Market Analysis

Beyond the Numbers

Profit Taking May Lead To Initial Weakness On Wall Street
2/19/2019 8:56 AM

The major U.S. index futures are pointing to a lower opening on Tuesday, with stocks likely to give back ground on the heels of recent strength.

Profit taking may contribute to initial weakness on Wall Street following the strong upward move shown by stocks last week.

The advance seen last Friday lifted the Dow and the Nasdaq to their best closing levels in three months and the S&P 500 reached a two-month closing high.

Uncertainty about the potential for a trade deal between the U.S. and China may also weigh on the markets as the next round of trade talks get underway in Washington, D.C. this week.

News that China accused the U.S. of attempting to curtail its technology development by putting pressure on allies to shun networks supplied by Huawei Technologies has raised concerns about tensions between the world’s two largest economies.

Selling pressure may be somewhat subdued, however, with a significant advance by Walmart (WMT) likely to help limit the downside for the markets.

Shares of Walmart are moving notably higher in pre-market trading after the retail giant reported fourth quarter results that exceeded analyst estimates on both the top and bottom lines.

Following the mixed performance seen on Thursday, stocks moved mostly higher over the course of the trading day on Friday.

The major averages all closed firmly positive, although the Dow outperformed its counterparts. The Dow soared 443.86 points or 1.7 percent to 25,883.25, the Nasdaq climbed 45.46 points or 0.6 percent to 7,472.41 and the S&P 500 jumped 29.87 points or 1.1 percent to 2,775.60.

With the advance on the day, the major averages all moved higher for the week. The Dow spiked by 3.1 percent, while the Nasdaq and the S&P 500 shot up by 2.4 percent and 2.5 percent, respectively.

The strength on Wall Street came amid continued optimism about trade talks between the U.S. and China, the world's two largest economies.

A statement from the White House said high level U.S.-China trade talks this week led to "progress between the two parties" but noted "much work remains."

The White House said the U.S. hopes to see additional progress as discussions at the ministerial and vice-ministerial levels continue in Washington next week.

Traders also reacted positively to news that lawmakers and President Donald Trump managed to avoid another government shutdown.

Trump still decided to declare a national emergency to obtain additional funds for his controversial border wall, although the move is not likely to have an immediate impact as it will face significant legal challenges.

Optimism about the economic outlook was also generated by preliminary data from the University of Michigan showing a bigger than expected rebound in consumer sentiment in the month of February.

The report said the consumer sentiment index climbed to 95.5 in February after tumbling to 91.2 in January. Economists had expected the index to rise to 93.0.

Surveys of Consumers chief economist Richard Curtin said the rebound in consumer sentiment reflected the end of the partial government shutdown as well as a more fundamental shift in consumer expectations due to the Federal Reserve's pause in raising interest rates.

Meanwhile, traders largely shrugged off a report from the Federal Reserve showing an unexpected decrease in industrial production in January.

The Fed said industrial production fell by 0.6 percent in January after inching up by a downwardly revised 0.1 percent in December.

Economists had expected production to tick up by 0.1 percent compared to the 0.3 percent increase originally reported for the previous month.

The unexpected drop in industrial production came as manufacturing output slumped by 0.9 percent in January after climbing by 0.8 percent in December.

Telecom stocks moved sharply higher over the course of the trading session, driving the NYSE Arca North American Telecom Index up by 2.6 percent. With the jump, the index ended the session at its best closing level in over two months.

Significant strength among emerged among energy stocks, which moved to the upside along with the price of crude oil.

Reflecting the strength in the energy sector, the Philadelphia Oil Service Index spiked by 2.6 percent, the NYSE Arca Natural Gas Index shot up by 2.4 percent and the NYSE Arca Oil Index advanced by 1.6 percent.

Banking stocks also saw considerable strength on the day, with the KBW Bank Index skyrocketing by 2.4 percent to a two-month closing high.

Networking, brokerage, biotechnology, and healthcare stocks also moved notably higher amid broad based buying interest on Wall Street.

Commodity, Currency Markets

Crude oil futures are climbing $0.47 to $56.06 a barrel after jumping $1.18 to $55.59 a barrel last Friday. Meanwhile, an ounce of gold is trading at $1,334.80, up $12.70 from the previous session’s close of $1,322.10. On Friday, gold advanced $8.20.

On the currency front, the U.S. dollar is trading at 110.68 yen compared yesterday’s 110.62 yen. Against the euro, the dollar is valued at $1.1294 compared to $1.1311.


Asian stocks ended mixed on Tuesday amid renewed geopolitical and trade tensions after China accused the U.S. of fueling cybersecurity fears.

The Chinese government on Monday accused the U.S. of attempting to curtail its technology development by putting pressure on allies to shun networks supplied by Huawei Technologies.

Huawei founder Ren Zhengfei told the BBC that the arrest of his daughter and chief financial officer of the company, Meng Wanzhou, is "politically motivated."

