Headline print shows strength in retail sales, but non-adjusted data not as upbeat.
**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:
Another day of gains has the S&P 500 Index knocking on the door of new all-time highs, seeking to join the Dow Jones Industrial Average and Russell 2000 Index which have achieved similar outcomes in recent days. The large-cap benchmark is presently up against minor resistance at 2180, the last hurdle in the way of the all-time high at 2193.81. While Financials and Industrials had been carrying market benchmarks higher over the past few days, on Tuesday, Technology and Energy had their turn, helping to expand the market breadth. Further participation by those areas that lagged the market advance over the past few days will assist in putting the market advance on a sustainable path higher, as opposed to just a knee-jerk reaction to the election result.
On the economic front, the report on retail sales had investors cheering as results came in better than expected. The headline print indicated that sales increased by 0.8% last month, beating estimates calling for a 0.6% gain. Excluding gas and autos, the increase showed a more modest 0.6% return, still better than the expected gain of 0.3%. But, below the surface, the unadjusted data is painting a somewhat different picture. Total retail trade actually increased by 1.45% in this first month of the fourth quarter, less than half of the average increase for October of 3.3%. The year-to-date change, which was above average in September, has fallen back below the average trend, the result of poor performance in nonstore, auto, and furniture sales. Nonstore sales increased by a mere 2.2%, nowhere near the 9.8% average gain for what is typically the start of the online shopping season ahead of the Christmas holidays. Auto and Furniture sales both posted rare declines in the month as consumers shied away from big ticket items. Grocery and miscellaneous stores (which include florist, pet supply, office supply, gift, and used merchandise stores) were the only segments to show improvement above the average trend, perhaps evidence of a Halloween bump. So while the non-seasonally adjusted data doesn’t concur with the headline print, there may be reason to be optimistic of a strong holiday spending season ahead, as long as the lag in the big ticket items doesn’t get in the way; indications of a healthy Halloween spending may translate into a similarly upbeat result for the major year-end holiday ahead. Gauges of consumer sentiment have remained elevated throughout the year, undeterred by some of the uncertainties presented politically and economically.
Seasonally, stocks in the retail industry tend to gain through October and November as investors anticipate a strong holiday spending season. The seasonal trade struggled ahead of the US election, but has since taken off with the SPDR S&P Retail ETF (XRT) reaching towards resistance just above $46. Trendline support, now around $41, forms the basis of an ascending triangle pattern, the upside target of which could see a move towards $55, should price move above resistance overhead. The seasonally strong period tends to peak around the US Thanksgiving as the Black Friday sales tally becomes public.
Meanwhile, in the manufacturing economy, the empire state weighed in with the results from its recent survey. The headline print showed that the manufacturing gauge increased to +1.5, a rebound from the –6.8 reported previous. The consensus estimate was for a print of –2.3. Stripping out the seasonal adjustments, the actual read was –14.5, well below the average read for October of –1.9. The indicator continues to show improvement versus the trend charted through the last half of 2015, but not enough elevate it to normal levels. October’s report on Industrial Production will be released on Wednesday morning and we’ll have the breakdown in tomorrow’s report.
Sentiment on Tuesday, as gauged by the put-call ratio, ended bullish at 0.91.
Seasonal charts of companies reporting earnings today:
S&P 500 Index