Profit Taking Likely To Contribute To Continued Weakness – RTTNews Daily Market Analysis
The major index futures are currently indicating a notably lower open for stocks on Friday, with the markets likely to see some further downside after closing lower in each of the two previous sessions. With no major economic data on tap for the day, traders have looked to corporate news, including disappointing quarterly results from Dell (DELL). Traders may also continue to cash in on the recent strength in the markets that lifted the major averages to their best closing levels in over a year earlier in the week.
Stocks saw substantial weakness during trading on Thursday, with some disappointing economic data prompting traders to do some profit taking. The major averages moved sharply lower in early trading and remained stuck firmly in negative territory throughout the trading day.
The Dow fell by 93.87 points or 0.9 percent to 10,332, the Nasdaq dropped by 36.32 points or 1.7 percent to 2,157 and the S&P 500 closed down by 14.90 points or 1.3 percent at 1,095.
The weakness in the markets was partly due to disappointing economic data, with a report from the Labor Department showing that weekly jobless claims were unchanged in the week ended November 14th, holding above the 500,000 level.
The report showed that jobless claims for the week came in at 505,000, unchanged from the previous week's revised figure. Economists had been expecting jobless claims to edge up to 504,000 from the 502,000 originally reported for the previous week.
Separately, the Conference Board reported a continued increase in its leading economic indicators index in the month of October, although the increase by the index was slightly smaller than economists had been anticipating.
The leading indicators index rose 0.3 percent in October following a 1.0 percent gain in September and a 0.4 percent increase in August. While the index rose for the seventh consecutive month, economists had been expecting a 0.4 percent increase.
Meanwhile, the Federal Reserve Bank of Philadelphia provided one of the few bright spots on the day, releasing a report showing that activity in the mid-Atlantic region's manufacturing sector picked up in November by much more than economists had expected.
The Philly Fed said its index of regional activity in the manufacturing sector rose to 16.7 in November from 11.5 in October, with a positive reading indicating growth in the sector. Economists had been expecting a much more modest increase by the index to 12.2.
In other news, Treasury Secretary Timothy Geithner said that the U.S. has a long way to go to ensure a full economic recovery and guarantee that last year's financial collapse will not happen again in the future.
Speaking before the congressional Joint Economic Committee on Capitol Hill earlier today, Geithner said that the regulatory regime that is currently in place is the same regime that failed to prevent the financial crisis, filled with too many agencies and too many regulatory gaps.
Semiconductor stocks helped to lead the way lower following some negative analyst comments, with Bank of America-Merrill Lynch cutting its rating on the sector. The Philadelphia Semiconductor Index eventually ended the session down 3.4 percent.
Commodity Futures, Currencies
Crude oil futures are down by $0.75 at $77.30 a barrel after falling by $2.05 to $78.05 on Thursday. Gold futures are also moving lower, down by $3.90 to $1,138.0 an ounce after drifting up by $0.70 to close at $1,141.90 an ounce in the previous session.
On the currency front, the U.S. dollar is at its best levels in over two weeks against the major European currencies, rising to $1.4819 versus the euro and climbing to $1.6487 versus the pound. The dollar is also higher against the Japanese yen, trading at 88.99 yen.
Asia
Stocks markets across the Asia-Pacific region closed mostly lower on Friday, with the negative lead from Wall Street generating some negative sentiment amid concerns about the sustainability of the global economic recovery. The strengthening of the dollar and a drop in commodity prices also impacted market sentiment.
In Japan, the benchmark Nikkei 225 Index fell 51.79 points, or 0.5%, to 9497.68. Technology stocks helped to lead the way lower after Dell reported a 54% drop in net profit for the third quarter. Advantest fell 2.87% and Tokyo Electron lost 2.99%. Automotive stocks also ended lower, while banking stocks bucked the downtrend.
On the economic front, the policy board of the Bank of Japan unanimously decided to retain the overnight call rate at 0.1%, in line with the expectations of economists. The last change in the rate was a 0.1 percentage point cut in interest rates at the December 2008 meeting.
In an accompanying statement, the central bank said, "Japan's economy is picking up mainly due to various policy measures taken at home and abroad, although the momentum of self-sustaining recovery in domestic private demand remains weak. In the conduct of monetary policy, the bank will aim to maintain the extremely accommodative financial environment."
