The Markets
Markets traded marginally higher on Wednesday, driven primarily by
Consumer Discretionary stocks following a much better than expected
report on Existing Home Sales. Homebuilders such as Pulte, Lennar, and
Toll Brother pushed strongly higher, attacking multi-year highs that
have been established over the past few trading sessions. Increasingly
the housing industry is showing signs of recovering with Existing Sales
hitting the highest level since early 2010 and back to levels witnessed
prior to the 2008/2009 recession. Housing starts are also holding around
the highest levels since the recession began. Seasonal tendencies for
the home building industry, however, are less than favorable over the
next month or so as the summer selling season concludes. Following the
month-long “swoon”, the stocks see their best seasonal gains during the
fourth quarter of the year as investors begin anticipating the spring
building season.
Over the past couple of days markets have seen momentum starting to show
signs of decline. Price is stagnating. Seasonally, equity markets are
within the weakest three week period of the year, which concludes just
past the first week of October. Weakness has also been known to persist
throughout October, resulting in an intermediate-term bottom that is
often realized just prior to the end of the month. Given this seasonal
framework and technicals for a number of asset classes starting to see
momentum rolling over, probability is high that a selloff/correction
will occur in the weeks ahead, potentially related to earnings caution.
FedEx has been a recent prominent company touting weak economic
fundamentals and earnings caution. Another transportation stock
confirmed what FedEx was saying on Wednesday after the closing bell.
Railroad operator Norfolk Southern warned that earnings would trail
analyst estimates due to weakness in coal and merchandise shipments. An
unrelated company, Adobe, also issued an earnings forecast on Wednesday
that also missed analyst estimates. Oracle, a industry titan, will
report earnings on Thursday after the market close, a report that is
typically a leading indictor of the strength within the technology
sector going into the seasonally favouable fourth quarter. (more)
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