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Traders May Go Bargain Hunting Following Recent Weakness - RTTNews Daily Market Analysis
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The major U.S. index futures are pointing to a modestly higher opening on Monday, with stocks likely to regain some ground after trending lower in recent weeks. The upward momentum for the markets is partly due to some positive earnings news, which has helped traders to shrug off recent economic uncertainty. Some traders are also likely looking to go bargain hunting following recent weakness.
U.S. stocks declined for the fourth straight week in the week ended February 5th, as continued concerns about the outlook for the labor market as well as worries about European credit conditions contributed to a substantial sell-off on Thursday.
Last Monday, the major U.S. averages broke a 2-session losing streak, ending notably higher in the session following the release of positive personal income and manufacturing data. The markets advanced yet again on Tuesday, with a solid housing report providing the much-needed thrust to the markets.
On Wednesday, stocks showed a lack of direction despite the release of positive private sector jobs data. Sentiment was impacted to some extent by the release of a services sector survey showing a smaller than expected expansion in the sector. The major averages ended on a mixed note, with the Dow Industrials and the S&P 500 Index closing lower, while the Nasdaq Composite Index ended in positive territory.
However, an unexpected increase in weekly jobless claims ahead of the release of the Labor Department’s non-farm payrolls report, triggered a steep sell-off on Wall Street on Thursday.
On Friday, a mixed jobs report showing a contraction in jobs but a decline in the unemployment rate lead to lackluster trading. After trading with a negative bias, the major averages closed modestly higher.
For the week, the Dow Industrials ended down 0.55%, while the S&P 500 Index receded 0.72% and the Nasdaq Composite lost 0.29%.
Among the sector indexes, the KBW Bank Index slid 3.74% for the week and the Dow Jones Utility Average fell 2.33%. The Dow Jones Transportation Average, the NYSE Arca Oil Index, the Philadelphia Oil Service Index and the S&P Retail Index all ended down 1%. However, the NYSE Arca Gold Bugs Index rose 4.12% and the Philadelphia Semiconductor Index gained 1.25%.
Commodity, Currency Markets
Crude oil futures are edging up $0.20 to $71.39 a barrel after the commodity extended its losses in the week ended February 5th. In the previous week, oil fell $1.70 or 2.33% to $71.19 a barrel.
Last Monday, oil rose sharply, advancing over $1.50 a barrel after encouraging manufacturing and personal income data generated buying interest in the commodity. Oil extended its gains on Tuesday, rising close to $3 a barrel.
However, crude oil futures declined modestly on Wednesday amid the release of the weekly oil inventory report showing an increase in crude oil stockpiles. The commodity slumped by a little less than $4 a barrel on Thursday and pulled back again on Friday to close the week lower.
Gold futures, which slid $52.20 or 4.72% to $1,052.80 an ounce in the week ended February 5th, are currently rising by $16.50 to $1,069.30 an ounce.
On the currency front, the U.S. dollar advanced against most currencies in the week ended February 5th due to its appeal as a safe haven. The increase in risk aversion led to dollar buying, as traders shunned risky bets like equities and commodities.
However, the dollar fell against the yen to close the week down 1.13% at 89.25 yen. Against the euro, the dollar gained 1.33% to $1.3678. Currently, the U.S. dollar is trading at 89.29 yen and is valued at $1.367 versus the euro.
Asia
The major Asian markets closed mostly lower on Monday, with the negative sentiment reflecting recent economic uncertainty. Japan’s Nikkei 225 average opened lower but pared most of its losses in early afternoon trading before it declined sharply in the afternoon to close down 105.27 points or 1.05% at 9,952.
A majority of stocks declined in the session, with export and resource stocks declining sharply. However, Comsys Holdings, IHI Corp., Mitsubishi Materials, Nippon Meat Packing and Resona Holdings bucked the downtrend.
On the economic front, the Bank of Japan reported that Japan’s current account balance showed a surplus of 900.8 billion yen in December, up more than 400% from the year-ago period. In November, the surplus was 1.103 trillion yen.
The current surplus reflected an reversal in the trade balance to a surplus of 631.2 billion yen compared to a deficit of 195.9 billion last year. Exports climbed 11.7% year-over-year, rising for the first time in 15 months, while imports declined 6% year-over-year.
