Market Analysis

Beyond the Numbers

Futures Pointing To Initial Strength On Wall Street
12/5/2017 8:53 AM

The major U.S. index futures are pointing to a higher opening on Tuesday following the mixed performance seen in the previous session.

Stocks may benefit from optimism about the economic impact of the tax reform bill approved by Senate Republicans over the weekend.

With the vote to approve the bill, lawmakers from the Senate and House will need to go to conference to work out differences in the bills passed by the two chambers.

Stocks turned mixed over the course of the trading session on Monday after an initial move to the upside. While the Dow reached a new record closing high, the Nasdaq and the S&P 500 ended the day in negative territory.

The Dow rose 58.46 points or 0.2 percent to 24,290.05, but the Nasdaq tumbled 72.22 points or 1.1 percent to 6,775.37 and the S&P 500 edged down 2.78 points or 0.1 percent to 2,639.44.

Traders were reacting to news that Senate Republicans narrowly approved a massive tax reform bill early Saturday morning.

The Senate voted 51 to 49 in favor of the bill known as the Tax Cuts and Jobs Act, with the vote largely coming down along party lines.

Senator Bob Corker, R-Tenn., was the only Republican to vote against the bill amid concerns about the legislation's impact on the budget deficit.

"With the great vote on Cutting Taxes, this could be a big day for the Stock Market - and YOU!" President Donald Trump said in a post on Twitter.

With the vote to approve the bill, lawmakers from the Senate and House will need to go to conference to work out differences in the bills passed by the two chambers.

The pullback by the Nasdaq partly reflected concerns that technology companies will not benefit as much from the tax cuts.

On the U.S. economic front, the Commerce Department released a report showing a modest decrease in new orders for manufactured goods in the month of October.

The report said factory orders edged down by 0.1 percent in October after surging up by 1.7 percent in September. Economists had expected orders to drop by 0.4 percent.

Transportation stocks showed a substantial move to the upside on the day, driving the Dow Jones Transportation Average up by 1.8 percent. With the gain, the average reached a new record closing high.

Union Pacific (UNP) UPS (UPS) and FedEx (FDX) turned in some of the transportation sector's best performances.

Significant strength was also visible among banking stocks, as reflected by the 2.2 percent gain posted by the Dow Jones Banks Index. The index has climbed to its best closing level in ten years.

Steel, brokerage, and housing stocks also saw notable strength, while weakness among software, semiconductor, and biotechnology stocks contributed to the drop by the tech-heavy Nasdaq.

Commodity, Currency Markets

Crude oil futures are slipping $0.18 to $57.29 a barrel after sliding $0.89 to $57.47 a barrel on Monday. Meanwhile, after falling $4.60 to $1,277.70 an ounce in the previous session, gold futures are dipping $2.90 to $1,274.80 an ounce.

On the currency front, the U.S. dollar is trading at 112.62 yen compared to the 112.41 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued $1.1844 compared to yesterday’s $1.1866.


Asian stocks closed broadly lower on Tuesday after oil prices fell over 1 percent overnight and Brexit talks did not yield a breakthrough on the withdrawal issues. Encouraging services sector data from China helped to limit regional losses to some extent.

Chinese shares ended lower even as survey results from IHS Markit revealed the country's private sector growth momentum improved marginally in November.

The Caixin composite output index rose to 51.6 from October's 16-month low of 51.0, suggesting the economy has maintained stability and there was no imminent risk of a significant decline in its growth rate.

The pace of manufacturing growth picked up from October's four-month low, while services activity grew the most in three months. China's official nonmanufacturing PMI also rose to 54.8 in November from 54.3 in October.

China's Shanghai Composite Index dropped 6.58 points or 0.2 percent to 3,303.04, while Hong Kong's Hang Seng Index slumped 295.48 points or 1 percent to 28,842.80.

Japanese shares fell as tech stocks succumbed to heavy selling pressure. The Nikkei 225 Index shed 84.78 points or 0.4 percent to finish at 22,622.38. Advantest, Tokyo Electron and Sumco Corp tumbled 2-4 percent.

Meanwhile, Nidec rose 1.2 percent on news that it would set up a joint venture with French carmaker PSA to produce motors for electric vehicles.

On the economic front, the latest survey from Nikkei showed that the services sector in Japan continued to expand in November, albeit at a slower pace, with a PMI score of 51.2, down from the 26-month high of 53.4 in October.

Australian shares closed lower, dragged down by financials after the Reserve Bank of Australia left the cash rate on hold for the 16th month in a row, citing low wage growth and subdued inflation.

The benchmark S&P/ASX 200 Index fell 13.77 points or 0.2 percent to 5,971.82, while the broader All Ordinaries Index ended 0.2 percent lower at 6,057.30.

Banks ANZ and Westpac fell around 1 percent each and mining heavyweights BHP Billiton and Rio Tinto lost 1-2 percent.

On the other hand, South32 rallied 3.7 percent after the company projected lower output and higher unit costs at its Illawarra Metallurgical Coal operations in NSW for 2017-18.

In economic news, activity levels across Australia's services sector improved marginally in November and the country's current account deficit narrowed in the third quarter, while retail sales rebounded in October after months of lukewarm demand, separate reports showed.


European stocks are mixed on Tuesday as investors monitored currency movements and looked ahead to further progress in Brexit talks and U.S. tax reform.

While the U.K.’s FTSE 100 Index has inched up by 0.1 percent, the German DAX Index is down by 0.2 percent and the French CAC 40 Index is down by 0.4 percent.

In economic news, business activity across the euro zone accelerated to its fastest pace in over six years in November, data showed. IHS Markit's final composite PMI was confirmed at an earlier flash reading of 57.5.

Allied Irish Banks has rallied after the lender maintained its dividend guidance. British retailer Tesco has also moved notably higher after an upgrade by research analysts at Goldman Sachs Group.

On the other hand, Provident Financial shares have slumped after U.K. regulator FCA launched a probe into the company’s Moneybarn unit.

U.S. Economic Reports

With imports rising and exports edging lower, the Commerce Department released a report showing the U.S. trade deficit widened more than expected in the month of October.

The report said the trade deficit widened to $48.7 billion in October from a revised $44.9 billion in September. Economists had expected the deficit to widen to $47.5 billion.

At 10 am ET, the Institute for Supply Management is scheduled to release its report on activity in the service sector in the month of November.

The ISM’s non-manufacturing index is expected to dip to 59.0 in November from 60.1 in October, although a reading above 50 would still indicate growth in the service sector.

Stocks In Focus

Shares of AutoZone (AZO) are moving notably higher in pre-market trading after the auto parts retailer reported fiscal first quarter results that beat analyst estimates on both the top and bottom lines.

Fast food giant McDonald’s (MCD) may also move to the upside after Jefferies upgraded its rating on the company’s stock to Buy from Hold.

On the other hand, shares of Toll Brothers (TOL) may come under pressure after the homebuilder reported weaker than expected fiscal fourth quarter results.
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