Chinese shares ended roughly flat as investors awaited the outcome of a new round of talks between the U.S. and China taking place in Washington.

The benchmark Shanghai Composite Index finished inched up 1.29 points or 0.1 percent to 2,755.65, although Hong Kong's Hang Seng Index dropped 118.88 points or 0.4 percent to 28,228.13.

Japanese shares hit fresh two-month highs, with defensive stocks rising as trade talks between the U.S. and China continue in Washington.

The Nikkei 225 Index crept up 20.80 points or 0.1 percent to 21,302.65, its highest close since mid-December. The broader Topix closed 0.3 percent higher at 1,606.52, the highest level in two months.

Chubu Electric Power, Tokyo Gas and East Japan Railway rose 2-3 percent. Honda Motor gained 0.4 percent on reports it plans to announce the closure of its Swindon car plant in 2022, with the loss of about 3,500 jobs.

Meanwhile, SoftBank Group plummeted 3.3 percent on a Wall Street Journal report that its key investors were unhappy with the high valuation of its flagship Vision Fund.

Australian markets ended solidly higher as gains in the financial sector helped offset disappointing earnings reports.

The benchmark S&P/ASX 200 Index rose 17.10 points or 0.3 percent to 6,106.90, while the broader All Ordinaries Index ended up 13.50 points or 0.2 percent at 6,184.20.

Lender ANZ jumped 2.3 percent after the lender's chief executive admitted the bank might have been too cautious in its home lending decisions. The other three banks rose between 1 percent and 1.7 percent.

Wealth manager IOOF Holdings soared 16.4 percent after it posted a 5.0 percent increase in half-yearly underlying profit.

On the flip side, vitamin maker Blackmores plunged 25 percent after the company said it was reviewing its investment approach in China amid a general softening of consumer sentiment.

Hearing implant maker Cochlear slumped 8.1 percent after the company said it was facing increased competition in the U.S. and Germany.

Oil & gas producer Oil Search also dropped 1.5 percent after its annual profit missed estimates.

Seven West Media plunged 8 percent and Coles Group fell over 4 percent on disappointing half-year results.

Seoul stocks fluctuated in a narrow range before ending modestly lower after data showed the country's export prices fell for the third consecutive month to reach a 27-month low in January. The benchmark Kospi ended down 5.26 points or 0.2 percent at 2,205.63.


European stocks have moved lower on Tuesday as investors digest weak earnings updates from the likes of Danone, HSBC and BHP and look ahead to the new round of talks between the U.S. and China getting underway in Washington later today.

Meanwhile, China accused the U.S. of fueling cybersecurity fears, thus risking exacerbating tensions between the two countries.

While the German DAX Index has dipped by 0.2 percent, the French CAC 40 Index is down by 0.4 percent and the U.K.’s FTSE 100 Index is down by 0.6 percent.

French food company Danone has dropped after its full-year 2018 net income declined 4.1 percent to 2.35 billion euros from 2.45 billion euros in the previous year.

HSBC shares have also moved notably lower as the Asia-focused lender reported a disappointing annual profit on higher costs. Mining giant BHP has also declined after its first-half profit fell 8 percent.

On the other hand, Wirecard is extending Monday's rally in Frankfurt after financial regulator BaFi banned short selling in the stock amid reports that German authorities are probing into a possible violation of securities trading rules.

HeidelbergCement has soared after the company forecast higher demand after reporting a 10 percent rise in group revenue for the fourth quarter.

Fashion company TOM TAILOR Holding has also advanced. The company said it would implement a capital increase of 10 percent against cash contribution with partial utilization of the approved capital.

In economic news, the Eurozone current account surplus weakened in December, as the surpluses in the visible trade, services and primary income accounts were partly offset by a deficit in the secondary income account, figures from the European Central Bank showed.

The current account surplus declined to 16 billion euros from 23 billion euros in November, which was revised from 20 billion euros. The visible trade surplus weakened to 16 billion euros from 20 billion euros in the previous month.

Elsewhere, official data showed that U.K. wage inflation as well as the U.K. jobless rate held steady at the start of 2019.

U.S. Economic Reports

At 10 am ET, the National Association of Homebuilders is scheduled to release its report on homebuilder confidence in the month of February. The housing market index is expected to inch up to 59 in February after rising to 58 in January.

Stocks In Focus

Shares of Advance Auto Parts (AAP) are moving notably lower in pre-market trading after the auto parts retailer reported fourth quarter adjusted earnings that exceeded analyst estimates but weaker than expected same-store sales growth.

Security device maker Allegion (ALLE) may also move to the downside after reporting better than expected first quarter earnings but providing disappointing guidance.

On the other hand, shares of Medtronic (MDT) may see initial strength after the medical device maker reported fiscal third quarter earnings that beat expectations.
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