Meanwhile, a separate report released by the bank showed that total bank lending fell 1.5% year-over-year following a 1% drop in the previous month. The decline largely reflected weak funding demand even as banks have eased credit norms.
Australia’s All Ordinaries showed some volatility, although it remained above the unchanged line, closing on a modestly positive note. The index gained 6.30 points or 0.14% to close at 4,539. Most sectors witnessed selling pressure, barring the financial, material and energy spaces, which advanced modestly.
Hong Kong’s Hang Seng Index languished below the unchanged line for much of the session before closing down 114.19 points or 0.58% at 19,551. Property, China-related and financial stocks ended mostly lower.
Europe
After seeing notable strength in early trading, the major European markets have pulled back well off their highs, but they are currently all in positive territory. The French CAC 40 Index and the German DAX Index are up 0.5% and 0.6%, respectively, while the U.K.’s FTSE 100 Index is clinging to a modest gain.
On the economic front, a survey by the Sentix research group revealed that the index for euro zone investor sentiment fell to –8.2 in February from –3.7 in January. Economists had expected an increase in the index to –2.7.
The expectations indicator dropped to 3.75 for February from January's 11.25. The reading is the weakest since July last year. The current situation index also fell to -19.5 from -17.5, equaling December's level.
U.S. Economic Reports
Following the slew of data released last week, the economic calendar for this week is relatively light. Nevertheless, traders who seek increased visibility on the economic recovery are now closely watching each piece of economic data.
The Commerce Department's retail sales report for January, the weekly jobless claims report and the preliminary consumer sentiment report of Reuters/University of Michigan are likely to be on the radar in the unfolding week.
Market participants may also pay attention to the Commerce Department's trade balance report for December, a Fed speech scheduled for the week and announcements concerning treasury auctions of 3-year notes, 10-year notes and 30-year bonds. The wholesale and business inventories reports for December and the Treasury Budget are among the other reports due to be released during the week.
Retail sales are likely to show fairly decent growth in January, as some of the strength in late holiday shopping carried into January. While solid chain store sales and gasoline sales could lend some support to the headline number, weak auto sales and softness in building material sales could act as drags.
The Reuters/University of Michigan's consumer sentiment index has been trending between 65 and 75 since last April. Given the state of the labor market, very few expect an improvement in their personal finances this year. The stock market volatility we have been witnessing in recent sessions could also impact sentiment.
Stocks in Focus
Shares of Hasbro (HAS) could see early strength after the toy maker reported fourth quarter net earnings that surged up 77% to $165.56 million or $1.09 per share from $93.58 million or $0.62 per share in the year-ago quarter. Analysts had expected the company to earn $0.81 per share.
Hasbro also reported net revenues for the quarter of $1.38 billion, up 12% from $1.23 billion in the same quarter last year. On average, analysts had estimated revenues of $1.34 billion.
Additionally, CVS Caremark (CVS) reported fourth quarter net income that rose to $1.05 billion or $0.74 per share from $949 million or $0.65 per share in the same quarter last year. Excluding items, the company reported earnings of $0.79 per share, a penny above analyst estimates.
The drug store operator also said its net revenues increased to $25.82 billion from $24.14 billion in the fourth quarter of 2008. Analysts had a consensus revenue estimate of $26.22 billion for the quarter.
CIT Group (CIT), which emerged from bankruptcy last December, is likely to be in focus after it appointed former Merrill Lynch CEO John Thain as its Chairman and CEO. Thain will replace Peter Tobin, who was appointed on an interim basis after long time CEO Jeffrey Peek resigned on January 15th.
Thain was ousted from Bank of America (BAC) about a year ago after investors expressed displeasure over the bonuses paid to executives at Merrill Lynch and his lavish spending on redecorating his office when the company was grappling with huge losses.
Strum, Ruger & Co. (RGR) could see some activity after it announced that its board has expanded its stock repurchase program to $10 million from $4.7 million.
Cathay General Bancorp. (CATY) may also be in focus after it said it completed its previously announced offering of 13.07 million shares. The company also said the net proceeds from the offering were $125.2 million.
Xerox (XRX) may move in reaction to its announcement that the shareholders of Affiliated Computer Services (ACS) and Xerox approved its impending acquisition of Affiliated Computer Services.
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