Market Analysis

Beyond the Numbers

Markets Bank on Bargain Hunting to Stage a Rebound
5/27/2015 8:46 AM

The major U.S. index futures are pointing to a higher opening on Wednesday, with sentiment reflecting a slight reversal following yesterday’s steep retreat. After turning mixed earlier in the day, the dollar is on its way back to the upside. Commodities are extending their slide. Meanwhile, the European markets are seeing strength, courtesy a positive German consumer climate reading and abating concerns regarding Greece that have set in motion a wave of bargain hunting. Given the limited domestic trading cues for the session, markets could brace for an uneventful session unless bargain hunting supports them.

U.S. stocks retreated sharply on Tuesday amid domestic rate hike worries and Greek concerns. The major averages opened lower and fell steadily until the mid-session, as traders digested a slew of domestic economic data. Thereafter, the averages moved roughly sideways before ending notably lower.

The Dow Industrials ended down 190.48 points or 1.04 percent at 18,042, the S&P 500 Index closed 21.86 points or 1.03 percent lower at 2,104 and the Nasdaq Composite ended at 5,033, down 56.61 points or 1.11 percent.

All thirty of the Dow components ended the session lower, with Apple (AAPL), Visa (V), United Technologies (UTX) and Chevron (CVX) among the biggest decliners.

Among the sectors, transportation, resource, semiconductor and retail stocks came under intense selling pressure.

On the economic front, the Commerce Department reported that durable goods orders fell 0.5 percent month-over-month in April following an upwardly revised 5.1 percent increase in March. The headline number was dragged down by transportation orders, which fell 2.5 percent. Excluding transportation, orders were up 0.5 percent. Non-defense capital goods orders, excluding aircraft and parts, were up 1 percent.

A separate report showed that new home sales came in at a seasonally adjusted annual rate of 517,000 unit in April, up 6.8 percent from the previous month. The previous month’s sales were upwardly revised to 484,000. Inventories measured in terms of months of supply fell to 4.8 months from 5.1 months. The median price of a new home rose 4.1 percent month-over-month and was 8.3 percent higher from the previous year.

The Conference Board reported that its consumer confidence index rose to 95.4 in May from 94.3 in April, while economists had expected a reading of 95.1. The present situation index rose to 108.1 from 105.1, but the expectations index edged down to 86.9 from 87.1.

The flash estimate of Markit’s service sector PMI for the U.S. came in at 56.4 in May, roughly in line with the consensus estimate of 56.5 but down 57.8 in April.

The results of two separate house price surveys released yesterday came in mixed. The S&P/Case- Shiller house price index rose a seasonally adjusted 1 percent month-over-month in March, ahead of the 0.9 percent increase expected by economists and the 0.9 percent increase in February. Annually, house prices were up an unadjusted 5 percent, the same as in the previous month but better than the 4.6 percent increase expected by economists. At the same time, the Federal Housing Finance Agency’s house price index rose a less than expected 0.3 percent month-over-month.

Currency, Commodity Markets

Crude oil futures are slipping $0.13 to $57.90 a barrel after tumbling $1.69 to $58.03 a barrel on Tuesday. Meanwhile, an ounce of gold is currently trading at $1,185.60, down $1.30 from the previous session’s close of $1,186.90. On Tuesday, gold fell $17.10.

On the currency front, the U.S. dollar is trading at 123.71 yen compared to the 123.10 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.0848 compared to yesterday’s $1.0873.


The major Asian markets ended mostly lower, although the Japanese, Chinese and Taiwanese markets advanced. The weakness in most markets came as the negative close on Wall Street overnight and fears of an early rate hike in the U.S. generated negative sentiment.

Australia’s All Ordinaries opened lower and fell further in the morning. Thereafter, the average moved roughly sideways at lower levels before ending down 46.20 points or 0.80 percent at 5,724.

The market witnessed broad based weakness, with consumer staple, energy, healthcare, telecom and utility stocks coming under intense selling pressure. At the same time, IT stocks bucked the downtrend.

Hong Kong’s Hang Seng Index fell 168.65 points or 0.60 percent before ending at 28,081, while China’s Shanghai Composite Index extended its run up and settled up 30.82 points or 0.63 percent at a fresh 7-year high of 4,942.

The Japanese market drew strength from the yen’s weakness, as the dollar traded above the 123 yen level in the Asian session.

The Nikkei 225 Index languished mostly below the unchanged line until late afternoon trading. After recovering and holding above the unchanged line till late trading, the index saw some volatility before ending up 35.10 points or 0.17 percent at 20,473.

Export stocks ended mostly to the upside and financial stocks also saw strength. On the other hand, energy, utility and real estate stocks declined.

On the economic front, the minutes of the Bank of Japan’s April 30th Monetary Policy Board meeting showed that members opine that the current monetary policy stance is appropriate. The bank noted that the underlying inflation trend was improving even as there was some debate about achieving the 2 percent inflation target.

A report released by Westpac Bank and the Melbourne Institute showed that a leading economic indicators index for Australia rose 0.11 percent month-over-month to 98.17 in April, reversing some of the 0.3 percent drop in March.

The value of construction work done in Australia fell 2.4 percent sequentially in the first quarter, according to a report released by the Australian Bureau of Statistics. Economists expected a more modest 1.4 percent drop.

Meanwhile, the Chinese National Bureau of Statistics reported that profits of Chinese industrial enterprises rose for the first time in 6 months in April. Industrial profits rose 2.6 percent year-over-year following a 0.4 percent drop in March.


European stocks started on a firm note but have given back of their gains in early trading. The major averages in the region are currently higher.

In corporate news, Dutch supermarket chain Ahold reported an underlying profit for the first quarter that trailed estimates despite sales rising strongly, aided by currency translation gains.

A report from GfK indicated German consumer sentiment is poised to improve to its highest level in more than thirteen years in June, as strong domestic demand and low inflation boost growth prospects.

The forward-looking consumer sentiment indictor compiled based on GfK’s survey rose unexpectedly to 10.2 in June from 10.1 in May. This was the highest score since October 2001. Economists had forecast the indicator to fall slightly to 10.0 in June.

U.S. Economic Reports

The Treasury Department is scheduled to announce the results of its auction of 5-year notes at 1 pm ET.

Stocks in Focus

TiVo (TIVO) reported better than expected first quarter results. The company also forecast second quarter service and technology revenues above the consensus estimate.

Separately, the company announced the acquisition of software solutions provider Cubiware. TiVo expects the deal to be accretive to its adjusted EBITDA in the current fiscal year.

Hormel (HRL) announced an agreement to acquire organic prepared meats company Applegate Farms for $775 million. The deal is expected to close within 60 days. Applegate generated sales of $340 million in 2015. The deal is expected to be neutral to Hormel’s earnings in 2015 and accretive by 7-8 cents per share in 2016.

Tiffany (TIF) reported better than expected first quarter results. The company also said it expects minimal earnings per share growth in fiscal year 2015.

Toll Brothers’ (TOL) second quarter earnings beat estimates, while its revenues were below expectations.

Chico’s FAS (CHS) reported in line earnings per share for the first quarter, while its net sales missed estimates.
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