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U.S. Stocks May See Initial Weakness As Traders Cash In On Gains

wallstreet oct05 01jul20 lt

Following the best quarter for the markets in decades, stocks may give back some ground in early trading on Wednesday. The major index futures are currently pointing to a lower open for the markets, with the Dow futures down by 112 points.

Profit taking may contribute to initial weakness on Wall Street, as some traders cash in on the second quarter's strong gains on the first day of a new quarter.

The Dow soared by 17.8 percent for its biggest quarterly gain since 1987, while the S&P 500 and the Nasdaq spiked by 20 percent and 30.6 percent, respectively, to turn in their best quarters since the late 1990's.

Lingering concerns about the recent spike in new coronavirus cases may also weigh on the markets, with White House health advisor Dr. Anthony Fauci warning on Tuesday that new infections could reach 100,000 per day.

The surge in new cases has led some states to pause or roll back their reopening, although traders generally seem optimistic the U.S. is not headed toward another nationwide lockdown.

While worries about a second wave halted the rebound from the March lows, the major averages have held on to the bulk of their gains.

On the U.S. economic front, a report released by payroll processor ADP showed a significant increase in private sector employment in the month of June as well as a substantial upward revision to the data for May.

ADP said private sector employment jumped by 2.369 million jobs in June, which was below economist estimates for a spike of about 3.000 million jobs.

However, revised data showed private sector employment soared by 3.065 million jobs in May compared to the previously reported loss of 2.760 million jobs.

Not long after the start of trading, the Institute for Supply Management is scheduled to release its report on manufacturing activity in the month of June.

The ISM's purchasing managers index is expected to climb to 49.5 in June from 43.1 in May, although a reading below 50 would still indicate a contraction in manufacturing activity.

The Commerce Department is also due to release its report on construction spending in the month of May. Construction spending is expected to increase by 1.0 percent in May after tumbling by 2.9 percent in April.

Later in the day, the Federal Reserve is due to release the minutes of June monetary policy meeting. At the meeting, the Fed voted to leave interest rates at near-zero levels.

Extending the strong upward move seen on Monday, stocks moved notably higher over the course of the trading day on Tuesday. The Dow saw some volatility before eventually joining the broader Nasdaq and S&P 500 firmly in positive territory.

The major averages pulled back off their highs going into the close but held on to strong gains. The Dow jumped 217.08 points or 0.9 percent to 25,812.88, the Nasdaq spiked 184.61 points or 1.9 percent to 10,058.77 and the S&P 500 surged up 47.05 points or 1.5 percent to 3,100.29.

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Wednesday. Japan's Nikkei 225 Index fell by 0.8 percent, while China's Shanghai Composite Index jumped by 1.4 percent.

Meanwhile, the major European markets have come under pressure over the course of the session. While the U.K.'s FTSE 100 Index has fallen by 0.6 percent, the French CAC 40 Index is down by 0.9 percent and the German DAX Index is down by 1 percent.

In commodities trading, crude oil futures are inching up $0.15 to $39.42 a barrel after falling $0.43 to $39.27 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,790.30, down $10.20 compared to the previous session's close of $1,800.50. On Tuesday, gold spiked $19.30.

On the currency front, the U.S. dollar is trading at 107.44 yen compared to the 107.93 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1215 compared to yesterday's $1.1234.

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