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Stock Market Outlook for September 6, 2016

 

Breakdown of August’s Non-Farm Payroll report.

 

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:

  • No stocks identified for today

 

 

The Markets

Stocks traded higher and bond prices drifted lower on Friday following the release of the non-farm employment report for August.  The headline print pegged payroll creation in the recent month at 151,000, missing estimates calling for a gain of 175,000.  The unemployment rate remained unchanged at 4.9% and hourly earnings ticked marginally higher by 0.1%.  Now, for what actually happened, stripping out the seasonal adjustments, 224,000 payrolls were added last month, or an increase of 0.16%.  This is inline with the historical average increase for this summer month of 0.2%.  The year-to-date change remains inline with the seasonal average.  As expected, the seasonal adjustment factor worked against the headline print with manufacturing, specifically durable goods, employment showing a seasonally adjusted decline.  On an unadjusted basis, manufacturing employment was  essentially unchanged, failing to realize the seasonal decline and rebound that occurs over July and August.  There remains a risk that the negative impact of the seasonal adjustment factor spills over to September given the the year-to-date change in manufacturing remains elevated above the average trend, but it certainly would not be as pronounced as August’s report, which stripped 14,000 payrolls from the aggregate result.  Concerns in the report remain the same, which is that strength in hiring remains concentrated in lower paying areas of the economy, such as retail and leisure/hospitality; the typically higher paying professional and business services employment continues to show a pace of change that is lagging the seasonal norm, year-to-date.  The result is taking its toll on the average hourly earnings, which, unadjusted, was unchanged in August; the average change in August is a gain of 0.2%.  The year-to-date change in average hourly earnings continues to lag the seasonal norm and now it is turning lower compared to the pace set last year.  Perhaps somewhat peculiar in the report was the pronounced drop in utilities employment, which was lower by 0.6%; the average contraction in utilities employment in August is 0.1%.  Utility production this summer reached extremes given the hot weather blanketing much of the US, but employment in this industry has certainly not kept pace with the above average activity.  Utilities employment typically falls off in the month of September as the summer heat fades.

With investors debating the impact that this report may have in future FOMC rate decisions, market performance reflected indecision.  The Fed Fund Futures point to a greater probability that the Fed will hold rates steady through the end of the year, but that didn’t deter the bond market from selling their fixed income assets in response to the report; yields moved mildly higher, along with the US Dollar Index, recovering from earlier weakness.

The S&P 500 Index moved back towards a neutral position around its 20-day moving average, yet again flirting with resistance at the all-time highs just below 2200.  The rising 50-day moving average was tested during Thursday’s session.  The ongoing concern is the negative divergence with respect to a number of momentum indicators, which peaked at the end of July, ahead of the peak in price into the month of August.  Investors are clearly looking for a catalyst to renew the market momentum.  Short-term horizontal support around 2150 and resistance at the all-time highs are the pivotal points to watch as the calendar nears what is typically the most volatile time of year in the last half of September.  Traders will return to their desks today and begin to examine portfolio positioning for the fourth quarter, in some cases putting it all on the line and in other cases wrapping it up early after what has been a rather average performing year thus far with the large cap benchmark up by 8.22%, including dividends.  Presidential nominee debates start near the end of the month and before you know it the election will be upon us.  Whether this leads to new investment ideas or reason to be cautious, investors are likely to cast their vote in the weeks ahead.

Sentiment on Friday, as gauged by the put-call ratio, ended bullish at 0.96.

 

 

Sectors and Industries entering their period of seasonal strength:

FUTURE_NG1 Relative to the S&P 500

FUTURE_O1 Relative to the S&P 500

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

 

TSE Composite