Market Analysis

Beyond the Numbers

Profit Taking May Lead To Initial Weakness On Wall Street
5/26/2017 8:59 AM

The major U.S. index futures are pointing to a modestly lower opening on Friday after stocks closed lower for six consecutive sessions. Profit taking may contribute to early weakness on Wall Street after the recent winning streak lifted the Nasdaq and the S&P 500 to new record closing highs.

Renewed concerns about the investigation of Russian meddling in the presidential election may also weigh on the markets amid reports President Donald Trump’s son-in-law and senior adviser Jared Kushner has come under FBI scrutiny.

Trading activity may be somewhat subdued on the day, however, as some traders look to get a head start on the Memorial Day weekend.

Stocks moved mostly higher over the course of the trading day on Thursday, extending their recent winning streak to six sessions. With the continued upward move, the Nasdaq and the S&P 500 reached new record closing highs.

The major averages ended the day firmly in positive territory. The Dow rose 70.53 points or 0.3 percent to 21,082.95, the Nasdaq advanced 42.23 points or 0.7 percent to 6,205.26 and the S&P 500 climbed 10.68 points or 0.4 percent to 2,415.07.

The continued strength on Wall Street was partly due to upbeat earnings news from some big-name retailers, which helped offset some recent concerns about consumer spending.

Electronics retailer Best Buy (BBY) also showed a substantial move to the upside after reporting first quarter results that beat expectations on both the top and bottom lines.

Shares of Sears (SHLD) also saw significant strength after the department store operator reported a narrower than expected first quarter loss on revenues that exceeded estimates.

Traders also continued to respond positively to the minutes of the Federal Reserve's latest monetary policy meeting, which included an outline of a plan to trim its $4.5 trillion balance sheet.

Nearly all policymakers expressed a favorable view of the approach, which was seen as consistent with the intention to reduce the Fed's securities holdings in a gradual and predictable manner.

In U.S. economic news, a report released by the Labor Department showed a slight uptick in first-time claims for unemployment benefits in the week ended May 20th.

The report said initial jobless claims inched up to 234,000, an increase of 1,000 from the previous week's revised level of 233,000. Economists had expected jobless claims to climb to 238,000.

Electronic storage stocks showed a strong move to the upside on the day, driving the NYSE Arca Disk Drive Index up by 2.2 percent. With the jump, the index reached its best closing level in well over a year.

NetApp (NTAP) helped to lead the storage sector higher after the data services company reported better than expected fourth quarter results.

Considerable strength was also visible among transportation stocks, as reflected by the 1.6 percent advance by the Dow Jones Transportation Average. Norfolk Southern (NSC) and United Continental (UAL) posted notable gains.

Retail, software, and internet stocks also saw significant strength on the day, contributing to the higher close by the broader markets.

On the other hand, energy stocks moved substantially lower amid a steep drop by the price of crude oil. While OPEC agreed to extend a cut in production until March of 2018, investors had been hoping the cartel would announce a further reduction in output.

Oil service stocks showed a particularly sharp decline, dragging the Philadelphia Oil Service Index down by 5.4 percent. The index tumbled to its lowest closing level in over a year.

Commodity, Currency Markets

Crude oil futures are sliding $0.42 to $48.48 a barrel after plunging $2.46 to $48.90 a barrel on Thursday. Meanwhile, after rising $3.30 to $1,264.40 an ounce in the previous session, gold futures are climbing $10.40 to $1,266.80 an ounce.

On the currency front, the U.S. dollar is trading at 111.09 yen compared to the 111.84 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1183 compared to yesterday’s $1.1210.


Asian stock markets ended Friday’s trading mixed, investors turned cautious following media reports that Jared Kushner, the son-in-law and adviser of U.S. President Donald Trump, has come under FBI scrutiny in its Russia probe.

Chinese stocks eked out slight gains to close higher for the third straight session. The benchmark Shanghai Composite Index added 2.33 points or 0.08 percent to close at 3,110.16. Hong Kong's Hang Seng Index inched up 8.49 points or 0.03 percent to 25,639.27.

