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Beyond the Numbers

Tech Stocks May Lead The Way Lower On Troubling Forecast From Broadcom
6/14/2019 8:56 AM

The major U.S. index futures are currently pointing to a lower opening on Friday, with the tech-heavy Nasdaq likely to show a more notable move to the downside.

Tech stocks may come under pressure after Broadcom (AVGO) reported better than expected fiscal second quarter earnings but lowered its full-year revenue guidance.

Broadcom President and CEO Hock Tan said the chip maker sees a “broad-based slowdown in the demand environment” due to continued geopolitical uncertainties and the effects of export restrictions on Chinese tech giant Huawei.

The comments from Tan are likely to reignite concerns about the impact of the U.S.-China trade dispute on the broader tech sector.

Trading may also be impacted by reaction to a report from the Commerce Department showing slightly weaker than expected retail sales growth in May but a substantial upward revision to the retail sales data for April.

The data paints a positive picture of the economy but may offset some of the recent optimism about a near-term interest rate cut by the Federal Reserve.

Following the modest pullback seen over the two previous sessions, stocks moved back to the upside during trading on Thursday. Buying interest was somewhat subdued, although the major averages all ended the day in positive territory.

The major averages jumped going into the close of trading but remained off their highs of the session. The Dow rose 101.94 points or 0.4 percent to 26,106.77, the Nasdaq advanced 44.41 points or 0.6 percent to 7,837.13 and the S&P 500 climbed 11.80 points or 0.4 percent to 2,891.64.

Continued optimism tame inflation will lead the Federal Reserve to cut interest rates contributed to the strength on Wall Street after a Labor Department report showed bigger than expected decreases in U.S. import and export prices.

The Labor Department said import prices fell by 0.3 percent in May following a revised 0.1 percent uptick in April.

Economists had expected import prices to dip by 0.2 percent compared to the 0.2 percent increase originally reported for the previous month.

Additionally, the report said export prices edged down by 0.2 percent in May after inching up by a revised 0.1 percent in April.

Export prices had been expected to slip by 0.1 percent compared to the 0.2 percent growth originally reported for the previous month.

With the bigger than expected monthly decreases, import and export prices both showed their biggest annual declines in over two years.

Meanwhile, a separate report from the Labor Department said first-time claims for U.S. unemployment benefits unexpectedly edged higher in the week ended June 8th.

The report said initial jobless claims inched up to 222,000, an increase of 3,000 from the previous week's revised level of 219,000.

The uptick came as a surprise to economists, who had expected jobless claims to edge down to 216,000 from the 218,000 originally reported for the previous week.

Oil service stocks moved sharply higher on the day following the sell-off seen in the previous session. After plummeting by 5.1 percent on Wednesday, the Philadelphia Oil Service Index surged up by 3.7 percent.

A rebound by the price of crude oil helped the sector bounce back, with the price of crude oil jumping on reports of a possible terrorist attack on oil tankers in the Gulf of Oman near the Iranian coastline.

Considerable strength also emerged among gold stocks, as reflected by the 1.7 percent gain posted by the NYSE Arca Gold Bugs Index.

Natural gas, steel, and transportation stocks also saw notable strength on the day, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are edging down $0.08 to $52.20 a barrel after jumping $1.14 to $52.28 a barrel on Thursday. Meanwhile, after climbing $6.90 to $1,343.70 an ounce in the previous session, gold futures are surging up $12.80 to $1,356.50 an ounce.

On the currency front, the U.S. dollar is trading at 108.36 yen versus the 108.38 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1245 compared to yesterday’s $1.1276.

Asia

Asian stocks ended Friday's session on a mixed note as worries about rising tensions in the Middle East and headlines related to the U.S.-China trade dispute kept underlying sentiment cautious.

The U.S. blamed Iran for the attacks on oil tankers in the Gulf of Oman and said it will defend its forces and interests in the Middle East.

China's Shanghai Composite Index gave up early gains to end the session down 28.77 points or 1 percent at 2,881.97, while Hong Kong's Hang Seng Index dropped 176.36 points or 0.7 percent to 27,118.35.

Government data released late in the day showed Chinese industrial output grew at a slower pace, while growth in retail sales improved more than expected in May.

Industrial production advanced 5.0 percent year-on-year in May, while growth was expected to remain stable at 5.4 percent. Retail sales grew at a faster pace of 8.6 percent after rising 7.2 percent in the previous month. Sales were forecast to advance 8.1 percent.

In the January to May period, fixed asset investment increased 5.6 percent from the previous year. Economists had forecast a 6.1 percent increase, as seen in the January to April period. The unemployment rate remained stable at 5 percent in May.

