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Beyond the Numbers

Profit Taking May Lead To Pullback On Wall Street
10/17/2018 8:59 AM

The major U.S. index futures are pointing to a lower opening on Wednesday, with stocks likely to give back ground after moving sharply higher in the previous session.

Profit taking may contribute to initial weakness on Wall Street, as traders cash in on yesterday’s gains amid lingering uncertainty about the near-term outlook for the markets.

A negative reaction to the latest batch of earnings news may also weigh on the markets, with tech giant IBM Corp. (IBM) under pressure in pre-market trading after reporting third quarter earnings that beat analyst estimates but weaker than expected revenues.

Negative sentiment may also be generated by the release of a report from the Commerce Department showing a much bigger than expected pullback in housing starts in the month of September.

Overall trading activity may be somewhat subdued, however, as traders look ahead to this afternoon’s release of the minutes of the Federal Reserve’s latest monetary policy meeting.

Traders are likely to closely scrutinize the minutes of the Fed’s September meeting, looking for additional clues about the outlook for interest rates.

During the meeting, the Fed decided to raise rates by a quarter point to 2 to 2.25 percent and forecast another rate hike before the end of the year.

Following the pullback in the previous session, stocks moved sharply higher over the course of the trading day on Tuesday. The major averages more than offset yesterday's losses, extending the rebound seen last Friday.

The major averages ended the session just off their best levels of the day. The Dow surged up 547.87 points or 2.2 percent to 25,798.42, the Nasdaq soared 214.75 points or 2.9 percent to 7,645.49 and the S&P 500 jumped 59.13 points or 2.2 percent to 2,809.92.

The rally on Wall Street partly reflected a positive reaction to upbeat earnings news from several big-name companies, with financial giants Goldman Sachs (GS) and Morgan Stanley (MS) reporting third quarter results that beat estimates on both the top and bottom lines.

Healthcare giant Johnson & Johnson (JNJ) also reported better than expected quarterly results, while health insurer UnitedHealth (UNH) reported third quarter results that exceeded expectations and raised its full-year guidance.

Buying interest was also generated following the release of positive economic data, including a report from the Federal Reserve showing industrial production increased in line with economist estimates in September.

The report said industrial production rose by 0.3 percent in September after climbing by 0.4 percent in August. The continued increase in production matched expectations.

The Fed said output growth in September was held down slightly by Hurricane Florence but noted the estimated negative effect was less than 0.1 percentage points.

A separate report from the National Association of Home Builders showed an unexpected uptick in homebuilder confidence in the month of October.

The report said the NAHB/Wells Fargo Housing Market Index inched up to 68 in October from 67 in September. Economists had expected the index to come in unchanged.

Biotechnology stocks showed a substantial move to the upside, driving the NYSE Arca Biotechnology Index up by 4.4 percent. With the gain, the index climbed further off the three-month closing low set last Thursday.

Gilead Sciences (GILD), Amgen (AMGN), and Celgene (CELG) turned in some of the biotech sector's best performances on the day.

Significant strength was also visible among software stocks, as reflected by the 3.7 percent jump by the Dow Jones Software Index.

Adobe (ADBE) led the software sector higher after reaffirming its fiscal fourth quarter earnings and revenue guidance and forecasting 20 percent year-over-year revenue growth in fiscal 2019.

Housing stocks also saw considerable strength on the heels of the upbeat homebuilder confidence data, with the Philadelphia Housing Sector Index climbing by 2.4 percent. The index ended last Friday's trading at its lowest closing level in well over a year.

Semiconductor, healthcare, computer hardware and retail stocks also moved notably higher, reflecting broad based buying interest on Wall Street.

Commodity, Currency Markets

Crude oil futures are sliding $0.63 to $71.29 a barrel after edging up $0.14 to $71.92 a barrel on Tuesday. Meanwhile, after inching up $0.70 to $1,231 an ounce in the previous session, gold futures are slipping $1.40 to $1,229.60 an ounce.

On the currency front, the U.S. dollar is trading at 112.24 yen compared to the 112.25 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1533 compared to yesterday’s $1.1574.

Asia

Asian stocks climbed on Wednesday after U.S. shares posted their biggest gain in six months overnight following strong earnings from major financial and health care companies as well as encouraging reports on the U.S. economy.

Chinese shares closed higher ahead of third-quarter GDP and September activity data due on Friday. The benchmark Shanghai Composite Index advanced 15.29 points or 0.6 percent to finish at 2,561.61. Hong Kong markets were closed for the Chung Yeung Festival.

Japanese shares rallied further to recover from last week's sharp downturn. The Nikkei 225 Index jumped 291.88 points or 1.3 percent to 22,841.12, extending gains for the second straight session after hitting a five-week low on Monday. The broader Topix Index closed 1.5 percent higher at 1,713.87.

Technology firms, financials and electronics makers paced the gainers. Tokyo Electron rallied 3 percent and Advantest surged up 3.5 percent, tracking sharp gains in their U.S. counterparts overnight.

Exporters Canon, Toyota Motor and Panasonic all rose over 1 percent as the yen slid from a five-week high versus the dollar on robust U.S. corporate earnings and encouraging economic data.

