Market Analysis

Beyond the Numbers

Profit Taking May Lead To Initial Pullback On Wall Street
11/11/2019 8:55 AM

The major U.S. index futures are currently pointing to a lower opening on Monday, with stocks likely to give back ground after inching up to record closing highs last Friday.

Profit taking may contribute to initial weakness on Wall Street, as some traders look to cash in on last week’s strong gains.

Uncertainty about a potential U.S.-China trade deal may weigh on the markets along with worsening tensions in Hong Kong after the arrest of three pro-democracy lawmakers.

Trading activity may be somewhat subdued, however, with the Veterans Day holiday keeping some traders on the sidelines.

The economic calendar remains quiet due to the holiday, although reports on consumer and producer prices, retail sales and industrial production may attract attention in the coming days.

Traders are also likely to keep an eye on President Donald Trump’s speech at the Economic Club of New York on Tuesday as well as Federal Reserve Chairman Jerome Powell’s testimony before the Congressional Joint Economic Committee on Wednesday.

Stocks turned in a lackluster performance for much of the trading session on Friday but managed to end the day mostly higher. With the gains on the day, the major averages all finished the session at new record closing highs.

The major averages moved to the upside going into the close to end the day at their highs of the session. The Dow inched up 6.44 points or less than a tenth of a percent to 27,681.24, the Nasdaq climbed 40.80 points or 0.5 percent to 8,475.31 and the S&P 500 rose 7.90 points or 0.3 percent to 3,093.08.

For the week, the Dow and the Nasdaq jumped by 1.2 percent and 1.1 percent, respectively, while the S&P 500 advanced by 0.9 percent.

The choppy trading seen for most of the day came as traders digested conflicting information regarding negotiations of a U.S.-China trade deal.

Comments from a Chinese Commerce Ministry spokesman indicating the U.S. and China had agreed to roll back existing tariffs as part of a phase one trade deal contributed to strength in the markets on Thursday.

However, President Donald Trump told reporters at the White House on Friday that he has not agreed to lift the tariffs on China.

The comments from Trump came after a report from Reuters said the idea of rolling back tariffs faces fierce internal opposition from the president's advisers.

Multiple sources familiar with the talks told Reuters the idea of a tariff rollback was not part of the original October "handshake" deal between Trump and Chinese Vice Premier Liu He.

Citing current and former administration officials, Reuters said there is a divide within the administration over whether rolling back tariffs will give away U.S. leverage in the negotiations.

The latest reports have sparked renewed uncertainty about what type of trade deal Trump will ultimately be willing to accept.

Trump has repeatedly criticized past administrations for being too weak on China, but he would also like a big political victory ahead of next year's presidential election.

Meanwhile, the University of Michigan released a report showing a slight improvement in U.S. consumer sentiment in the month of November.

The report said the consumer sentiment index inched up to 95.7 in November after rising to 95.5 in October. Economists had expected to index to tick up to 95.9.

"The early November reading on consumer sentiment was nearly identical to last month's and the average 2019 level (95.6)," said Surveys of Consumers chief economist Richard Curtin.

He added, "Consumers did voice a slightly more positive outlook for the economy, which was offset by a slightly less favorable outlook for their own personal finances."

Curtin said one-in-four consumers spontaneously made negative references to tariffs but noted references to the impact of Trump's impeachment on economic prospects were virtually non-existent.

Networking stocks showed a substantial move to the upside on the day, driving the NYSE Arca Networking Index up by 3.9 percent to a three-month closing high.

Within the networking sector, Ubiquiti (UI) and Viasat (VSAT) posted standout gains after reporting better than expected quarterly results.

Significant strength also emerged among biotechnology stocks, as reflected by the 2.7 percent jump the NYSE Arca Biotechnology Index. The index ended the session at its best closing level in well over two months.

Tobacco, natural gas, and pharmaceutical stocks also saw notable strength on the day, while steel stocks moved to the downside.

Commodity, Currency Markets

Crude oil futures are sliding $0.50 to $56.74 a barrel after inching up $0.09 to $57.24 last Friday. Meanwhile, an ounce of gold is trading at $1,461.90, down $1 from the previous session’s close of $1,462.90. On Friday, gold fell $3.50.

On the currency front, the U.S. dollar is trading at 108.96 yen compared to the 109.26 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at $1.1040 compared to last Friday’s $1.1018.


Asian stocks ended mostly lower on Monday, with Chinese and Hong Kong markets pacing the declines, as regional data proved to be a mixed bag and tensions soared in Hong Kong following the death on Friday of a 22-year-old student.

U.S. President Donald Trump’s remarks last week also cast fresh doubts over the prospects of a trade deal between the world’s two largest economies.

