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Beyond the Numbers

U.S. Stocks Likely To Move Back To The Upside After Late-Day Pullback
5/20/2020 8:58 AM

The major U.S. index futures are pointing to a significantly higher open on Wednesday, with stocks likely to move back to the upside following the sharp pullback seen late in the previous session.

Continued optimism about an economic recovery as states begin to reopen following the coronavirus-induced lockdowns may contribute to a rebound on Wall Street.

Early indications suggest the states that have reopened have not seen a spike in coronavirus cases, which has led to hopes the economy may rebound more quickly than many economists predict.

Buying interest may be somewhat subdued, however, as a report raising doubts about Moderna's coronavirus vaccine may keep the cheerfulness in check.

A report from STAT News questioned the validity of the results of Moderna’s vaccine trial that had sent stock markets soaring on Monday.

Stocks turned in a lackluster performance throughout much of the trading session on Tuesday before coming under pressure going into the close. The major averages all moved to the downside, partly offsetting the strong gains posted in the previous session.

The major averages ended the day just off their lows of the session. The Dow tumbled 390.51 points or 1.6 percent to 24,206.86, the Nasdaq slid 49.72 points or 0.5 percent to 9,185.10 and the S&P 500 slumped 30.97 points or 1.1 percent to 2,922.94.

The late-day weakness on Wall Street came as traders cashed in on the rally seen on Monday, which lifted the Nasdaq and the S&P 500 to their best closing levels in over two months.

Traders have recently expressed considerable optimism about the economy reopening, although lingering concerns about the coronavirus pandemic lead to some caution.

Traders were also reacting to comments from Federal Reserve Chair Jerome Powell, who reaffirmed the central bank will provide more support to the economy.

Testifying before the Senate Banking Committee, Powell said the central bank needs to be prepared to "act further and I would say we are, if the need is there."

"As a society, we should do everything we can to provide relief to those who are suffering for the public good," Powell said.

On the U.S. economic front, the Commerce Department released a report showing another steep drop in new residential construction in the U.S. in the month of April.

The report said housing starts plummeted by 30.2 percent to an annual rate of 891,000 in April after tumbling by 18.6 percent to a revised 1.276 million in March.

Economists had expected housing stocks to plunge by 23.8 percent to a rate of 927,000 from the 1.216 million originally reported for the previous month.

The Commerce Department said building permits also slumped by 20.8 percent to an annual rate of 1.074 million in April after falling by 5.7 percent to a revised 1.356 million in March.

Building permits, an indicator of future housing demand, had been expected to nosedive by 26.1 percent to a rate of 1 million from the 1.353 million originally reported for the previous month.

Oil service stocks moved sharply lower over the course of the session, dragging the Philadelphia Oil Service Index down by 4.8 percent. The weakness in the sector came despite an increase by the price of crude oil.

Significant weakness was also visible among financial stocks, with the KBW Bank Index and the NYSE Arca Broker/Dealer Index slumping by 3.5 percent and 2.8 percent, respectively.

Telecom, utilities and biotechnology stocks also saw notable weakness, while gold stocks moved sharply higher amid a rebound by the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are climbing $0.68 to $32.64 a barrel after rising $0.31 to $31.96 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,752.70, up $7.10 compared to the previous session’s close of $1,745.60. On Tuesday, gold climbed $11.20.

On the currency front, the U.S. dollar is trading at 107.65 yen compared to the 107.71 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0954 compared to yesterday’s $1.0923.

Asia

Asian stocks turned in a mixed performance on Wednesday as investors digested a report questioning the validity of Moderna's early trial results for a possible coronavirus vaccine.

Chinese shares ended lower after the cities of Jilin and Shulan, both in the province of Jilin in northwestern China, were sealed off following a worrying spike of COVID-19 infections.

The benchmark Shanghai Composite Index dropped 14.84 points, or 0.5 percent, to 2,883.74, while Hong Kong's Hang Seng Index ended marginally higher at 24,399.95.

Japanese shares rose notably to reach a fresh two-and-a-half month high on hopes that a continued drop in new daily COVID-19 cases will help the economy recover from the coronavirus crisis.

The government will likely lift its state of emergency for Osaka and Kyoto in western Japan on Thursday after growth in new coronavirus cases fell below the government's numerical target, media reports said. The government will also examine whether to ease restrictions in Tokyo.

The Nikkei 225 Index climbed 161.70 points, or 0.8 percent, to 20,595.15, while the broader Topix closed 0.6 percent higher at 1,494.69.

Sony Financial Holdings jumped 7.6 percent after Sony Corp. said it plans to make its financial services unit a wholly-owned subsidiary through a tender offer worth about 400 billion yen ($3.7 billion). Sony Corp. lost 2.3 percent.

Banks Mitsubishi UFJ Financial and Sumitomo Mitsui Financial fell slightly after the Bank of Japan said it would hold an emergency meeting on Friday to decide the details of a loan program for small firms.

