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Stock Market Outlook for November 1, 2017

S&P 500 Index has averaged a gain of 1.3% in November; positive in 68% of periods.

 

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:

Anthem, Inc. (NYSE:ANTM) Seasonal Chart

Canfor Corporation (TSE:CFP) Seasonal Chart

Exchange Income (TSE:EIF) Seasonal Chart

ArcelorMittal SA (NYSE:MT) Seasonal Chart

Lennar Corporation (NYSE:LEN) Seasonal Chart

Chicago Bridge & Iron Co. (NYSE:CBI) Seasonal Chart

Winnebago Industries Inc. (NYSE:WGO) Seasonal Chart

Monsanto Company (NYSE:MON) Seasonal Chart

Abercrombie & Fitch Co. (NYSE:ANF) Seasonal Chart

Aegion Corp. (NASD:AEGN) Seasonal Chart

Chorus Aviation Inc (TSE:CHR) Seasonal Chart

 

 

The Markets

Stocks closed out the month of October on a positive note with the S&P 500 Index adding another 0.09%, remaining mere points away from the all-time intraday high charted on Friday.  For the month, the large-cap benchmark was higher by 2.22%, the best monthly performance since February.  The result is well ahead of the average gain for October of 0.9%, based on data from the past 50 years.  The month is typically characterized by the peak in volatility following the weaker summer months for equity indices, but while volatility did close higher in the month, it remains well below average levels for this time of year.  Focus on tax reform, improving economic and corporate fundamentals, and low interest rates have kept the broader equity market on a positive path, mitigating much of the weakness that is average during the summer period.  Looking at the monthly chart, the S&P 500 Index is the most overbought since the late 1990’s, a condition that persisted for a number of years back then.  While back in September, monthly momentum indicators had been showing slight signs of rolling over, they have since expanded, reflecting the strength in prices over the period and withholding sell signals, at least for the time-being.  Technology was the far and away leader in the month, adding 7.67%, according to the S&P 500 sector benchmark.  Financials were also strong, adding around 3%.  The leadership from these sectors in the month of October is inline with historical results, but left out of the leadership groups were the consumer stocks, both staples and discretionary.  Consumer staples shed 1.6% and discretionary added just over 2%, both lagging the performance of the brooder market.  The average gain in these sectors of the market in October is 2.6% and 2.4%, respectively, based on data from the past 20 years.  Concerns pertaining to the consumer continue into the months ahead, suggesting a neutral stance in the sectors despite positive tendencies relating to the end of year holidays.

Looking forward, the month of November is one of the better months of the year for stocks with the S&P 500 gaining an average of 1.3% over the past 50 years.  The month has shown positive results 68% of the time, also one of the highest monthly frequencies of the year.  The period starts the best six months of the year, which tends to see equity market returns that are larger and more frequent than the six months prior.  Over the past 50 years, the S&P 500 Index has gained an average of 6.49% for the six month period beginning in November versus the 1.12% return generated in the May through October timeframe.  Both figures exclude the impact of dividends, which have historically added higher total returns to both timeframes.

Diving through the sectors, materials, industrials, consumer discretionary, and technology have tended to top the leaderboard in November over the past 20 years with each sector benchmark averaging a gain of between 2.2% to 2.5%.  Utilities is the only sector to record a loss in this second to last month of the year, declining by an average of 0.6%.  From a seasonal timeline perspective, materials and financials see the average start to their periods of strength in the month, while staples sees the average end to its seasonally strong period.  Banks and mining stocks tends to play off of the seasonal start to the broad sector, while retail has historically peaked following the US Thanksgiving holiday closer to the end of the month.  Anticipation of a strong holiday spending season tends to be a dominant theme as the unofficial start to Christmas begins. Commodities are largely out of favour in this month as flows make their way into equity positions.  Strength in the US Dollar Index is a factor, resulting in the second best monthly performance of the year for the benchmark that tracks the currency.  The US Dollar Index has gained an average of 0.7% and has closed higher 65% of the time.

On the economic front, a report on GDP out of Canada showed a weak result, likely impacted by strength in the Canadian dollar through the summer months.  The headline print indicated that GDP for August declined by 0.1%, missing the consensus estimate that forecasted a gain of the same margin.  Stripping out the seasonal adjustments, gross domestic product was actually higher by 3.8%, which is well short of the average increase for August of 5.5%.  The year-to-date change is higher by 3.7%, inline with the average change through the end of August.  Previously, GDP had been running above average into July, benefitting from weakness in the Canadian dollar through the first half of the year.  However, as the trend changed surrounding the recent rate hikes from the Bank of Canada, this previous tailwind has quickly turned into a headwind, taking a bite out of activity into this late summer period.  The currency has since retraced some of its gains, trading back to previous long-term resistance, now support, around its rising 200-day moving average.  Seasonally, the Canadian dollar tends to decline through to mid-December.

Diving through the details of the report, the strength in manufacturing activity that was notable in July has vanished when looking at August’s results.  Durable manufacturing has moved back inline with its seasonal average trend, closing a gap that saw above average performance through the average factory shutdown period in July.  This has taken a toll on the goods producing segment of the economy, which has similarly moved back inline with the seasonal average trend.  Chemical and pharmaceutical manufacturing were particularly weak, falling by 4.8% and 4.1%, respectively, in a month that has typically seen gains in these categories.  These dollar sensitive areas of the report should rebound in future results, assuming the currency maintains a declining trend following its early September peak.  Of the positives in the report are information technology, energy, utilities, and construction, which are all showing year-to-date trends that remain above seasonal norms.  These areas are less exposed to fluctuations in the domestic currency compared to goods producing counterparts.  Similarly, service producing industries are also showing above average growth this year.  So while the currency is taking a toll on the aggregate result, the economy in Canada continues to show a healthy path.  The strain with respect to the currency should prove to be temporary, at least based on recent price action.  For a complete breakdown of the report, you can access the seasonal charts via the chart database at http://charts.equityclock.com/canada-monthly-gross-domestic-product-gdp-by-industry.

Sentiment on Tuesday, as gauged by the put-call ratio, ended bullish at 0.87.

 

 

 

 

Seasonal charts of companies reporting earnings today:

 

 

S&P 500 Index

 

 

TSE Composite