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Beyond the Numbers

Recent Upward Momentum May Persist On Wall Street
2/5/2019 8:57 AM

The major U.S. index futures are pointing to a higher opening on Tuesday, with stocks likely to extend the upward move seen over the previous session.

The markets may continue to benefit from recent upward momentum, which has lifted the major averages to their best levels in two months.

Optimism about U.S.-China trade talks has contributed to recent buying interest along with indications the prolonged government shutdown did not have a significant impact on the U.S. economy.

Traders are also reacting to fourth quarter results from Google parent Alphabet (GOOGL), which exceeded analyst estimates on both the top and bottom lines.

However, shares of Alphabet are moving lower in pre-market trading amid concerns about a sharp increase in capital spending by the tech giant as well as a drop in advertising prices.

After turning in a lackluster performance early in the session, stocks moved mostly higher over the course of the trading day on Monday. With the upward move, the major averages reached their best closing levels in two months.

The major averages saw further upside going into the close, reaching new highs for the session. The Dow climbed 175.48 points or 1.7 percent to 25,239.37, the Nasdaq jumped 83.67 points or 1.2 percent to 7,347.54 and the S&P 500 advanced 18.34 points or 0.7 percent to 2,724.87.

Technology stocks helped to lead the way higher on Wall Street, contributing to the significant gain posted by the tech-heavy Nasdaq.

The markets continued to benefit from recent upward momentum as well as the positive sentiment generated by last Friday's monthly employment report showing much stronger than expected job growth in the month of January.

Trading activity was somewhat subdued, however, as traders expressed uncertainty about the near-term outlook for the markets on the heels of the upward trend seen in recent weeks.

Uncertainty about trade talks between the U.S. and China also kept some traders on the sidelines along with the potential for another government shutdown amid an ongoing impasse over President Donald Trump's border wall.

The economic calendar for the week is also relatively light, although traders are likely to keep an eye on reports on service sector activity, international trade, and labor productivity and costs.

While the Commerce Department released a report showing an unexpected drop in factory orders in the month of November, the delayed data was likely seen as old news.

Software stocks moved sharply higher over the course of the trading session, driving the Dow Jones Software Index up by 2.3 percent to its best closing level in two months.

Ultimate Software (ULTI) posted a standout gain after the human resources software maker agreed to be acquired by an investor group led by private equity firm Hellman & Friedman for $331.50 per share or approximately $11 billion in cash.

Significant strength also emerged among computer hardware stocks, with the NYSE Arca Computer Hardware Index climbing by 1.6 percent to a two-month closing high.

Tobacco, oil service, and retail stocks also saw notable strength on the day, while some weakness was visible among housing stocks.

Commodity, Currency Markets

Crude oil futures are sliding $0.60 to $53.96 barrel after falling $0.70 to $54.56 a barrel on Monday. Meanwhile, after slipping $2.80 to $1,319.30 ounce in the previous session, gold futures are inching up $1 to $1,320.30 an ounce.

On the currency front, the U.S. dollar is trading at 109.84 yen compared to the 109.89 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1429 compared to yesterday’s $1.1438.

Asia

Asian stocks ended mixed on Tuesday, with Japanese markets closing on a subdued note, while Australian shares skyrocketed following the release of the banking royal commission's final report. Several markets in the region were closed for Lunar New Year holidays.

Japanese shares fell after a Bank of Japan official said the yen could jump to 95 per U.S. dollar in the first half of the year and the central bank is running short on ammo.

The downside, however, remained limited after a survey showed the services sector in Japan expanded at a stronger pace in December.

The Nikkei 225 Index dropped 39.32 points or 0.2 percent to 20,844.45, while the broader Topix closed marginally higher at 1,582.88.

Panasonic fell 2.5 percent after a profit warning, while Yahoo Japan jumped 9.2 percent in reaction to a positive earnings report.

Australian markets soared amid strong gains in the banking sector as the Reserve Bank of Australia left official interest rates on hold at 1.5 percent and the financial services royal commission refrained from recommending harsher measures.