Chinese shares fell the most in over four months on concerns over slowing growth and uncertainty around a proposed U.S.-China trade deal.

The benchmark Shanghai Composite Index plunged 54.21 points, or 1.8 percent to 2,909.97, marking its worst session since July 8 as inflation data from China brought slowdown fears to the fore.

While China's consumer price index grew at its fastest pace in about eight years, a measure of producer prices fell the most in more than three years in October, underscoring the problem of moderating demand.

Hong Kong's Hang Seng Index plunged 724.59 points, or 2.6 percent, to 26,926.55 after political tensions flared up in the city once again.

Japanese shares closed lower to snap a four-day winning streak as Trump's latest comments on trade undercut hopes for a deal anytime soon. Disappointing machinery orders data also weighed on sentiment.

Japan's machinery orders fell for a third straight month in September, raising doubts over whether the recent strength in capital goods shipments would last.

The Nikkei 225 Index dropped 60.03 points, or 0.3 percent, to 23,331.84, while the broader Topix finished marginally higher at 1,704.03.

Market heavyweight Fast Retailing shed 0.9 percent and SoftBank Group dropped 1 percent. Honda Motor jumped 4.2 percent after unveiling a $915 million share buyback. Nissan edged down slightly ahead of its half-year earnings due on Tuesday.

Meanwhile, Australian stocks rose notably after Wall Street's major indexes reached record closing highs on Friday despite fresh worries about U.S.-China trade negotiations.

The benchmark S&P ASX 200 Index climbed 48.40 points, or 0.7 percent, to 6,772.50, while the broader All Ordinaries Index ended up 43.80 points, or 0.6 percent, at 6,877.

CSL rallied 3.5 percent on a brokerage upgrade, and hearing implant manufacturer Cochlear advanced 2.1 percent. Weak iron ore prices weighed on the mining sector, with Rio Tinto falling 2.4 percent and Fortescue Metals Group tumbling 5.5 percent.

Lender ANZ declined 2.6 percent on going ex-dividend. The other three big banks rose between 1.1 percent and 1.4 percent. Elders jumped 4.8 percent after the agricultural products company said it would be able to withstand the worst of the drought.

Bubs Australia soared 4.7 percent after it signed a two-year distribution deal with Vietnam's mother and baby store chain BiboMart JS Company.

Seoul stocks fell on doubts about when the world's two largest economies may end a 16-month trade war. The benchmark Kospi dropped 13.14 points, or 0.6 percent, to 2,124.09.


European stocks have moved mostly lower on Monday, with worsening political unrest in Hong Kong, another inconclusive general election in Spain, concerns over a U.S.-China trade deal and Moody's warning on Britain's sovereign debt keeping investors nervous.

While the U.K.’s FTSE 100 Index has slumped by 1.1 percent, the German DAX Index is down by 0.4 percent and the French CAC 40 Index is down by 0.1 percent.

French insurer AXA has moved to the downside after the company said it sold 144 million shares of common stock of AXA Equitable Holdings to Goldman Sachs at a net price of $21.80 per share.

Funeral services provider Dignity has also come under pressure after the company reported a 30 percent slump in underlying operating profits year-to-date.

On the other hand, Swedol AB shares have surged higher after Momentum Group announced a recommended public offer to acquire the tools and work wear supplier for 46.50 crowns ($4.79) per share.

Greggs, the largest bakery chain in the U.K., has also shown a substantial move to the upside after upgrading its profit guidance for 2019.

In economic news, data from the Office for National Statistics showed the U.K. economy recovered in the third quarter, driven by services and construction.

Gross domestic product grew 0.3 percent sequentially in the third quarter after contracting 0.2 percent in the second quarter. Nonetheless, this was weaker than the expected growth of 0.4 percent.

On a yearly basis, GDP advanced 1 percent, which was the lowest since the first quarter of 2010.

U.S. Economic Reports

No major U.S. economic is scheduled to released today due to the Veterans Day holiday, although reports on consumer and producer prices, retail sales and industrial production may attract attention in the coming days.

Stocks In Focus

Shares of Cisco Systems (CSCO) may move to the downside after Piper Jaffray downgraded its rating on the networking company’s stock to Neutral from Overweight. Cisco is due to report its fiscal first quarter results on Wednesday.

Boeing (BA) could also see early weakness after American Airlines (AAL) and Southwest Airlines (LUV) extended cancellations of 737 MAX flights until early March.

On the other hand, shares of Chewy (CHWY) may see initial strength after Credit Suisse initiated coverage of the online pet supplies retailer with an Outperform rating.
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