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Stock Market Outlook for September 1, 2016


S&P 500 Index has declined in 56% of Septembers, averaging a loss of 0.6%.


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**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:

PepsiCo, Inc. (NYSE:PEP) Seasonal Chart



The Markets

Stocks closed slightly lower on Wednesday, capping off the month of August on a negative note.  For the month, the S&P 500 Index was lower by 0.12%, inline with the 50-year average return for the eighth month of the year of –0.1%.  Other more cyclically sensitive benchmarks with less exposure to the strength in the US Dollar, such as the Russell 2000 Index and Nasdaq Composite, actually charted gains, bucking the historical norms.  The Nasdaq Composite was higher by 0.99%, while the Russell 2000 Index ended the month with a gain of 1.64%; the average return for each in the month of August is 0.0% and –0.7%, respectively.  Despite the S&P 500 return realizing a decline inline with the seasonal average, the month was marred by a distortion of seasonal tendencies.  Bonds and defensive equity sectors, such as utilities, traded lower in their period of seasonal strength, while more cyclically oriented areas, often with higher betas relative to the market, held steady to higher.  The price of gold, an effective volatility hedge in this summer month, faltered as equities remained stable and the US Dollar strengthened. 

For the month ahead, the seasonal norms take an even greater negative tilt.  September has historically been the weakest month of the year, averaging a loss of 0.6% and realizing a decline in 56% of the periods over the past 50 years.  Returns in this last month of the third quarter have ranged from a gain of 8.8% in 2010 to a loss of 11.9% in 1974.  Best performing sectors in the month, based on data from the past 20 years, have been energy, consumer staples, and health care, each eking out a minor gain of between 0% and 1% amidst a negative tape.  The materials sector has been, by far, the weakest performer, averaging a loss of 2.1% over the 30-day period.

Pressuring stocks lower on Wednesday was weakness in the energy sector as the price of oil plunged by over 3.5%.  This follows yet another bearish EIA oil inventory report, which indicated that inventories of the energy commodity rose another 2.3 million barrels.  Gasoline inventories declined rather modestly by 700,000 barrels.  The result saw the days of supply of each tick mildly higher, continuing to diverge from the direction of the seasonal norm.  The gain in inventories of the raw input follows a decline in US domestic production back to around the lows of the year.  Gasoline production was also slightly lower as driving season nears an end.  The major influence on oil stocks in the past week was the wild card we’ve been highlighting over the past month.  Imports climbed to the highest level of the year around 8.9 million barrels per day, seemingly bucking the seasonal trend that calls for declines in imports through late summer and into the fall.  This bearish trend is certainly not encouraging going into the shoulder season when demand for energy commodities typically declines from the summer highs.

Sentiment on Wednesday, as gauged by the put-call ratio, ended bearish at 1.20.  A bearish drift in options activity appears to be emerging as investors hedge portfolios from a potential shock event.  The good news for the bulls is that this defensive stance can often limit volatility while keeping investors long in equity allocations.




Seasonal charts of companies reporting earnings today:


S&P 500 Index



TSE Composite