Market Analysis

Beyond the Numbers

Upbeat Earnings News May Lead To Initial Strength On Wall Street
10/16/2018 9:03 AM

The major U.S. index futures are pointing to a higher opening on Tuesday, with stocks likely to move back to the upside after ending the previous session mostly lower.

Early buying interest may be generated in reaction to upbeat earnings news from several big-name companies, with financial giants Goldman Sachs (GS) and Morgan Stanley (MS) reporting third quarter results that beat estimates on both the top and bottom lines.

Healthcare giant Johnson & Johnson (JNJ) also reported better than expected quarterly results, while health insurer UnitedHealth (UNH) reported third quarter results that exceeded expectations and raised its full-year guidance.

Trading activity may be somewhat subdued, however, as traders look ahead to Wednesday's release of the minutes of the Federal Reserve's latest monetary policy meeting, which may shed additional light on the outlook for interest rates.

Stocks fluctuated over the course of the trading session on Monday following the rebound seen last Friday. After recovering from an early move to the downside, the major averages spent the day bouncing back and forth across the unchanged line.

The major averages ended the day firmly in negative territory. The Dow fell 89.44 points or 0.4 percent to 25,250.55, the Nasdaq slid 66.15 points or 0.9 percent to 7,430.74 and the S&P 500 dropped 16.34 points or 0.6 percent to 2,750.79.

The lower close on Wall Street came after the Commerce Department released a report showing much weaker than expected U.S. retail sales growth in the month of September.

The Commerce Department said retail sales inched up by 0.1 percent in September, matching the uptick seen in August. Economists had expected retail sales to climb by 0.5 percent.

Excluding a rebound in auto sales, retail sales edged down by 0.1 percent in September after rising by a downwardly revised 0.2 percent in August.

Ex-auto sales had been expected to rise by 0.3 percent, matching the increase originally reported for the previous month.

Meanwhile, the report said closely watched core retail sales, which exclude automobiles, gasoline, building materials and food services, climbed by 0.5 percent in September after coming in unchanged in August.

"Overall, the current strength of underlying retail spending reflects the continued boost to incomes from the tax cuts enacted at the start of the year," said Andrew Hunter, U.S. Economist at Capital Economics.

He added, "That said, sales growth looks most likely to slow in the fourth quarter as that boost starts to fade, and we still expect a more marked slowdown in real consumption growth over the course of next year."

A separate report released by the Federal Reserve Bank of New York showed the pace of growth in New York manufacturing activity accelerated by more than anticipated in the month of October.

The New York Fed said its general business conditions index rose to 21.1 in October from 19.0 in September, with a positive reading indicating growth in regional manufacturing activity. Economists had expected the index to inch up to 20.0.

Tobacco stocks showed a significant move to the downside on the day, dragging the NYSE Arca Tobacco Index down by 1.5 percent.

Considerable weakness was also visible among biotechnology stocks, as reflected by the 1.2 percent drop by the NYSE Arca Biotechnology Index.

Oil and semiconductor stocks also moved notably lower, while gold, natural gas, and networking stocks moved to the upside.

Commodity, Currency Markets

Crude oil futures are falling $0.41 to $71.37 barrel after rising $0.44 to $71.78 a barrel on Monday. Meanwhile, after climbing $8.30 to $1,230.30 an ounce in the previous session, gold futures are up $4.10 at $1,234.40 an ounce.

On the currency front, the U.S. dollar is trading at 112.17 yen compared to the 111.77 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1580 compared to yesterday's $1.1579.


Asian stocks ended mixed in cautious trading on Tuesday amid lingering global trade tensions and rising geopolitical risks in the Middle East.

Investors also waited to take cues from upcoming corporate earnings and the minutes of the U.S. Federal Reserve's latest policy meeting due Wednesday.

Chinese stocks gave up early gains to end lower after the release of inflation data. The benchmark Shanghai Composite Index fell 21.77 points or 0.9 percent to 2,546.33, while Hong Kong's Hang Seng Index closed marginally higher at 25,462.26.

Consumer prices in China were up 2.5 percent year-on- year in September, the National Bureau of Statistics said. That was in line with expectations and up from 2.3 percent in August.

The statistics bureau also said producer prices climbed an annual 3.6 percent, exceeding forecasts for 3.5 percent but down from 4.1 percent in the previous month.

