 also offers another important comparison: it was the period when treasury yields started to turn higher following a prolonged period of depressed rates following the Depression.  Similar evidence of a turn in rates is being realized now.  Therefore, if equity and bond markets continue to follow a path similar as the early 1950s, stocks may be due for a rough year ahead.  While the comparisons are interesting to look at, the predictive qualities of the historical performance will always be up for debate due to the different characteristics between each timeframe.  The technicals will provide us with the clues as to when to expect a break of the present positive equity market trend.

Given the shortened holiday session on Friday, economic news was light, but we did get a couple of data-points.  First off, the US Census Bureau published its advanced look at international trade in the US and the result showed that the deficit widened to $62.0 Billion from $56.5 Billion previous.  Exports declined by 2.7% and imports increased by 1.1%.  Stripping out the seasonal adjustments, exports actually increased by 2.7% and imports rose by 3.1%, both less than the average increase for October of 7.6% and 6.9%, respectively.  Food exports surged 26.7%, the result of a bumper crop harvest in the US.  Meanwhile, the exports of industrial supplies, automotive vehicles, and consumer goods all showed rare declines for this tenth month of the year; only two other Octobers in the past 20 were declines realized in these components, the worst of which being in 2011.  Strength of the US Dollar is undoubtedly having an impact, something that is likely to become worse when results for November are released.  The US Dollar Index is higher by over 6% since the fourth quarter began, trading to the highest level in over 13 years.  Strength in the domestic currency may be indicative of strength in the economy, but, right now, it is weighing on activity, certainly presenting the incoming president with a head-wind to his forecast for growth.

Exports

And finally, Cass Information Systems released their latest gauge of shipping activity in the US.  The shipments index increased by 0.9%, while expenditures declined by 2.2%; the average change for each in the month of October is –2.6% and –1.2%, respectively.  The result saw the shipments index move above the seasonal average, something that Cass attributes to increased e-commerce activity and improved truck tonnage.  However, while showing gradual signs of improvement, the change in expenditures remains below the average change, year-to-date, the result of weak pricing pressures within the industry.  But, as Cass notes in their monthly report, volume typically leads pricing, which suggests that the strength in shipment volumes will eventually lead to increased pricing pressures.  The indicator also has positive implications for the economy as a whole given that more items being shipped equates to a growing economy.

Sentiment on Friday, as gauged by the put-call ratio, ended bullish at 0.80.  The ratio is gradually grinding further into bullish territory, suggesting investors are increasingly exposed to a market shock, should one be realized.  This, of course, is the exact opposite scenario of the overly bearish readings that were recorded at the beginning of November when investors were aggressively hedged against any potential market weakness.  The reading of 0.80 is not necessarily bearish (from a contrarian perspective) where it is now, but it does suggest investors are certainly more vulnerable than what they were a few weeks ago.

 

 

 

Sectors and Industries entering their period of seasonal strength:


 

 

 

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

 

TSE Composite