Market Analysis

Beyond the Numbers

Profit Taking May Lead To Initial Weakness On Wall Street
1/29/2018 8:47 AM

The major U.S. index futures are pointing to a lower opening on Monday following the strong upward move shown by stocks last Friday.

Profit taking may contribute to initial weakness on Wall Street, as some traders look to cash in on the recent strength in the markets.

Selling pressure may be somewhat subdued, however, with traders reluctant to sell stocks and miss out on any further upside.

The Federal Reserve’s monetary policy announcement on Wednesday and the release of the Labor Department’s closely watched monthly jobs report on Friday may also keep some traders on the sidelines.

After closing mixed for two consecutive sessions, stocks showed a significant move to the upside during trading on Friday. With the rally on the day, all three of the major averages reached new record closing highs.

The major averages saw further upside going into the close, ending the session at their best levels of the day. The Dow advanced 223.92 points or 0.9 percent to 26,616.71, the Nasdaq spiked 94.61 points or 1.3 percent to 7,505.77 and the S&P 500 jumped 33.62 points or 1.2 percent to 2,872.87.

With the rally on the day, the major averages moved sharply higher for the week. The Dow surged up by 2.1 percent, while the Nasdaq and the S&P 500 soared by 2.3 percent and 2.2 percent, respectively.

The strength on Wall Street partly reflected a positive reaction to the latest earnings news, with shares of Intel (INTC) moving sharply higher after the semiconductor giant reported fourth quarter results that exceeded analyst estimates.

Industrial conglomerate Honeywell (HON) also moved to the upside after reporting better than expected fourth quarter results and raising its full-year earnings guidance.

On the U.S. economic front, the Commerce Department released a report showing slower than expected economic growth in the fourth quarter, but economists recommended looking past the headline number.

The report said real gross domestic product increased by 2.6 percent in the fourth quarter compared to the 3.2 percent growth seen in the third quarter. Economists had expected GDP to climb by 3.0 percent.

While the pace of GDP growth slowed more than expected, final sales climbed by 3.2 percent and final sales to domestic purchasers jumped by 4.3 percent.

"In other words, despite the weak headline, this is not a weak report," said Chris Low, chief economist at FTN Financial.

A separate report from the Commerce Department showed a much bigger than expected increase in durable goods orders in the month of December.

The Commerce Department said durable goods orders spiked by 2.9 percent in December after surging up by an upwardly revised 1.7 percent in November.

Economists had expected durable goods orders to climb by 0.8 percent compared to the 1.3 percent jump that had been reported for the previous month.

Excluding an increase in orders for transportation equipment, durable goods orders rose by 0.6 percent in December after edging up by 0.3 percent in November.

Ex-transportation orders had been expected to climb by 0.5 percent compared to the 0.1 percent drop originally reported for the previous month.

Traders were also reacting to President Donald Trump's highly anticipated speech at the World Economic Forum in Davos, Switzerland.

Trump touted the progress made by the economy and the stocks markets since his election and reiterated his pledge to put "America first."

"But America first does not mean America alone," Trump said. "When the United States grows, so does the world."

Semiconductor stocks saw substantial strength on the day, with the Philadelphia Semiconductor Index jumping by 3.3 percent. The index rebounded after moving sharply lower over the two previous sessions.

Intel led the sector higher, although Maxim Integrated Products (MXIM) also posted a standout gain after meeting second quarter earnings estimates.

Considerable strength was also visible among pharmaceutical stocks, as reflected by the 2.4 percent gain posted by the NYSE Arca Pharmaceutical Index. With the gain, the index reached its best closing level in well over two years.

AbbVie (ABBV) posted a particularly strong gain after reporting better than expected fourth quarter results and raising its 2018 guidance.

Healthcare stocks also showed a significant move to the upside, driving the Dow Jones Health Care Index up by 2.1 percent. The advance lifted the index to a record closing high.

Computer hardware, software, internet, and railroad stocks also moved notably higher, reflecting broad based buying interest on Wall Street.

Commodity, Currency Markets

Crude oil futures are falling $0.40 to $65.74 a barrel after climbing $0.63 to $66.14 a barrel last Friday. Meanwhile, an ounce of gold is trading at $1,342.80, down $9.30 from the previous session’s close of $1,352.10. On Friday, gold slumped $10.80.

