A banking holiday in the U.S. may have contributed to muted trading volume and tight trading ranges in all markets. With earnings season set to start, however, several stock sectors are poised to potentially move higher. Seasonal factors could drive laggard industries higher, and strong industry group stocks may build on their success so far this year to post even higher gains.
For example, auto manufacturers are one industry that has lagged for various reasons and has also been under pressure because of a recent strike by the United Auto Workers (UAW) on General Motors Company (GM). The chart below shows that, from the moment the strike went into effect, stocks of the major auto manufacturers have, unsurprisingly, drifted lower.
What is surprising, however, is that the first such strike in 12 years hasn't really been catastrophic to GM or to the industry at large. Stocks in the sector have been moving lower for most of the year. The good news is that, if earnings season spurs more investors into buying shares at about the time that the strike gets resolved, then GM shares could climb higher rapidly, taking the rest of the industry with them.
Homebuilding Stocks Extend Their Lead
Since the beginning of the year, homebuilding stocks have been among the strongest industry groups. The factors driving investors to consider these stocks include a relatively well-employed population and rate cuts by the Federal Reserve.
The SPDR S&P Homebuilders ETF (XHB), is shown in the chart below along with several individual homebuilder companies including M.D.C Holdings, Inc. (MDC), Pulte Group, Inc. (PHM), KB Home (KBH), D.R. Horton, Inc. (DHI), and Lennar Corporation (LEN). The large population bulge in the U.S. (young adults born between 1988 and 1998) is moving into the market to buy residences and may keep the lower end of the housing market propped up for years to come.
Consumer Spending in Fourth Quarter may Spur Stocks
Stocks in the consumer discretionary sector have, on average, tracked with the market. However, the retail industry group within this sector has shown surprising gains in profits as reported in the previous quarter.
If investors are enticed back into the market as a result of favorable earnings reports starting this week, then stocks in this sector, including The Home Depot, Inc. (HD), Starbucks Corporation (SBUX), Nike, Inc. (NKE), Amazon.com, Inc. (AMZN), McDonald's Corporation (MCD), and Booking Holdings Inc. (BKNG), may all be lifted higher into the end of the year.
The Bottom Line
A tight trading range on a bank holiday sets up the market as well as some select sectors and stocks that are poised to move higher. Should good news break in the days to come, these may lead out. Struggling stocks such as those in the automotive industry may do well, or stocks within industry groups that have been strong all year, such as homebuilders, may also benefit.
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