Market Analysis

Beyond the Numbers

Traders Wary After Two Sessions of Strong Gains
8/28/2015 8:51 AM

The major U.S. index futures are pointing to a lower opening on Friday, with sentiment suggesting a setback, as the gains of the past two sessions generate some weakness. The mood across the Atlantic is weak. The tame personal spending growth data released short while ago has rendered the sentiment towards the dollar mixed. Meanwhile, commodities are higher. Even as traders await a reading on consumer sentiment, some profit taking related weakness could set in.

U.S. stocks rallied for the second straight day on Thursday amid the release of mostly positive economic data, a rally in crude oil prices and waning global concerns.

The major averages opened higher and advanced steadily until late afternoon trading. Although stocks witnessed a slight loss of momentum and retraced some of their gains in the process, they rallied yet again in late trading before closing notably higher.

The Dow Industrials ended up 369.26 points or 2.27 percent at 16,655, the S&P 500 Index rallied 47.15 points or 2.43 percent before closing at 1,988 and the Nasdaq Composite closed at 4,813, up 115.17 points or 2.45 percent.

All thirty of the Dow components closed higher, with Chevron (CVX), General Electric (GE), Nike (NKE), UnitedHealth (UNH) and Exxon Mobil (XOM) leading the gains.

On a day when gains were broad based, resource stocks recorded standout gains. Transportation, biotechnology, semiconductor, computer hardware, financial, retail and housing stocks also saw strong buying interest.

On the economic front, second quarter GDP data showed an upward revision to growth to 3.7 percent from the 2.3 percent estimated initially. Economists expected a more modest 3.2 percent increase. In the first quarter, the economy expanded 0.6 percent.

The upward revision to second quarter growth represented upward revisions to non-residential fixed investment, private inventory investment and state and local government spending and consumer spending and a downward revision to imports.

A Labor Department report showed that jobless claims fell 6,000 to 271,000 in the week ended August 22nd. Economists expected jobless claims to decline to 270,000 from 277,000 in the previous week. The four-week average rose to 272,500 from 271,500. Meanwhile, continuing claims calculated with a week’s lag rose to 2.269 million in the week ended August 14th from 2.256 million in the week ended August 7th.

The National Association of Realtors reported that pending home sales rose 0.5 percent month-over-month in July, smaller than the 1 percent expected by economists. The modest increase followed a 1.7 percent drop in June. Sales improved notably in the Northeast and modestly in the South and were unchanged in Midwest, while the West saw a dip in pending home sales.

Currency, Commodity Markets

Crude oil futures are slipping $0.333 to $42.23 a barrel after surging up $3.96 to $42.56 barrel on Thursday. An ounce of gold is currently trading at $1,126.50, up $3.90 from the previous session’s close of $1,122.60. On Thursday, gold fell $2.

On the currency front, the U.S. dollar is trading at 120.80 yen compared to the 121.03 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1274 compared to yesterday’s $1.1246.


The major Asian markets ended higher yet again, encouraged by the positive close on Wall Street overnight and the general rise in risk appetite. A rally by Chinese stocks also supported sentiment.

The Japanese market continued to rally, as the yen remained subdued. The Nikkei 225 Index opened notably higher and went about a steady advance for the rest of the session. The index ended up 561.88 points or 3.03 percent at 19,136.

Australia’s All Ordinaries Index traded in a broad range, although keeping above the unchanged line for the bulk of the session. The index closed well off the highs of the session at 5,275, up 32.10 points or 0.61 percent.

Energy and material stocks rallied strongly, while telecom and IT stocks came under selling pressure.

China’s Shanghai Composite Index moved sharply higher on the day, ending 148.76 points or 4.82 percent higher at 3,232. Meanwhile, Hong Kong’s Hang Seng Index retreated in a late hour sell-off, ending down 226.15 points or 1.04 percent at 21,612.

On the economic front, Japan’s Ministry of Internal Affairs and Communication reported that consumer prices in Japan rose 0.2 percent year-over-year in July. Core consumer prices were unchanged compared to expectations for a 0.2 percent drop.

A separate report showed that the unemployment rate in Japan came in at 3.3 percent in July, below forecasts for a 3.4 percent rate. A third report from the ministry showed that average household spending in Japan edged down 0.2 percent year-over-year in July, belying expectations for a 0.5 percent increase.

A Ministry of Economy, Trade and Industry report showed that retail sales climbed 1.6 percent year-over-year in July, ahead of the 1.1 percent growth expected by economists. Sales by large retailers rose 2.1 percent.

Profits earned by Chinese industrial enterprises decreased in July after rising in the previous month, figures from the National Bureau of Statistics showed. Industrial profits fell 2.9 percent year-over-year in July following a 0.3 percent increase in the preceding month.


European stocks are retreating, in line with the see-sawing trend of the week.

On the economic front, revised estimates released by the U.K. Office of National Statistics showed that second quarter growth came in at a sequential rate of 0.7 percent, unrevised from the preliminary estimate. The annual growth of 2.6 percent was also left unrevised.

The results of a survey by GfK showed that its index measuring confidence among consumers in the U.K. rose 3 points to 7, while economists expected a reading of 4.

Preliminary estimates released by the German Federal Statistical Office showed that consumer prices calculated on a harmonized basis remained unchanged in August compared to expectations for a 0.1 percent drop. The annual inflation rate was 0.1 percent, in line with expectations.

The European Commission released the results of its monthly survey, which showed that economic confidence rose to the highest since 2011, with the corresponding index coming in at 104.2 in August, up 0.2 points, compared to expectations for 103.8. Services and consumer confidence improved, while industrial sentiment retreated.

U.S. Economic Reports

The second day of the annual economic symposium at Jackson Hole, Wyoming, is scheduled for today.

The Commerce Department reported that personal income rose 0.4 percent month-over-month in July, the same pace of increase as in the previous month and in line with expectations.

At the same time, personal spending was up a less than expected 0.3 percent compared to an upwardly revised 0.3 percent rate in June. Economists had expected a 0.4 percent increase for the month. The core personal consumption expenditure price index was up 1.2 percent, slower than the 1.2 percent rate in June.

At 10 am ET, the University of Michigan is set to announce the final results of its U.S. consumer sentiment survey. Economists expect the consumer sentiment index for August to be upwardly revised to 93.3 from the mid-month reading of 92.9.

Stocks in Focus

Aeropostale (ARO) reported second quarter adjusted net loss and sales that trailed expectations. The company, however, forecast a third quarter loss that was mostly narrower than expectations.

Autodesk (ADSK) reported better than expected second quarter earnings, while its sales trailed estimates. The company lowered its full year guidance.

Gamestop’s (GME) second quarter results beat estimates and the company raised its guidance for the full year.

Smith & Wesson (SWHC) also reported better than expected first quarter results and lifted its outlook for the fiscal year 2016.
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