Heavyweight SoftBank Group gained 2.1 percent on a Wall Street Journal report that Uber Technologies could be valued at $120 billion when it goes public next year. SoftBank is currently Uber's largest shareholder.

Lender Mitsubishi UFJ Financial rose 1.6 percent and Sumitomo Mitsui Financial added 1.8 percent.

On other hand, Shipping major Mitsui OSK Lines plunged 7.5 percent after lowering its net profit outlook. Kawasaki Kisen nosedived 14.4 percent.

Australian stocks rose the most in over three months, in line with the overnight rally in the U.S. and European markets. The benchmark S&P/ASX 200 Index jumped 69.20 points or 1.2 percent to 5,939.10, while the broader All Ordinaries Index surged up 1.2 percent to 6,047.10.

Banks ANZ, Commonwealth and Westpac rose between 1 percent and 1.7 percent, while healthcare stocks such as CSL Ltd and Cochlear gained 2.5 percent and 3.4 percent, respectively.

Accounting software platform Xero jumped 5.6 percent and data processing firm Computershare advanced 2.8 percent as Netflix smashed earnings estimates after the U.S. markets close

Meanwhile, mining giant BHP Billiton shed 0.7 percent after cutting its full-year copper production guidance. Rival Rio Tinto eased 0.2 percent, Fortescue Metals Group lost over 2 percent and South32 declined 0.8 percent.

Energy stocks turned in a mixed performance despite oil prices extending gains into a fourth straight session.

Europe

European stocks have moved mostly lower on Wednesday, although U.K. stocks rose slightly amid weakness in the pound after both headline and core inflation figures for September came in below expectations. The data eased pressure on the Bank of England to push through another pre-Brexit rate hike.

Consumer price inflation came in at 2.4 percent in September versus 2.7 percent in August. Economists expected the rate to dip to 2.6 percent.

Core inflation, which excludes energy, food, alcoholic beverages and tobacco, slowed to 1.9 percent from 2.1 percent in August.

Meanwhile, analysts have little hope for a breakthrough on Brexit at the EU summit staring today.

While the U.K.’s FTSE 100 Index is up by 0.1 percent, the French CAC 40 Index is down by 0.3 percent and the German DAX Index is down by 0.5 percent.

Automakers have drifted lower after industry data showed European passenger car registrations declined sharply in September.

Passenger car sales declined 23.5 percent annually in September, reversing a 31.2 percent increase in August, as the introduction of the new WLTP test at the beginning of last month caused an exceptional surge in registrations in August, the Automobile Manufacturers Association said.

Housebuilder Crest Nicholson Holdings has slumped in London after warning of lower profits. Barratt Developments has also dropped despite the company getting off to a strong start in fiscal 2019.

Meanwhile, semiconductor bellwether ASML has rallied after its fourth quarter sales and profits topped forecasts.

Dutch paints and coatings maker AkzoNobel has also climbed. The company's third quarter core profit rose 8 percent despite big headwinds on currency and raw materials.

U.S. Economic Reports

After reporting a substantial increase in new residential construction in the previous month, the Commerce Department released a report showing a bigger than expected pullback in U.S. housing starts in the month of September.

The Commerce Department said housing starts tumbled by 5.3 percent to an annual rate of 1.201 million in September from the revised August estimate of 1.268 million.

Economists had expected housing starts to pull back by about 3.5 percent to a rate of 1.237 million from the 1.282 million originally reported for the previous month.

The report also showed a continued decrease in building permits, which fell by 0.6 percent to an annual rate of 1.241 million in September from a revised 1.249 million in August.

Building permits, an indicator of future housing demand, had been expected to jump by about 4.1 percent to a rate of 1.280 million from the 1.229 million originally reported for the previous month.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended October 12th.

Crude oil inventories are expected to dip by 280,000 barrels after climbing by 6.0 million barrels in the previous week.

Federal Reserve Bank Governor Lael Brainard is due to give a speech at a Boston Federal Reserve FinTech conference in Boston, Massachusetts, at 12:10 pm ET.

At 2 pm ET, the Fed is scheduled to release the minutes of its September monetary policy meeting. At the meeting, the Fed decided to raise interest rates by a quarter point to 2 to 2.25 percent.

Stocks In Focus

Shares of Fresenius Medical Care (FMS) are sharply lower in pre-market trading after the medical supplies company cut its full-year guidance due to slower growth in its North American dialysis business.

Tech giant IBM Corp. (IBM) may also see initial weakness after reporting third quarter earnings that beat analyst estimates but weaker than expected revenues.

Shares of Teva Pharmaceutical (TEVA) is also likely to move to the downside after a report from Reuters said pharmacy benefits manager Express Scripts (ERSX) will not cover the company’s migraine drug.

On the other hand, shares of Netflix (NFLX) are moving sharply higher in pre-market trading after the video streaming service reported better than expected third quarter earnings, revenues, and subscriber growth.

Semiconductor equipment maker Lam Research (LRCX) is also seeing significant pre-market strength after reporting fiscal first quarter results that exceeded expectations on both the top and bottom lines.

Shares of United Continental (UAL) may also move to the upside after the airline reported third quarter earnings that came in slightly below analyst estimates but raised its full-year earnings guidance.
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