Meanwhile, Japanese stocks rose, led by energy stocks as oil prices surged on supply concerns. The Nikkei 225 Index climbed 84.89 points or 0.4 percent to 21,116.89, taking the weekly gain to 1.1 percent. The broader Topix closed 0.3 percent higher at 1,546.71.

Oil firm Inpex Corp rose 1.3 percent and Japan Petroleum advanced 1.5 percent. Sony Corp. shares jumped 3.1 percent after Daniel Loeb's activist hedge fund ThirdPoint LLC called on the company to spin off its semiconductor business.

Australian markets fluctuated before ending modestly higher. The benchmark S&P/ASX 200 Index inched up 11.60 points or 0.2 percent to 6,554, while the broader All Ordinaries Index edged up 14.50 points or 0.2 percent to 6,633.60.

Miners BHP, Rio Tinto and Fortescue Metals Group jumped 2-5 percent after Chinese iron ore prices hit a fresh high in the previous session on hopes of Beijing introducing further stimulus.

Gold miner Newcrest Mining rallied 3 percent and Evolution Mining soared 4.8 percent as gold prices gained ground on expectations of Federal Reserve interest rate cuts.

Woodside Petroleum, Santos, Origin Energy and Oil Search climbed 1-3 percent after oil prices rose more than 2 percent overnight following attacks on two oil tankers near the Strait of Hormuz.

On the other hand, the big four banks fell between 0.7 percent and 1 percent as the Aussie dollar extended overnight losses after the release of mixed domestic jobs data.

Wealth manager AMP slumped 5.8 percent after Australia's banking watchdog issued directions and license conditions on its pension fund units.

Afterpay Touch Group tumbled 4.3 percent a day after a financial crime regulator ordered an audit of the credit provider.

Seoul stocks fell for a third straight session as investors remained wary of a protracted trade war between the U.S. and China. The Kospi dropped 7.74 points or 0.4 percent to 2,095.41.

Europe

European stocks have fallen on Friday as renewed trade tensions, underwhelming Chinese industrial output data and worries of a potential military confrontation in the Middle East dent risk appetite.

While the French CAC 40 Index has slipped by 0.4 percent, the U.K.’s FTSE 100 Index and the German DAX Index are down by 0.5 percent and 0.7 percent, respectively.

Technology shares are moving lower after U.S. chipmaker Broadcom slashed its revenue guidance for the full fiscal year, citing the impact of export restrictions on Huawei.

Automakers are also moving lower after Reuters reported that the U.S. has denied requests by Tesla, General Motors and Uber for waving 25 percent tariffs related to Chinese products.

Kier Group shares have plunged in London on reports the builder is preparing to sell its homebuilding unit for a lower than expected price.

Meanwhile, SThree plc has jumped after the specialist staffing company said the group's performance in the first half of the year was in line with management expectations.

U.S. Economic Reports

A report released by the Commerce Department showed U.S. retail sales rose by slightly less than expected in the month of May, although the report also showed a substantial upward revision to the retail sales data for April.

The Commerce Department said retail sales climbed by 0.5 percent in May after rising by an upwardly revised 0.3 percent in April.

Economists had expected retail sales to increase by 0.6 percent compared to the 0.2 percent drop originally reported for the previous month.

Excluding a rebound in sales by motor vehicle and parts dealers, retail sales still rose by 0.5 percent in May, matching the upwardly revised increase in April.

Ex-auto sales had been expected to rise by 0.3 percent compared to the 0.1 percent uptick originally reported for the previous month.

The Federal Reserve is scheduled to release its report on industrial production in the month of May at 9:15 am ET. Industrial production is expected to rise by 0.2 percent in May after falling by 0.5 percent in April.

At 10 am ET, the University of Michigan is due to release its preliminary report on consumer sentiment in the month of June. The consumer sentiment index is expected to edge down to 98.0 in June from 100.0 in May.

The Commerce Department is also scheduled to release its report on business inventories in the month of April at 10 am ET. Economists expect business inventories to climb by 0.5 percent.

Stocks In Focus

Shares of Blue Apron (APRN) are moving sharply lower in pre-market trading after the meal kit provider said its board approved a 1-for-15 reverse stocks split, effective after the close of today’s trading.

Global Blood Therapeutics (GBT) is also seeing pre-market weakness even though a late-stage clinical trial of the drug maker’s experimental sickle-cell disease treatment met its primary endpoint.

On the other hand, shares of Comcast (CMCSA) may see initial strength after Rosenblatt Securities initiated coverage of the telecom giant’s stock with a Buy rating.
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