On the currency front, the U.S. dollar is trading at 108.80 yen compared to the 108.58 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at $1.2366 compared to last Friday’s $1.2427.


Asian stocks turned in a mixed performance on Monday as oil resumed its ascent, Intel reported record quarterly revenue and the U.S. dollar steadied after recent weakness on concerns about trade.

Chinese stocks fell the most in over two months as investors took profits after recent strong gains. The benchmark Shanghai Composite Index dropped 34.63 points or 1 percent to 3,523.50, while Hong Kong's Hang Seng Index fell 187.23 points or 0.6 percent to 32,966.89.

Wynn Macau shares were down almost 6 percent following a report detailing sexual misconduct from casino magnate Steve Wynn.

Japanese shares ended roughly flat despite a surge by technology stocks. The benchmark Nikkei 225 Index fluctuated before closing marginally lower at 23,629.34. The broader Topix index finished 0.1 percent higher at 1,880.45.

Shin-Etsu Chemical soared 4.6 percent after the silicon products maker raised its profit and dividend payout outlook for the year ending in March. Advantest gained 1.8 percent and Tokyo Electron advanced 1.3 percent.

Meanwhile, Australian shares started the week on solid footing, driven by gains by banks, miners, energy companies and healthcare firms.

The benchmark S&P/ASX 200 Index rose 25.40 points or 0.4 percent to 6,075.40 as traders returned to their desks after a long holiday weekend. The broader All Ordinaries index ended up 22.90 points or 0.4 percent at 6,187.60.

Commonwealth Bank advanced 0.7 percent as investors took the news of a new CEO in stride. Westpac and NAB rose 0.6 percent and 0.7 percent, respectively while, ANZ slid 0.1 percent.

Miner South32 rallied 3.7 percent, Iluka Resources jumped 4.9 percent, oil & gas producer Santos advanced 1 percent and biotechnology company CSL added 1.6 percent.

On the other hand, gold miners succumbed to selling pressure after gold prices fell on Friday.


European stocks are turning in a lackluster performance on Monday as investors wait for cues from fresh economic releases and a slew of corporate earnings.

While the German DAX Index has edged down by 0.1 percent, the U.K.’s FTSE 100 Index is up by 0.2 percent and the French CAC 40 Index is up by 0.1 percent.

Apple component supplier AMS has surged higher after its revenue for 2017 almost doubled, driven by demand for its sensors from smartphone customers.

Volkswagen has also risen after the German carmaker apologized for a test that exposed monkeys to engine fumes to study the effects of the exhaust.

Wirecard has gained after its preliminary EBITDA for the fourth quarter grew about 34 percent from last year.

Meanwhile, Swedish medical technology firm Getinge has come under pressure after its fourth quarter profit fell short of expectations.

Provident Financial has also tumbled after four former executives raised employment tribunal claims for unfair dismissals against the troubled doorstep lender.

U.S. Economic Reports

Personal income in the U.S. rose by slightly more than expected in the month of December, according to a report released by the Commerce Department, while personal spending increased in line with estimates.

The Commerce Department said personal income climbed by 0.4 percent in December after rising by 0.3 percent in November. Economists had expected another 0.3 percent increase.

The report also said personal spending rose by 0.4 percent in December following a 0.8 percent increase in the previous month. The spending growth matched expectations.

Stocks In Focus

Shares of Dr Pepper Snapple Group (DPS) are moving sharply higher in pre-market trading after the soft drink company announced a merger agreement with Keurig Green Mountain. Under the terms of the deal, Dr Pepper Snapple shareholders will receive $103.75 per share in a special cash dividend and retain 13 percent of the combined company.

Defense contractor Lockheed Martin (LMT) may also see early strength after reporting fourth quarter results that exceeded analyst estimates on both the top and bottom lines.

On the other hand, shares of CBS Corp. (CBS) may come under pressure after Wells Fargo downgraded its rating on the mass media company to Market Perform from Outperform.

French drugmaker Sanofi (SNY) may also see early weakness after announcing an agreement to acquire Belgian biotech company Ablynx (ABLX) for $4.8 billion.
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