US Dollar Index breaking out within period of seasonal strength.
**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:
Stocks closed mildly lower on Thursday, suffering under the weight of a strengthening US Dollar. The US Dollar Index broke above minor resistance around 98, trading to the highest level in over seven months as investors price in the expectation of higher interest rates by year-end. The current probability of a fed funds rate hike by the December FOMC meeting jumped 4.1% to 73.6%, supporting the domestic currency and pressuring other asset classes (equities and commodities) in the process. The dollar index is presently overbought and momentum indicators are showing very early signs of trying to roll over. The currency has remained in a trading range between 92 and 100 for almost two years, arguably keeping a cap on equity markets that have similarly stagnated. The peak in the currency benchmark came in December of last year, just ahead of the FOMC meeting that increased the discount rate by a quarter of one percent. A similar outcome this year is probable. Seasonally, the US Dollar Index tends to rise between now and late November.
On the economic front, a report on existing home sales provided confidence that strength in the housing market remains intact. The headline print indicated that sales of existing homes increased by 3.2% last month to a seasonally adjusted annual rate of 5.47 million. Analysts had expected a rate of 5.35 million. Stripping out the seasonal adjustments, sales were actually lower by 10.2% last month, which is much better than the average decline for September of 15.8%. The year-to-date change is sitting slightly above the seasonal average for this time of year, helped by above average growth in the northeast, midwest, and west regions. Despite a rare uptick in the inventories of existing homes, the months of supply contracted to 4.5 from 4.6 previous. A balanced market generally consists of six months of supply. This tight supply continues to support prices, which have gained above the average trend through the first three quarters, although the gap versus the seasonal average is gradually narrowing. Existing home sales typically continue to contract through the fourth quarter as potential home buyers put their search on hold through the holiday season.
In other news, the Philadelphia Fed released its gauge of manufacturing conditions within the mid-Atlantic region. The General Business Conditions Index remained in expansion territory at +9.7, down slightly from the +12.8 reported previous. Analysts had forecast a print of +7.0. Stripping out the adjustments, the level actually came in at +11.1, which is inline with the average print for this time of year. This is a significant improvement from the print of –4.1 reported last year at this time amidst weakening manufacturing activity. The Philadelphia Fed’s assessment is a divergence versus what the New York region reported on Monday. The Empire Fed Survey remained in contraction in September, reporting a result that was well below average for this time of year. The strength in the manufacturing segment of the economy is certainly not even, but, perhaps, the fact that the same type of deterioration in conditions that was apparent last year at this time is a win on its own. Manufacturing activity typically winds down through the fourth quarter.
And briefly on weekly jobless claims, the non-seasonally adjusted change continues to trend inline with the average, while continuing claims, which lag by a week, is holding marginally below the seasonal trend. It is at this time of year that the average low in continuing claims is typically realized, leading to a rise in claims through the remaining weeks of the year. As long as the rise remains below or inline with the seasonal average change, any impact on the seasonally adjusted headline should be negligible. Further monitoring is warranted to assure that the seasonal model that is applied to the economic data-point can appropriately accommodate the change in direction.
Sentiment on Thursday, as gauged by the put-call ratio, ended close to neutral at 0.99.
Seasonal charts of companies reporting earnings today:
S&P 500 Index