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Stock Market Outlook for July 10, 2017

Utilities employment showing weakest first half of the year since 2004.

 

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:

Las Vegas Sands Corp. (NYSE:LVS) Seasonal Chart

Wynn Resorts, Limited (NASDAQ:WYNN) Seasonal Chart

 

 

The Markets

Stocks closed higher on Friday following a stronger than expected employment report for June.  The S&P 500 Index added six-tenths of one percent, bouncing from around its rising 50-day moving average.  The technical status of the large-cap benchmark hasn’t changed much from our last look just over one week ago; momentum indicators continue to roll over and a confluence of support around 2400 remains the key hurdle below.  What has changed is that signs of resistance at the 20-day moving average have become apparent, suggesting risks to the short-term term trend.  This weakness is becoming apparent precisely at a seasonally favourable time of year, which spans the last few days of the second quarter through the first two and a half weeks of the new quarter.  This quarterly transition bounce has seen gains average 1.11% over the past 50 years with two-thirds of the periods showing a positive result.  The tendency stems from start of quarter fund inflows as they seek to find a home for the back half of the year.  The positive influence peaks, on average, on the 17th of July, at which point earnings season takes over as the market catalyst.  The stutter-step to start this positive seasonal period does present concern, but it would take a break of the levels of support below to trigger an outright warning.

On the economic front, the much scrutinized monthly non-farm payroll report was released before Friday’s opening bell.  The headline print indicated that 222,000 jobs were added last month, a solid beat versus estimates calling for a gain of 170,000.  The unemployment rate ticked higher to 4.4% and average hourly earnings rose a mere 0.2%, a miss versus estimates calling for a 0.3% rise.  Stripping out the seasonal adjustments, nonfarm employment actually increased by 599,000, or 0.4%, short of the average increase for June of 0.6%.  With the below average result, the year-to-date change is off of the seasonal average pace by two-tenths of one percent, the first time this year that the trend has fallen below average.  Looking through the components of the report, the trend in retail employment continues to flatten with another below average result.  Retail payrolls were higher by 0.6%, just short of the 0.7% average increase for the month of June.  With a decline on the year of 3.2%, the year-to-date change is around nine-tenths of a percent below the rate set last year and is the weakest start to the year since 2009, amidst the economic recession.  Brick and mortar store closings continue to take a toll on the industry.  Elsewhere, utility employment remains exceptionally weak, higher on the year by 0.1% amidst weak residential utility production this spring.  The average increase through the first six month of the year in this category is 1.5%.  This is the weakest first half result since 2004.  Mild weather trends are to blame. The standout in the report comes by way of manufacturing employment, despite the June increase of 0.8%, which is inline with historical norms.  Manufacturing employment has increased by 1.1% through the end of June, firmly above the 0.2% average gain, based on data from the past 50 years.  The gain in this category for the month of June is typically eliminated in July as factory shutdowns send workers to the unemployment lines.  Net-net, the trend in employment is slowly shifting from an average to a below average position, partly due to isolated impacts of weather and a shift towards online purchases.  It is likely that this result will not alter the course of the Fed’s path of tightening.

What may give the Fed pause, however, is the change in average hourly earnings, which declined by a non-seasonally adjusted 0.3%.  The average change for the month of June is an increase of 0.1%.  The year-to-date change is higher by 0.7%, around half of the average change for the first half of the year of 1.7%.  Subdued inflationary pressures are to blame as commodity prices remain under pressure.

Sentiment on Friday, 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