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Stock Market Outlook for November 9, 2015

End-of-year/seasonal hiring was particularly healthy in October’s employment 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 mixed on Friday as investors reacted to the much stronger than expected employment report for October.  Headline print showed that 271,000 payrolls were added last month, far surpassing the consensus estimate of 190,000.  The unemployment rate declined to 5.0%, the lowest of the recovery, and the average hourly earnings ticked higher by a healthy 0.4%.  Stripping out seasonal adjustments, nonfarm payrolls increased by 0.8%, or 1.152 million positions, above the average increase for October of 0.5%, based on data from the past 50 years.  The year-to-date change in nonfarm payrolls is now back above the average trend, after dipping marginally below it in September.  The impact of a later than average labour day holiday sucking summer layoffs into the back-to-school period seems to be confirmed as a factor behind September’s weak report.   End-of-year/seasonal hiring was particularly healthy in October’s report with Retail employment up 1.4% (average October gain: 0.9%) and Professional & Business Services employment up 1.0% (average October gain: 0.4%).   Even construction employment, which typically winds down in the last few months of the year, showed strength, increasing 0.5% (average October change: –0.4%).  The strength confirms the apparent extension to the construction season suggested by the recent report on construction spending.  The energy sector continues to struggle with Oil and Gas Extraction employment down another 1.6% (average October change: –0.1%).  And although the year-to-date change in average hourly earnings remains below the average trend through the first ten months of the year, the 0.6% gain in October is helping to close some of that gap.  Average increase in hourly earnings for October is 0.3%.  Overall, the report, which makes up for the lacklustre payroll tally for September, increases the probability of a rate hike when the FOMC meets in December, an expectation that was aggressively priced into the market on Friday.

With expectations of an imminent increase in rates, treasury yields were quick to react.  The yield on the 2-year treasury note surged to the highest level since 2010; the 5-year yield is back testing significant resistance around 1.75%.  The move quickly puts the cost of borrowing into overbought territory, however, the trend, at least in terms of the short-term note, is firmly positive.  The impact of the jump in yields became evident in the value of the US Dollar, which, according to the currency index, advanced 1.23% to break out of a nearly 7-month trading range.  Seasonally, the US Dollar Index is typically positive in the month of November, advancing 65% of the time, based on data from the past 20 years, and gaining an average of 0.5%.  The trend shifts negative in the last month of the year when 70% of periods have shown a decline.

With October’s employment report significantly beating expectations, a dramatic shift from September’s report, which resulted in the massive reversal session in equities at the start of October, the reaction to Friday’s report saw a muted reaction in the broad equity market.  Investors are battling with the prospect of higher yields, accompanied by healthy economic data.  The financial sector realized a rather pronounced tug-of-war reaction as REITs traded sharply lower and the banks surged.   While anticipation of a fed funds increase can have a negative impact on broad equity markets, the increase itself is typically positive as it is a confirmation that the Fed feels growth is strong enough that it needs to be calmed via higher rates.  Yields can almost double before investors should become concerned about any significant negative prospects on equity market valuation.  The S&P 500 Index remains around resistance, presented by its all-time peak around 2130.  The large-cap benchmark is just over 5% above its 50-day moving average, sufficient to categorize it as being “stretched” from this major average.  Typically, a retracement or consolidation back to levels close to significant short and intermediate moving averages would be expected.

Sentiment on Friday, as gauged by the put-call ratio, ended bearish at 1.04.

 

 

 

 

Seasonal charts of companies reporting earnings today:

 

S&P 500 Index

 

 

TSE Composite