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Stock Market Outlook for November 2, 2017

Reports on construction spending and shipping activity presenting early concerns pertaining to the economy.

 

Real Time Economic Calendar provided by Investing.com.

 

***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 in the US closed marginally higher on Wednesday, helped by a positive follow-through from stocks overseas.  The S&P 500 Index closed higher by 0.16%, charting new-intraday highs at the peak of the session.  But it was markets overseas that seemed to capture the bulk of the start of the month inflows for November.  The German DAX and Tokyo Nikkei gapped higher by 1.78% and 1.86%, respectively, charting multi-decade highs in the process.  Hong Kong’s Hang Seng,  Italy’s FTSE MIB, and India’s Sensex also recorded solid gains on the day.  Overbought indicators are apparent across the charts, but they have yet to show signs of peaking.  Seasonally, the Nikkei and Dax have outperformed the S&P 500 Index, on average, over the next five months, based on data from the past 20 years.

^GDAXI Relative to the S&P 500

^N225 Relative to the S&P 500

On schedule for this mid-week session was the release of petroleum inventories from the EIA.  Stockpiles of oil are indicated to have declined by 2.4 million barrels, while gasoline showed a drawdown of 4.0 million barrels.  Production from both oil and gas are indicated higher in the past week as both rebound from recent hurricanes.  Domestic production of oil is back to the highs of the year, while gasoline is returning to levels seen prior to Hurricane Harvey, which took production offline for a couple of months.  But while production of the refined commodity is rising, the quantity supplied continues to show a declining trend from the August peak, realizing the typical seasonal slide following summer driving season.  Seasonally, inventories of gasoline typically rise between early November and mid-February.

Weekly U.S. Days of Supply of Crude Oil excluding SPR (Number of Days) Seasonal Chart

Weekly U.S. Days of Supply of Total Gasoline (Number of Days) Seasonal Chart

The price of oil was relatively unchanged following the result, continuing to hold above last week’s breakout level around $52.  Resistance around $55 is the hurdle in the way of new 52-week highs.  Moving averages and momentum indicators continue to point higher.

On the economic front, a report on construction spending in the US showed that construction season concluded with the weakest year-to-date performance since 2010.  The headline print indicated that spending on construction projects rose by 0.3% in September, exceeding the consensus estimate calling for an unchanged result.  Stripping out the seasonal adjustments, total construction spending actually fell by 1.4%, better than the average decline for September of 1.9%.  Year-to-date, construction spending is higher by 18.3%, well below the average gain through this point in the year of 26.7%.  Weakness in non-residential spending is to blame, driven by weakness in the office, power, and manufacturing segments.  Road projects, commonly associated with construction season, are also trending below average.  Only health care and educational construction are showing results in the non-residential category that are inline to above average through this point in the year.  As for residential spending, it continues to trend inline with the seasonal norm, gaining 27.1% through the end of September as housing demand continues to fuel activity.  Overall, the results seem somewhat counterintuitive when compared to the strength that has been realized in various areas of the economy this year, particularly durable manufacturing.  Changing demographics, the rise in telecommuting, and increasing utility efficiency could be argued for the trends in health care, office, and power, but the rest of the report raises questions pertaining to the future needs of the private sector, including their desire and willingness to expand.  It is still unclear if this is part of a longer-term trend or just something isolated to this year, but with the year-to-date trend showing performance that is more consistent with the years surrounding a recession, it warrants further monitoring.

Total Construction Spending Seasonal Chart

Also released within the past day is the latest glimpse of shipping activity from CASS Information Systems.  CASS is reporting that their shipments gauge fell by 0.9% in September, while the expenditures gauge rose by 0.3%.  These results are well below average, which typically sees shipping and expenditures rise by 1.3% and 3.2%, respectively.  The decline in shipment volumes is a very rare divergence in this month that typically realizes heightened activity as goods are shipped to stores ahead of the holiday season.  It is unclear the extent of the impact of the hurricanes that hit in the month, but analysis from CASS indicates that the storms had a positive influence, particularly with respect to trucking activity.  So that raises the question, where are the positive results?  Perhaps it will come towards the end of the year, as it did last year, as increasing amounts of goods are sold from online retailers, as opposed to brick-and-mortar stores.  This remains speculation.  The year-to-date change for both volumes and expenditures are below average through the end of the third quarter, indicative of declining demand into the back half of the year.  Shipping activity is often an effective leading indicator of economic activity.

Cass Freight Index: Shipments Seasonal Chart

Sentiment on Wednesday, as gauged by the put-call ratio, ended bullish at 0.93.

 

 

 

 

Seasonal charts of companies reporting earnings today:

 

 

 

S&P 500 Index

 

 

TSE Composite