On the data front, core machine orders in Japan slid a seasonally adjusted 0.4 percent sequentially in March, the Cabinet Office said in a report. On a yearly basis, core machine orders sank 0.7 percent.

Australian markets recovered from an early slide to end modestly higher amid escalating tensions with its top trading partner China over restrictions on Australia beef and barley, seen as retaliation for support of a coronavirus investigation.

The benchmark S&P/ASX 200 Index edged up 13.50 points, or 0.2 percent, to 5,573, while the broader All Ordinaries Index ended up 21.30 points, or 0.4 percent, at 5,680.10.

Global miners BHP Group and Rio Tinto dropped 0.9 percent and 0.4 percent, respectively, while the big four banks rose between half a percent and 0.7 percent.

Energy stocks turned in a mixed performance, while medical equipment firm Resmed declined 2.4 percent.

In economic news, the Westpac- Melbourne Institute Leading Index fell to -5.16 percent in April from -2.34 percent in March. This was the weakest reading since the global financial crisis.

The score indicates the likely pace of economic activity relative to trend three to nine months into the future.

Seoul stocks advanced on hopes of global stimulus measures to counter the ongoing coronavirus crisis. Closer to home, Finance Minister Hong Nam-ki said the government will unveil a third extra budget early next month to minimize the economic fallout from the pandemic.

The benchmark Kospi gained 9.03 points, or 0.5 percent, to finish at 1,989.64. Mobile services providers led the surge, with Naver climbing 4 percent and Kakao rallying 5.2 percent.

Europe

European stocks are mixed in cautious trading on Wednesday as doubts over a potential COVID-19 vaccine dashed hopes for quick economic recovery.

Overnight, a report from STAT News questioned the validity of the results of Moderna's vaccine trial that had sent stock markets soaring on Monday.

Rising coronavirus cases in countries such as India, South Africa and Mexico also raised fears that the pandemic is far from over.

While the French CAC 40 Index is down by 0.1 percent, the German DAX Index and the U.K.’s FTSE 100 Index are up by 0.4 percent and 0.5 percent, respectively.

Aareal Bank shares has moved sharply higher. The real estate lender said that it entered into discussions with a select group of long-term financial investors on the sale of a significant minority stake in subsidiary Aareon AG.

Clothing and food retailer Marks & Spencer have also soared. After reporting a 21 percent slump in annual profit, the company is accelerating its 'Never the Same Again' turnaround plan to cope with the fallout from the coronavirus crisis.

Shares of Experian Plc have also jumped. The world's biggest credit data firm reported higher annual revenue and kept its dividend unchanged.

Meanwhile, shares of Norwegian Air Shuttle ASA have plunged after the low-cost carrier said it will get 3 billion kroner ($290 million) in loan guarantees from the government as part of a restructuring plan.

Rolls-Royce Holding has also tumbled. The engine maker announced plans to cut 9,000 jobs - almost a fifth of its global workforce - to make annual cost savings of 1.3 billion pounds ($1.59 billion).

In economic news, Eurozone inflation slowed more than initially estimated in April to the lowest since 2016, final data from Eurostat showed.

Inflation slowed to 0.3 percent from 0.7 percent in March. The rate was revised down from the 0.4 percent estimated on April 30. This was the lowest since August 2016.

U.K. inflation slowed to the lowest since 2016 on weak oil prices in April, data from the Office for National Statistics showed.

Consumer price inflation eased to 0.8 percent in April from 1.5 percent in March. Economists had forecast the rate to ease to 0.9 percent. The latest rate was the lowest since August 2016.

U.S. Economic Reports

Atlanta Federal Reserve President Raphael Bostic is due to speak in a JAXUSA Partnership webinar on the Fed's response to COVID-19 at 10 am ET.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended May 15th.

Crude oil inventories are expected to rise by 1.2 million barrels after slipping by 0.7 million barrels in the previous week.

St. Louis Fed President James Bullard is due to speak in a moderated Q&A at the Missouri Growth Association at 12 pm ET.

At 1 pm ET, the Treasury Department is scheduled to announce the results of its auction of $20 billion worth of twenty-year bonds, the first auction of twenty-year bonds since the 1980s.

The Federal Reserve is scheduled to release the minutes of its latest monetary policy meeting held in late April at 2 pm ET.

Stocks In Focus

Shares of Lowe’s (LOW) are moving sharply higher in pre-market trading after the home improvement retailer reported first quarter results that exceeded analyst estimates on both the top and bottom lines.

Motorcycle maker Harley-Davidson (HOG) may also move to the upside after a report from the Wall Street Journal said the company plans to reopen its factories this week at lower production rates.

On the other hand, shares of McKesson (MCK) may see initial weakness after the drug distributor reported better than expected fiscal fourth quarter results but provided disappointing full-year guidance.

Retailer Urban Outfitters (URBN) is also likely to come under pressure after reporting a wider than expected first quarter loss on revenues that missed analyst estimates.
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