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Stock Market Outlook for July 24, 2017

Euro up, stocks down as negative seasonal influences take hold.


Real Time Economic Calendar provided by


**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:

Vodafone Group Plc (ADR) (NASDAQ:VOD) Seasonal Chart

The Clorox Company (NYSE:CLX) Seasonal Chart

Mosaic Co (NYSE:MOS) Seasonal Chart

GlaxoSmithKline plc (ADR) (NYSE:GSK) Seasonal Chart

Consolidated Edison, Inc. (NYSE:ED) Seasonal Chart



The Markets

Equity benchmarks in the US closed mildly lower on Friday as investors continue to react to earnings that have generally been better than expected.  According to FactSet, 73% of S&P 500 companies that have reported thus far have beaten EPS estimates, while 77% have beaten revenue estimates.  However, despite the generally strong results, investors have been less likely to buy around these all-time high levels, instead leaning more towards the sell button.  Bespoke Investments notes that “stocks that have beaten EPS estimates are only up 0.59% on average [following earnings], while misses have fallen 4.7% and inlines have fallen 2.8%.”  This has fuelled a bit of a risk-off shift in the most recent week with the utilities, health care, consumer staples sectors outperforming the market return.  Bond prices and gold have also been granted reprieve from the recent selling pressures to punch out solid returns over the course of the week.  The S&P 500 Index added 0.54% by Friday’s close, remaining overbought according to weekly momentum indicators.  Rising trendline resistance on the large-cap benchmark is directly overhead, while variable support remains apparent at the rising 20-week moving average.  Seasonally, the benchmark has entered into its weakest period of the year, spanning from the middle of July through to early October.

Part of the softness in Friday’s session can be chalked up to a weak transition from benchmarks overseas.  European indices recorded sizeable drawdowns amidst the continued rise in the European currency.  The DAX, CAC, and IBEX saw losses in excess of one percent with each turning lower from resistance at now declining 50-day moving averages.  European equity benchmarks had been the leaders on the year, outperforming US counterparts for the year-to-date period through the month of May. But as the Euro continued its relentless rise amidst prospects of the tightening of monetary policy next year, stocks began to suffer.  Last week the Euro punched through resistance at 1.15 (vs US Dollar), now testing the final line in the sand around 1.17 that would complete a triple bottom pattern.  Seasonally, the Euro averages a flat to negative trend between now and mid November before rising into the end of the year.

As for the stocks, while weakness over the months ahead is typical around the globe, the summer swoon tends to be much more pronounced amongst these European benchmarks.  Both the German DAX and the French CAC have averaged returns that have lagged the S&P 500 Index between now and the end of September.  This trend is seemingly already underway.  Weakness amongst global benchmarks can often have a feedback effect, whereby declines spill from one market to another.

^GDAXI Relative to the S&P 500

^FCHI Relative to the S&P 500

On the economic front, a report on retail sales in Canada for the month of May showed a consumer that differs significantly from its neighbours in the US.  The headline print indicated that retail sales increased by 0.6%, well above the consensus estimate calling for a 0.2% rise.  Stripping out the seasonal adjustments, Canadian retail trade actually jumped by 11.7%, pushing the value of sales to the highest level on record.  The year-to-date change is now higher by 3.3%, well above the seasonal average gain through this point in the year of –4.0%.  While retail sales in the US struggle under the weight of weak automobile sales, sales of new and used cars in Canada are showing above average gains through the first five months of the year.  Motor vehicle and part dealer sales were higher by 16.9% in May, more than double the average increase of 6.2% for this fifth month of the year.  As in the US, home improvement is a dominant theme with furniture, electronic, and building material sales trending above average through May.  Overall, this is a strong report that suggests Canadian’s are not showing any reluctance to spend, unlike the US where some sluggish results have been witnessed.  May typically marks the high in Canadian retail sales for the first half of the year, leading to a glide pattern lower into the always important Christmas spending season in November and December.  The current pace of sales is on track to record one the best calendar year performances of the past decade.

Staying north of the border, Statscan also released its gauge of inflation for the month of June.  The Consumer Price Index (CPI) fell by 0.1% in this sixth month of the year, inline with the consensus estimate.  The decline was a divergence from the average change for the month of +0.1%, resulting in the continuation of the year-to-date trend below the seasonal average pace.  CPI is higher by 1.6% through the first half of the year, shy of the 1.8% average gain, based on data from the past 20 years.  Excluding energy, an above average trend remains intact with the first six months of the year showing a gain of 1.7%, firmly above the 1.3% average increase.  While not the headline result that the Bank of Canada might want, it remains premature to conclude anything more detrimental that may alter the central bank’s path of tightening monetary policy.  Weak energy prices, which are a negative in this report, are proving to be a positive for consumer spending, the primary driver of economic growth.  Seasonally, inflationary pressures in the back half of the year are typically muted due to the unfavourable trend in energy commodities following peak summer driving season.

Sentiment on Friday, as gauged by the put-call ratio, ended bullish at 0.74.



Seasonal charts of companies reporting earnings today:



S&P 500 Index



TSE Composite