Japanese shares rallied as bargain hunters lapped up index heavyweights in an oversold market. The Nikkei 225 Index jumped 277.94 points or 1.3 percent to 22,549.24, after tumbling 1.8 percent on Monday. The broader Topix index closed 0.7 percent higher at 1,687.91.

Market heavyweights Fast Retailing and SoftBank Corp soared 4 percent and 3.6 percent, respectively, while automakers Toyota Motor and Honda Motor rose 1-2 percent on a weaker yen.

Retailers underperformed, with Takashimaya Co. and Isetan Mitsukoshi both falling around 1 percent on worries about slowing domestic personal consumer and weak Chinese demand.

Australian shares closed higher, led by banks and miners. The benchmark S&P/ASX 200 index rose 32.80 points or 0.6 percent to 5,869.90 after a six-day sell-off, while the broader All Ordinaries Index ended up 29.80 points or 0.5 percent at 5,977.80.

National Australia Bank rose 0.6 percent after saying it would incur after-tax costs of A$314 million ($308.2 million) relating to customer compensation costs for poor banking practices. The other three major banks gained between 0.2 percent and 0.6 percent.

Rio Tinto advanced 1.6 percent after releasing quarterly production figures. Rival BHP Billiton added 1.7 percent ahead of its first-quarter production report due on Wednesday.

Whitehaven Coal rallied 1.5 percent despite its equity coal sales falling 14 percent in the September quarter. Gold miner Evolution Mining jumped 2 percent and Newcrest Mining climbed 3.3 percent after gold prices rose to a three-month high overnight.

The minutes of the Reserve Bank of Australia’s October meeting released earlier in the day showed policymakers expect global economic conditions to remain positive despite downside risks.


Most European stocks are rebounding from recent weakness on Tuesday, although U.K. stocks are roughly flat as the British pound extends gains after the release of labor market data showing that U.K. wages grew faster than expected in August.

The Average Earnings Index, with bonuses included, stood at 2.7 percent in the month, up from 2.6 percent in the previous month and ahead of expectations for 2.6 percent growth. The jobless rate held at a 43-year low of 4 percent.

Elsewhere, German economic confidence weakened in October, survey data from the Centre for European Economic Research showed. The ZEW economic sentiment index fell sharply to -24.7, while the expected score was -12.

Separately, Eurostat reported that Eurozone exports grew 2.1 percent month-on-month during August after a 1 percent decline in July.

Investors also watched Brexit developments ahead of an EU summit and kept an eye on geopolitical developments in the Middle East.

While the U.K.'s FTSE 100 Index is just above the unchanged line, the German DAX Index and the French CAC 40 Index are both climbing by 0.8 percent.

Meggitt shares have jumped after the engineering firm upgraded its revenue growth forecast for the full year following a strong third quarter trading update.

Residential property developer Bellway has also advanced after reporting an increase in full-year profits and total revenue.

German pharmaceutical company Merck KGaA has risen after saying it expects to return to profitable growth in 2019.

Meanwhile, Volvo shares have plunged after the Swedish company warned that some truck engines could be exceeding emission limits because an emissions control component was degrading more quickly than expected.

Theme park operator Merlin has also fallen sharply after forecasting 2018 results in line with expectations.

U.S. Economic Reports

At 9:15 am ET, the Federal Reserve is scheduled to release its report on industrial production in the month of September. Industrial production is expected to rise by 0.3 percent in September after climbing by 0.4 percent in August.

The National Association of Home Builders is due to release its report on homebuilder confidence in the month of October at 10 am ET. The housing market index is expected to come in unchanged from the previous month at 67.

Stocks In Focus

Shares of Adobe (ADBE) are showing a strong move to the upside in pre-market trading after the software company reaffirms its full-year earnings and revenue guidance and forecast 20 percent revenue growth in 2019.

Investment bank Morgan Stanley (MS) is also likely to see early strength after reporting third quarter results that exceeded analyst estimates on both the top and bottom lines.

Shares of UnitedHealth (UNH) may also move to the upside after the health insurer reported better than expected third quarter results and raised its full-year guidance.

On the other hand, shares of BlackRock (BLK) may come under pressure after the asset management firm reported third quarter earnings that beat estimates but weaker than expected revenues.

Pizza chain Domino's Pizza (DPZ) is also likely to see early weakness after reporting third quarter revenues that came in below expectations.

Shares of Twilio (TWLO) may also move to the downside after the cloud communications company announced an agreement to acquire SendGrid in a $2 billion stock deal.
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