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Stock Market Outlook for July 12, 2017

Wheat prices breaking out during period of seasonal strength.

 

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:

salesforce.com, inc. (NYSE:CRM) Seasonal Chart

Commerce Bancshares, Inc. (NASDAQ:CBSH) Seasonal Chart

 

 

The Markets

Stocks closed mixed on Tuesday despite a shock intraday following the release of emails from Donald Trump Jr. that tied the son of the president to a Russian lawyer.  Major equity benchmarks shed as much as six-tenths of one percent within minutes following the release, but they clawed their way back to the flat-line throughout the afternoon trade.  The S&P 500 Index once again tested support around its 50-day moving average, keeping the buy the dip mentality amongst investors alive.  Financials were the laggards on the session as treasury bond funds posted marginal gains from around support at their respective 200-day moving averages.  The S&P 500 Financial Sector Index shed around seven-tenths of one percent, turning lower from resistance at the March high of 419.  Support remains apparent at the rising 20-day moving average.  Seasonally, the financial sector has produced a positive result in the month of July 60% of the time over the past 20 years, averaging a return of 1.6%.  The short-term strength then reverts to a period of weakness in the month of August, which has seen one of the weakest monthly returns in the history of the benchmark (August 1998 return: –23.1%).

FINANCIAL Relative to the S&P 500

On the economic front, the Job Openings and Labor Turnover Survey indicated that employers were busy hiring in May.  The headline print indicated that openings fell 5.0% to 5.666 million in May, missing the consensus analyst estimate of 5.975 million.  Stripping out the seasonal adjustments, openings actually fell by 10.3%, more than the average decline for the month of May of 8.2%.  The year-to-date change in openings is now 8.3% below average through the end of May, the result of a ramp up in hiring activity filling open positions.  Nonfarm hires was up by 12.9%, well above the average increase for May of 1.0%.  The year-to-date trend is now marginally above the average trend, the first time it has been in an above average position for the calendar year since the back half of 2015.  The level of quits, a gauge of employee confidence, is showing a similar trend, moving above average on the year following an 8.4% jump for this spring month.  The average change in quits for May is –0.4%.  Both the year-to-date change in quits and hires are trending firmly above the pace set by this time last year.  While momentum is slowing in the pace of new openings, the above average rate of hires and quits suggests strength in the labor market as the economy inches closer to full employment.  The level of hires typically hits the highs of the year in the month of June as employers seek to fill summer positions.

Elsewhere in the economy, the seasonally adjusted wholesale trade data for the month of May somewhat contradicted with the non-seasonally adjusted results.  The headline, seasonally-adjusted print indicated that wholesale sales fell by 0.5% in May, while inventories rose by 0.4%, ahead of analyst estimates calling for an increase of 0.3%.  Stripping out the adjustments, wholesale sales were actually higher by 8.0%, while inventories were lower by 0.8%.  The average change for each is +1.9% and –0.7%, respectively.  So while the headline print suggests an increase to the inventory-to-sales ratio, the actual result saw a sharp drawdown in this gauge of relative demand, which in recent years was hovering around some of the highest levels of the past two decades.  The year-to-date change in both sales and inventories remain below their seasonal averages.  Focussing on the sales side, strong gains in both durable and non-durable goods helped to contribute to the aggregate result.  In particular, building materials, whether looking at lumber, hardware, or machinery equipment, are each showing trends that are inline to above average through the first five months of the year.  On the non-durable side, grocery sales spiked, moving inversely to the trend in petroleum sales, which are being impacted by low oil and gasoline prices.  Overall, while commodity prices continue to weigh on a number of categories, improvement versus the lacklustre trends of the past couple of years remains apparent.  For now, the report adds to a number of data points that suggest an average economy, although improvement in commodity prices could very quickly jump-start momentum as we progress into the back half of the year.  In recent days, grain prices have spiked and it appears that energy commodities are turning a corner, potential catalysts for the materials and energy sectors.  The CRB commodity index is attempting to hold support at the 20-day moving average, alleviating a parabolic move lower that ran from mid-January to mid-June.  Commodities are currently the worst performing asset-class year-to-date.

Wholesale Sales

Further on the topic of commodity prices, Wheat prices have surged by over 25% in the past month as drought in the US and concern over the crop in Australia send prices soaring.  The move breaks a well-defined declining trend channel that has spanned the last few years.  The gains come precisely at the start of the period of seasonal strength for the commodity, which runs from the beginning of July through to the height of harvest season in October.  Other grains, such as corn and soybeans, while not in their period of seasonal strength, are showing signs of attempting to carve out a bottom as each attempt to hold support around multi-year lows.  Depressed grain prices have been a significant factor behind the sluggish returns amongst fertilizer stocks, as gauged by the Global Fertilizers ETF (SOIL).  Fertilizer stocks typically enter a period of seasonal strength at the end of June as investors debate the impact of hot summer weather on crop yields.  Continuing to weigh on the industry is shipments of agriculture commodities, which are showing the weakest start to the year in at least 20 years.  Seasonal strength for the industry peaks, on average, in the month of September.




Sentiment on Tuesday, as gauged by the put-call ratio, ended bearish at 1.06.

 

 

Seasonal charts of companies reporting earnings today:

 

 

S&P 500 Index

 

 

TSE Composite