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Stock Market Outlook for August 31, 2016

 

Defensive sectors lag as the market remains in risk-on mode going into Friday’s 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 ended marginally lower on Tuesday as investors positioned portfolios for the monthly employment reports ahead.  ADP will report first on Wednesday, setting the stage for the always important BLS non-farm employment report on Friday.  Analysts are forecasting that payrolls will increase by 175,000, down from the 255,000 increase reported in July.  The big wild card, as alluded to in previous reports, is manufacturing employment, which failed to realized the seasonal dip in July that is common over the factory shutdown period.  Should manufacturing employment remain stagnant month-over-month, the seasonal adjustment factor may work against the headline print.  The slowdown was picked up in gauges of manufacturing and industrial production, therefore it is unreasonable that the employment side of things came out of the summer slowdown unscathed.  We’ll know in due time when the report is released before Friday’s opening bell.

In a sign that investors are becoming comfortable with the prospect of a rate increase from the Fed, the financial sector was the lone gainer during Tuesday’s session.  Oddly enough, the two defensive sectors, consumer staples and utilities, led the the decline in the broad market; underperformance versus the broad market has been apparent in these two sectors for the past couple of months, despite positive seasonal tendencies for each spanning through to October.  Financials, Technology, and Industrials, three cyclical sectors, continue to show rising relative trends, highlighting the willingness of investors to take on risk during a period that is typically volatile for stocks.  This risk appetite can often be conducive to further equity market strength.

Just briefly on the economy, the Case-Shiller House Price Index was released before Tuesday’s opening bell.  The report indicated that the 20-city index reported a seasonally adjusted decline of 0.1% in June, missing estimates calling for a rise of the same margin.  Looking at the national index, the price of homes rose by 0.96% on a non-adjusted basis, marginally better than the 0.8% average gain for the sixth month of the year.  The year-to-date change continues to run above the seasonal norm, an indication of strength in the housing market.  House prices typically start to flatline following the summer months as demand for housing wanes through the fall.

Sentiment on Tuesday, as gauged by the put-call ratio, ended bullish at 0.97.

 

 

 

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

 

TSE Composite