The Japanese market closed lower, tracking the fall in crude oil prices and a stronger yen. The benchmark Nikkei 225 Index fell 126.29 points or 0.64 percent to close at 19,686.84.

Major exporters closed mostly lower on a stronger yen. Panasonic lost more than 1 percent and Canon dipped 0.3 percent, while Sony rose 0.2 percent.

Among automakers, Toyota lost 0.7 percent and Honda fell 1.2 percent. In the banking sector, Mitsubishi UFJ Financial slipped 0.9 percent, and Sumitomo Mitsui Financial declined 0.6 percent.

In the oil space, Inpex fell 2 percent and JXTG Holdings lost 0.2 percent after crude oil prices plunged overnight.

Australian shares closed lower for the first time in three days in a broad-based sell off. The benchmark S&P/ASX 200 Index declined 37.96 points or 0.66 percent to settle at 5,751.66, and the broader All Ordinaries Index lost 36.70 points or 0.63 percent to finish at 5,792.10.

Oil stocks declined after crude oil prices fell overnight. Oil Search dipped 1.6 percent, Santos lost 2 percent and Woodside Petroleum fell 2.7 percent.

Among the major miners, BHP Billiton fell 2 percent, Rio Tinto declined 1.8 percent and Fortescue Metals lost 4.5 percent.

In the banking sector, ANZ Banking, Commonwealth Bank, National Australia Bank and Westpac slipped 0.4 percent to 1.5 percent.


European stocks have turned mixed on Friday following disappointment that Thursday's OPEC meeting failed to produce bigger supply cuts. Further, the sterling fell on a poll showing the ruling Conservatives' lead shrinking two weeks before an election.

While the U.K.’s FTSE 100 Index has edged up by 0.2 percent, the German DAX Index and the French CAC 40 Index are down by 0.4 percent and 0.5 percent, respectively.

At the OPEC meeting in Vienna, the members and some non-OPEC producers agreed to extend a pledge to cut around 1.8 million barrels per day or bpd until the end of the first quarter of 2018. The decision was disappointing as investors were expecting longer or larger cuts, possibly for 12 months.

The first poll taken since the death of 22 people in suicide bombing indicated that Britain's opposition Labour Party had cut Theresa May's Conservative Party lead to five points ahead of the June 8th election.

In stock-specific action, energy firms have taken a hit after crude prices fell almost 5 percent the previous day after the OPEC disappointment.

U.S. Economic Reports

The Commerce Department released a report showing that the economy grew by much more than initially estimated in the first three months of the year.

The report said gross domestic product climbed by 1.2 percent in the first quarter compared to the previously reported 0.7 percent increase.

Economists had been expecting a more modest upward revision to the pace of GDP growth to approximately 0.9 percent.

A separate Commerce Department report showed that new orders for manufactured durable goods pulled back by less than expected in the month of April.

The Commerce Department said durable goods orders slid by 0.7 percent in April after jumping by an upwardly revised 2.3 percent in March. Economists had expected orders to slump by 1.4 percent.

Excluding a drop in orders for transportation equipment, durable goods orders still fell by 0.4 percent in April after climbing by 0.8 percent in March. Ex-transportation orders were expected to rise by 0.4 percent.

At 10 am ET, the University of Michigan is scheduled to release its revised report on consumer sentiment in the month of May.

The consumer sentiment index for May is expected to be downwardly revised to 97.5 from a preliminary reading of 97.7, which was up from 97.0 in April.

Stocks in Focus

Shares of Nutanix (NTNX) are moving sharply higher in pre-market trading after the enterprise technology company reported a narrower than expected third quarter loss and provided upbeat guidance.

Discount retailer Big Lots (BIG) may also move to the upside after reporting better than expected first quarter earnings and raising its full-year earnings forecast.

Shares of Costco (COST) are also seeing pre-market strength after the warehouse retailer reported third quarter results that exceeded analyst estimates on both the top and bottom lines.

On the other hand, GameStop (GME) may come under pressure after the video game retailer reported better than expected first quarter results but disappointed investors by leaving its full-year earnings guidance unchanged.

Big Data software vendor Splunk (SPLK) could also see early weakness despite reporting first quarter results that exceeded estimates amid concerns about its profit margins.
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