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Stock Market Outlook for July 31, 2017

Canadian economy starting to fire on all cylinders as GDP surpasses estimates.

 

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:

Goldcorp Inc. (USA) (NYSE:GG) Seasonal Chart

Kinross Gold Corporation (TSE:K) Seasonal Chart

Agnico-Eagle Mines Ltd. (TSE:AEM) Seasonal Chart

Xcel Energy Inc. (NYSE:XEL) Seasonal Chart

Mylan Inc. (NASDAQ:MYL) Seasonal Chart

General Mills, Inc. (NYSE:GIS) Seasonal Chart

The Scotts Miracle-Gro Company (NYSE:SMG) Seasonal Chart

 

The Markets

Stocks closed out a mixed week on a bit of a negative note, rolling over as investors started to book profits now that more than half of the earnings reports for S&P 500 companies have been released.  According to FactSet, of the 57% of companies within the large-cap index that  have reported thus far,  73% have recorded earnings and sales above forecast, a pace that is on track to see the best beat-rate of this economic expansion.  The blended earnings growth rate  for the S&P 500 Index for the second quarter is 9.1%, which has allowed the trailing P/E ratio of the benchmark to maintain a flattish trend over the past number of months, despite higher-highs with respect to price.  The S&P 500 Index shed a mere two basis points over the course of the week, charting a doji candlestick, an indication of investor indecision.  The benchmark is testing rising intermediate resistance around 2485 and momentum indicators remain solidly in overbought territory.  The logical point for a pause, or digestion of recent results, is upon us, potentially creating for some choppy trading activity as investors look past earnings and focus on some of the macro fundamentals, such as the lack of progress in getting legislation passed that would support the Trump agenda.  Rising trendline support, or the lower limit of the narrowing range, is closing in on 2450, certainly a make or break level as stocks enter into the most volatile months of the year.

On the economic front, a report monthly GDP for Canada topped expectations, led by strength in Goods producing industries.  The headline print indicated that Gross Domestic Product increased by 0.6% in May, triple the consensus analyst estimate.  The year-over-year change at 4.6% is the largest increase since October of 2010.  Striping out the seasonal adjustments, GDP actually increased by 1.4% for the month, almost double the average increase for this fifth month of the year of 0.8%.  The year-to-date change is higher by 2.8%, four-tenths of a percent above the seasonal average for this point in the year.  Goods producing industries were higher by 3.5%, while service industries saw a gain of 0.6%; the average change for each in the month is 1.1% and 0.7%, respectively.  But while the goods producing segment led the monthly result, it is still the service side of the economy that is trending firmly above average on the year, higher by 2.4%, the best year-to-date change through May since 2006.  Business sector services are particularly strong, hovering 1.2% above the seasonal norm through this fifth month of the year; non business sector services continue to show a below average result.  Other above average categories include retail, construction, energy, finance, utilities, and real estate, encompassing a broad spectrum of the economy, an encouraging sign going into the back half of the year.  Perhaps the one warning in the report was by way of rail transportation, which fell by 7.7% in May, well below the average decline for the month of 2.1%.  Rail transportation had previously been trending above average on the year, but, with May’s outsized move, the year-to-date trend has now fallen below the seasonal norm amidst lower freight of most commodities.  The strength of these transportation categories often leads that of the economy as demand for goods would fuel activity, therefore the abrupt plunge in this segment does raise questions.  Offsetting this negative revelation is the fact that transportation by truck, which is more consumer oriented, has moved into an above average position on the year, a positive for future retail trade results.  Overall, following a number of months of a merely average economy that was being supported extensively by strength in the consumer, there are signs in this report that the economy is beginning to run on all cylinders.  Weakness in the Canadian dollar through this point in the year would no doubt be a tailwind and therefore the break of the negative currency trend in the past month could turn to a headwind for future results.  The currency impact warrants further monitoring.  For further results, seasonal charts for the remainder of the report are available in the Seasonal Chart Database at http://charts.equityclock.com/canada-monthly-gross-domestic-product-gdp-by-industry.

Sentiment on Friday, as gauged by the put-call ratio, ended bullish at 0.83.

 

 

 

Seasonal charts of companies reporting earnings today:

 

 

S&P 500 Index

 

 

TSE Composite