The benchmark S&P/ASX 200 Index jumped 114.70 points or 2 percent to 6005.90, marking the biggest single-day gain since November 2016 and the highest closing level since last October last. The broader All Ordinaries Index rallied 1.8 percent to end at 6,068.10.

The big four banks soared 4-7 percent, while wealth manager AMP jumped 10 percent and insurer Steadfast Group advanced 11.5 percent.

IOOF Holdings gained 8 percent despite the wealth manager being open to possible civil or criminal proceedings after the release of the report.

Mortgage brokers fell after the Kenneth Hayne report recommended reforms to trading commissions. Australian Finance Group plunged more than 29 percent and Mortgage Choice lost over 25 percent.

Miners BHP, Rio Tinto, South32 and Fortescue Metals Group climbed 1-5 percent, while energy stocks Woodside Petroleum, Origin Energy and Oil Search rose 1-2 percent.

In economic news, the Reserve Bank of Australia kept its benchmark interest rate on hold but flagged a downgrade to growth forecast for this year amid increasing downside risks to the global growth outlook, the impact of falling house prices as well as uncertainty over household spending.

Australian trade balance figures for December topped forecasts, while retail sales numbers came in below expectations. The services sector in Australia fell sharply into contraction in January with a seasonally adjusted PMI score of 44.3.

Europe

European stocks have moved sharply higher on Tuesday to hit nine-week highs despite weak data and mixed earnings updates.

Regional markets followed Asian peers higher after a financial services royal commission refrained from recommending harsher measures against Australian banks.

While the U.K.’s FTSE 100 Index has jumped by 1.3 percent, the French CAC 40 Index and the German DAX Index are both up by 1 percent.

BP Plc has soared in London after the oil and gas company swung to a profit in the fourth quarter of 2018 and raised its dividend.

RhythmOne has also jumped a day after Taptica announced the acquisition of the company for $176 million in an all-stock deal.

Danish jewelry manufacturer and retailer Pandora has also spiked after announcing a two-year transformation plan.

Meanwhile, Apple supplier AMS has moved sharply lower. The company posted a sharp drop in its 2018 fourth quarter adjusted net profit and forecast a drop in revenue in the first quarter of 2019 amid weak smartphone demand.

Indivior is also posting a steep loss after an unfavorable U.S. court ruling in a case related to its best-selling opioid addiction drug Suboxone.

In economic news, investors have shrugged off data showing that growth in the eurozone nearly stalled in January. IHS Markit's composite final PMI dipped to 51.0 in the month from December's 51.1, hitting its lowest reading since July 2013.

A measure of eurozone retail sales also fell as expected in December amid declines in non-food sales and online purchases.

Elsewhere, U.K. service sector growth slowed more than expected in January, moving closer to stagnation, as new orders decreased for the first time in two-and-a-half years, preliminary data from IHS Markit showed.

U.S. Economic Reports

The Institute for Supply Management is scheduled to release its report on service sector activity in the month of January at 10 am ET.

The ISM’s non-manufacturing index is expected to dip to 57.1 in January after falling to 57.6 in December, with a reading above 50 indicating growth in the service sector.

At 1 pm ET, the Treasury Department is due to announce the results of its auction of $38 billion worth of three-year notes.

Stocks In Focus

Shares of Estée Lauder (EL) are moving sharply higher in pre-market trading after the beauty products company reported better than expected fiscal second quarter results and raised its full-year guidance.

Electronic instruments manufacturer Ametek (AME) is also likely to see initial strength after reporting fourth quarter results that exceeded estimates and forecasting better than expected first quarter and full-year earnings.

On the other hand, shares of Gilead Sciences (GILD) are likely to see initial weakness after the biotechnology company reported fourth quarter earnings that fell short of expectations.

Household products maker Church & Dwight (CHD) may also come under pressure after reporting weaker than expected fourth quarter earnings and forecasting full-year earnings below analyst estimates.
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