Market Analysis

Beyond the Number

Profit Taking May Contribute To Initial Weakness On Wall Street
5/21/2020 8:59 AM

The major U.S. index futures are currently pointing to a modestly lower opening on Thursday, with stocks likely to give back some ground following the strong upward move seen in the previous session.

Profit taking may contribute to initial weakness on Wall Street, as traders cash in on the strong gains posted on Monday and Wednesday.

The advance seen in the previous session lifted the Nasdaq to a three-month closing high, while the S&P 500 reached its best closing level since early March.

The tech-heavy Nasdaq has shown a particularly strong recovery from its March lows and is currently less than 5 percent below the record high set in February.

However, the futures have regained ground in recent trading following the release of a report from the Labor Department showing a continued decrease in first-time claims for U.S. unemployment benefits.

Following the sharp pullback seen late in Tuesday’s session, stocks showed a strong move back to the upside during trading on Wednesday. With the upward move, the tech-heavy Nasdaq ended the session at its best closing level in three months.

The major averages finished the session off their best levels of the day but still sharply higher. The jumped 369.04 points or 1.5 percent to 24,575.90, the Nasdaq spiked 190.67 points or 2.1 percent to 9,375.78 and the S&P 500 surged up 48.67 points or 1.7 percent to 2,971.61.

The rally on Wall Street partly reflected continued optimism about an economic recovery as states begin to reopen following the coronavirus-induced lockdowns.

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.

Meanwhile, traders largely shrugged off a report raising doubts about Moderna's (MRNA) potential coronavirus vaccine.

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

Positive sentiment was also generated in reaction to earnings news from Lowe's (LOW), with the home improvement retailer reporting first quarter results that exceeded analyst estimates on both the top and bottom lines.

At the same time, the minutes of the Federal Reserve's latest monetary policy meeting highlighted concerns about the extraordinary amount of uncertainty and considerable risks to economic activity created by the coronavirus pandemic.

The minutes said participants at the late-April meeting discussed several alternative scenarios with regard to the behavior of economic activity in the medium term that all seemed about equally likely.

"These scenarios differed in the assumed length of the pandemic and the consequent economic disruptions," the Fed said.

A number of participants believed there was a substantial likelihood of additional waves of the coronavirus outbreak, which could lead to further economic disruptions.

Energy stocks helped to lead the way higher on the day, benefiting from a continued increase by the price of crude oil.

Reflecting the strength in the energy sector, the Philadelphia Oil Service Index spiked by 6.4 percent, the NYSE Arca Oil Index soared by 4 percent and the NYSE Arca Natural Gas Index surged up by 2.7 percent.

Significant strength was also visible among semiconductor stocks, as reflected by the 3.7 percent jump by the Philadelphia Semiconductor Index. The index ended the session at a three-month closing high.

Transportation, financial, networking and computer hardware stocks also saw considerable strength, while gold stocks were among the few groups to buck the uptrend despite an increase by the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are jumping $1.03 to $34.52 a barrel after surging up $1.53 to $33.49 a barrel on Wednesday. Meanwhile, after rising $6.50 to $1,752.10 an ounce in the previous session, gold futures are sliding $11.90 to $1,740.20 an ounce.

On the currency front, the U.S. dollar is trading at 107.66 yen versus the 107.53 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1004 compared to yesterday’s $1.0980.


Asian stocks fell broadly on Thursday as fears of U.S.-China tensions as well as deteriorating relations between Canberra and Beijing kept investors' risk appetite in check.

China's Shanghai Composite Index fell 15.81 points, or 0.6 percent, to 2,867.92 ahead of the country's postponed annual session of its parliament starting the next day. Hong Kong's Hang Seng Index dropped 0.5 percent to 24,280.03.

Japanese shares drifted lower after four days of gains as investors digested weak economic data. The downside was capped amid optimism about a state of emergency being lifted in western Japan later today.

The Nikkei 225 Index slipped 42.84 points, or 0.2 percent, to 20,552.31, while the broader Topix closed 0.2 percent lower at 1,491.21.

The manufacturing sector in Japan continued to contract in May, and at a faster pace, the latest survey from Jibun Bank revealed with a manufacturing PMI score of 31.7, down from 34.7 in April.

The report also showed that the services PMI improved to 25.3 in May, up from the record low 21.5 in April but still well below the line for expansion.

Separately, official data showed that Japan posted a merchandise trade deficit of 930.401 billion yen in April - missing expectations for a shortfall of 560 billion yen following the 4.9 billion yen surplus in March.

Exports plummeted 21.9 percent year-on-year, beating expectations for a fall of 22.7 percent following the 11.7 percent decline in the previous month.

Imports were down an annual 7.2 percent versus expectations for a drop of 12.9 percent after slipping 5.0 percent a month earlier.

Australian markets fluctuated before ending lower after Beijing imposed new customs inspection procedures on iron ore imports.

The benchmark S&P/ASX 200 Index dropped 22.60 points, or 0.4 percent, to 5,550.40, while the broader All Ordinaries Index ended down 19.20 points, or 0.3 percent, at 5,660.90.

As countries across the world ease lockdown measures, Australian officials on Wednesday announced a raft of plans to restart public life and reinvigorate its economy.

Santos rallied 3.3 percent and Beach Energy surged 4.2 percent as oil prices hit a ten-week high on data showing a drop in U.S. crude inventory. Miners BHP and Rio Tinto as well as the big four banks all ended in the red.

