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Stock Market Outlook for December 16, 2016


The outlook for manufacturing conditions just received a boost with the Philly Fed reporting the highest level in 2 years.


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**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:

Micron Technology, Inc. (NASDAQ:MU) Seasonal Chart



The Markets

Stocks closed higher on Thursday as buyers scooped up names that were sold off following Wednesday’s Fed induced equity market pullback.  The S&P 500 Index added four-tenths of one percent, recouping around half of Wednesday’s decline.  Looking at the hourly chart of the large-cap benchmark, short-term declining trendline resistance is temporarily restricting a further advance; momentum indicators are also trending lower.  Over the week ahead, portfolio managers will be seeking to close the books on the year, positioning portfolios for the start of 2017 before they take year-end holidays.  Typically, this entails an upward bias for stocks as investors buy the names that were sold off during the tax-loss selling period.  With the benchmark fractionally higher since the tax-loss selling period began a week ago, the positioning of portfolios is somewhat uncertain.  The unanimous consensus amongst investors is that portfolios should be bullishly positioned into year-end in order to participate in the “Trump rally.”  But with investor sentiment bordering on euphoria and analysts overwhelmingly touting the bullish case for stocks, one must be concerned that the market is leaning too far towards one side of the boat.  For now, with seasonal tendencies for stocks positive through to early January, the more logical opportunity for a retracement is sometime during January or February, two of the weakest months of the 6-month trend.

While analysts derive their bullish case for equity markets, the argument just received fundamental backing from the Philadelphia Fed survey.  The gauge of manufacturing conditions in the Philadelphia Federal Reserve district jumped to the highest level in two years, coming in at 21.5.  Analysts had expected a print of 10.0.  Stripping out the seasonal adjustments, the business outlook survey came in at +12.7, well ahead of the average read for this time of year of –12.0.  The survey index had been following close to the average trend all year, but December’s print is a significant divergence from the norm, suggesting favourable conditions going into the new year.

The Empire Manufacturing survey shared the same enthusiasm that Philadelphia was benefitting from, reporting a +9.0 in this last report of 2016.  The consensus estimate was +3.0.  Excluding the seasonal adjustment, the manufacturing gauge remained in contraction territory at –6.9.  Manufacturing conditions in New York had been trending below average for most of the year, but December’s improvement from the November low puts the index back inline with the seasonal average, perhaps setting the stage for a more normal year ahead.  As highlighted yesterday following the release of the report on industrial production, US Dollar strength continues to pose a headwind to this segment of the economy, restricting export activity and commodity prices.  Whether “Trump-o-nomics” can overcome this hurdle has yet to be seen, but the anticipation is, obviously, positive.

Sentiment on Thursday, as gauged by the put-call ratio, ended bullish at 0.85.



Seasonal charts of companies reporting earnings today:

  • No significant earnings reports scheduled for today


S&P 500 Index



TSE Composite