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Stock Market Outlook for October 27, 2015

 

The 50-year average low to the favourable six months of the year for equities is today.

 

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:

SNC-Lavalin Group Inc. (TSE:SNC) Seasonal Chart

Wendy’s Arby’s Group Inc. (NYSE:WEN) Seasonal Chart

Sonoco Products Company (NYSE:SON) Seasonal Chart

Tootsie Roll Industries, Inc. (NYSE:TR) Seasonal Chart

Great Plains Energy Incorporated (NYSE:GXP) Seasonal Chart

Manitoba Telecom Services (TSE:MBT) Seasonal Chart

Pan American Silver Corp. (TSE:PAA) Seasonal Chart

Fairfax Financial Holdings Limited (TSE:FFH) Seasonal Chart

Barrick Gold Corp. (TSE:ABX) Seasonal Chart

Wisconsin Energy Corporation (NYSE:WEC) Seasonal Chart

United Parcel Service, Inc. (NYSE:UPS) Seasonal Chart

Thermo Fisher Scientific Inc. (NYSE:TMO) Seasonal Chart

Rockwell Automation (NYSE:ROK) Seasonal Chart

Pinnacle West Capital Corporation (NYSE:PNW) Seasonal Chart

PerkinElmer, Inc. (NYSE:PKI) Seasonal Chart

Lowe’s Companies, Inc. (NYSE:LOW) Seasonal Chart

KB Home (NYSE:KBH) Seasonal Chart

Invesco Ltd. (NYSE:IVZ) Seasonal Chart

 

The Markets

Stocks digested recent gains, closing near the flat-line at the end of Monday’s session.  The S&P 500 Index ended lower by 0.19%, remaining above its 200-day moving average.  With a busy week for earnings and a FOMC meeting announcement mid-week, stocks will certainly have a number of catalysts to work off of, keeping investors on their toes as they watch the equity market reaction around theses highs.

On the economic front, a report on New Home Sales for September failed to provide an encouraging backdrop to the period of seasonal strength for homebuilding stocks, which begins around this time of year.  The headline print showed that sales of new homes fell to a seasonally adjusted annual rate of 468,000, well below the consensus estimate of 549,000.  Stripping out seasonal adjustments, sales actually fell by 16.3%, almost twice the average decline for September of 8.8%, based on data over the past 50 years.  The year-to-date change is now up a mere 2.9% through the first three quarters, well below the average gain of 24.3%.  Sales of completed new homes are down the most, showing a year-to-date contraction of 27%, versus the average gain of 9% through September.  Uncertainty pertaining to the future of mortgage rates may be acting as a drag; the rate of the 30-year fixed mortgage hit its high of the year this past summer, but has since declined marginally.  The iShares US Home Construction ETF (ITB) traded lower by just over half of one-percent, still remaining in an underperforming trend versus the market.  Seasonally, the sector typically moves higher between mid-October and mid-February in anticipation of a strong spring buying period.

Meanwhile, we are just one day away from the average start to the period of seasonal strength for the broad market. However, investors should be mindful of the key word in that statement: average.  Taking a look at the average performance of the S&P 500 Index over the past 50-years, the low point during the fourth quarter is clearly obvious on October 27th, leading to the positive trend that follows through to May 5th of the subsequent year.  The average, assuming a normal distribution, implies that during any given year the low point to the positive seasonal trend has an equal probability of occurring either before or after that date.  Obviously, we know the seasonal start to this year’s trend was at the start of October; the low points over the past four years have fallen on either side of the 50-year average low.  So how many times over the past 50 years has October 27th acted as the low point to the market (S&P 500 Index) for the favourable six months of the year?  Two times, in 1997 and 2005.  In a market where entry and exit points, quite simply, determine the success of a trade, it is important for seasonal investors to always apply a simple technical overlay to fine tune when they get in and when they get out.

Average annual performance over the past 50 years:

Optimal entry points over the past 4 years:

Years that October 27th coincided with the average low:

Sentiment on Monday, as gauged by the put-call ratio, ended bullish at 0.95.

 

 

Sectors and Industries entering their period of seasonal strength:

S5HCPS Index Relative to the S&P 500

 

 

Seasonal charts of companies reporting earnings today:

 

For seasonal charts of other companies reporting today, click here.

 

S&P 500 Index

 

TSE Composite