Meanwhile, buy-now-pay-later firm Afterpay advanced 2.6 percent after the company said it has signed up 1 million active customers in the U.S. over the past 10 weeks.

Australia's private sector remained in a deep contraction in May as the impact of the coronavirus on the economy remained severe, survey data from IHS Markit showed today.

The Commonwealth Bank flash composite output index rose to 26.4 in May from 21.7 in April. Services again reported the sharper reduction in activity of the two broad sectors covered by the survey, while the downturn in the manufacturing sector intensified.

Seoul stocks rose for a fifth straight session on growing hope over the resumption of global travel and trade. The Kospi edged up by 8.67 points, or 0.4 percent, to 1,998.31. Top chemical firm LG Chem soared 4.1 percent and No. 1 oil refiner SK Innovation added 2.9 percent.


European stocks have moved mostly lower over the course of the trading session on Thursday as investors digest weak exports data from Asia and look ahead to a key policy gathering in China for directional cues.

Meanwhile, the euro area private sector remained stuck in its deepest downturn ever in May due to the containment measures taken amid coronavirus pandemic, survey results from IHS Markit showed today.

The composite output index rose to 30.5 in May from a record low 13.6 in April. The services Purchasing Managers' Index advanced to 28.7 from 12.0 in the previous month, while the factory PMI climbed to 39.5 from 33.4 in April.

Elsewhere, U.K. private sector output remained on a steep downward trajectory in May due to business shutdowns amid the coronavirus pandemic, according to the flash survey results published by IHS Markit.

The flash IHS Markit/Chartered Institute of Procurement & Supply composite output index rose to 28.9 in May from 13.8 in April.

Nonetheless, the latest reading signaled a far steeper pace of contraction than at the worst point of the global financial crisis.

While the German DAX Index has slumped by 1.2 percent, the French CAC 40 Index is down by 0.8 percent and the U.K.’s FTSE 100 Index is down by 0.4 percent.

Italy's biggest insurer Generali has come under pressure after saying it expects a lower operating profit in 2020 due to the COVID-19 crisis.

Amsterdam-based telecoms and cable group Altice Europe NV has also slumped after its first quarter core profit missed estimates.

British banks Barclays and HSBC Holdings have fallen after Bank of England chair Andrew Baily reportedly said the U.K. central bank has not precluded the possibility of negative interest rates.

Whitbread is also posting a steep loss after the Premier Inn owner announced it would raise almost £1 billion through a rights issue.

Meanwhile, EasyJet shares have jumped. The low-cost airline said it would resume flights on June 15 with a small schedule focused on U.K. and French domestic flights.

Lufthansa shares have also soared. The German airline said it was in advanced talks with the German government for nearly 9 billion euros of state aid.

U.S. Economic Reports

First-time claims for U.S. unemployment benefits pulled back further off the record high set in late March in the week ended May 16th, according to a report released by the Labor Department on Thursday.

The report said initial jobless claims dropped to 2.438 million, a decrease of 249,000 from the previous week’s revised level of 2.687 million.

Economists had expected jobless claims to tumble to 2.400 million from the 2.981 million originally reported for the previous week.

Jobless claims fell for the seventh straight week after reaching a record high of 6.867 million in the week ended March 28th.

A separate report released by the Federal Reserve Bank of Philadelphia showed a slowdown in the pace of contraction in regional manufacturing activity in the month of May.

The Philly Fed said its diffusion index for current general activity climbed to a negative 43.1 in May from a negative 56.6 in April. Economists had expected the index to increase to a negative 41.5.

The index rebounded from the nearly 40-year low set in the previous month, but a negative reading still indicates a contraction in regional manufacturing activity.

At 10 am ET, the National Association of Realtors is scheduled to release its report on existing home sales in the month of April. Existing home sales are expected to plunge by 18.9 percent.

The Conference Board is also due to release its report on leading economic indicators in the month of April at 10 am ET. The leading economic index is expected to tumbled by 5.9 percent.

Also at 10 am ET, New York Federal Reserve President John Williams is scheduled to speak in a webinar with the Buffalo Niagara Partnership and the Greater Rochester Chamber of Commerce.

The Treasury Department is due to announce the details of this month’s auctions of two-year, five-year and seven-year notes at 11 am ET.

At 1 pm ET, Federal Reserve Vice Chairman Richard Clarida is scheduled to take part in an online discussion hosted by the New York Association for Business Economics.

Fed Chair Jerome Powell is due to give opening remarks at a virtual "Fed Listens" event featuring a panel moderated by Fed Governor Lael Brainard at 2:30 pm ET.

Stocks In Focus

Shares of Medtronic (MDT) have moved to the downside in pre-market trading after the medical device maker reported weaker than expected fiscal fourth quarter results.

Video game publisher Take-Two Interactive (TTWO) may also see initial weakness after reporting fiscal fourth quarter results that beat estimates but warned it does not expect the recent increased engagement to continue in the back half of the year.

On the other hand, shares of BJ’s Wholesale (BJ) are moving sharply higher in pre-market trading after the warehouse retailer reported first quarter results that far exceeded analyst estimates.

AstraZeneca (AZN) may also move to the upside after receiving more than $1 billion from the U.S. Biomedical Advanced Research and Development Authority for the development, production and delivery of its COVID-19 vaccine candidate.
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