In Australia, the All-Ordinaries Index ended at 4,707, representing a loss of 61.10 points, or 1.28%. Metals and mining stocks ended in negative territory on weaker commodity prices and profit taking by traders. BHP Billiton lost 2.02%, Rio Tinto fell 1.90%, and Mincor Resources declined 3.40%. Oil stocks also ended in negative territory.
Hong Kong’s Hang Seng Index also ended the day in negative territory, closing down 187.32 points or 0.83% at 22,456, taking cues from Wall Street. Speculation that the Chinese economy might have an asset bubble also raised concerns. Banks and property stocks were the major losers. Of the 42 components in the index, 34 stocks ended in negative territory.
In South Korea, the KOSPI Index ended nearly flat, edging up 0.06 points to 1,620, as traders preferred to adopt a wait-and-watch attitude and moved to sidelines. Trading was relatively thin with modest buying interest in some select blue-chip stocks evinced by foreign institutional investors.
Among the other major markets in the region, China's Shanghai Composite Index slipped 12.27 points or 0.37% to close at 3,308 and Taiwan's Weighted Index declined 77.01 points, or 0.99%, to close at 7,683. Meanwhile, Singapore's Strait Times Index edged up 2.75 points, or 0.10% to close at 2,762.
Europe
After coming under pressure in the previous session, the major European markets are seeing some further downside during trading on Friday. The U.K.’s FTSE 100 Index is currently down 0.4 percent, while the French CAC 40 Index and the German DAX Index are down 0.8 percent and 0.7 percent, respectively.
On the economic front, Germany's Finance Ministry pointed out that the economy could grow at a slower pace in the fourth quarter, as uncertainty about the job market and income levels may hit private spending.
Moreover, the ministry pointed out that the strengthening of the euro could erode the competitiveness of firms.
The German economy grew 0.7% sequentially in the third quarter after a 0.4% increase in the previous quarter. The economy exited recession in the second quarter after contracting for four consecutive quarters.
In corporate news, London-based pub and bar operator Fuller, Smith & Turner reported an increase in its first-half profit, as revenues grew 10%, helped by an excellent performance by its core business as a result of acquisition of new pubs as well as good weather.
Looking forward, the company remains cautious about the outlook for the U.K. economy and expects its second half to be significantly tougher than the first.
Stocks In Focus
Shares of Dell (DELL) are under pressure in pre-market trading after the computer maker reported third quarter earnings that fell to $0.17 per share from $0.37 per share in the year-ago quarter. Excluding one-time items, the company earned $0.23 per share compared to analyst estimates of $0.28 per share. Revenue for the quarter fell 15% to $12.9 billion, coming in below analyst estimates of $13.18 billion. Looking forward, Dell said it expects fourth quarter revenue to improve over the third quarter.
Intuit (INTU) could also see some early weakness after the company forecast second quarter earnings of $0.29 to $0.32 per share compared to analyst estimates of $0.37 per share. The company also forecast full year revenues below analyst estimates. For the first quarter, Intuit reported a net loss of $0.21 per share compared to a loss of $0.16 per share in the year-ago quarter.
On the other hand, shares of Hibbett Sports (HIBB) are moving higher in pre-market trading after the sporting goods retailer reported third quarter earnings that rose to $0.30 per share from $0.26 per share, coming in above analyst estimates of $0.24 per share. Looking ahead, the company raised its full year earnings guidance to $0.95 to $1.02 per share, above analyst estimates of $0.92 per share.
Meanwhile, mobile phone giant Nokia Corp. (NOK) said that it plans to align its research and development operations in Finland and Denmark to be in line with the company's focused portfolio of future products, which will eliminate up to 330 jobs. The number would represent nearly 2% of Nokia's R&D personnel globally.
Ann Taylor Stores (ANN) reported third quarter net income of $0.03 per share, compared to a net loss $0.24 per share last year. Adjusted net income, excluding items, was $0.20 per share, beating the forecast of $0.07 per share. Despite topping on the bottom line, the firm’s revenues fell short of expectations.
Homebuilder D.R. Horton Inc. (DHI) reported a fourth quarter net loss of $0.73 per share compared to a loss of $2.53 per share in the year-ago quarter. Analysts had expected the company to report a loss of $0.30 per share. Revenues fell short of the consensus estimate, coming in at $1.01 billion compared to analyst expectations of $1.11 billion.
Additionally, J. M. Smucker Co. (SJM) said its adjusted second-quarter net income rose to $1.22, beating the forecast of $1.04 per share for the quarter. Net sales for the latest quarter rose 52 percent to $1.28 billion, exceeding the $1.24 billion estimated by analysts.
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