Market Analysis

Beyond the Numbers

Profit Taking May Lead To Initial Pullback On Wall Street
7/7/2020 8:52 AM

The major U.S. index futures are currently pointing to a lower open on Tuesday, with stocks likely to give back ground following the rally seen in the previous session.

Profit taking may contribute to initial weakness on Wall Street, as some traders look to cash in on the strong upward move seen over the past several sessions.

The Nasdaq and the S&P 500 closed higher for the fifth consecutive session on Monday, with the Nasdaq reaching another new record closing high.

The tech-heavy Nasdaq is up by more than 57 percent from its March low, as technology companies were seen as holding up relatively well in the face of the coronavirus-induced economic downturn.

Tech giants like Apple (AAPL), Amazon (AMZN) and Netflix (NFLX) have led the way higher and all reached new record highs in the previous session.

A lack of major U.S. economic may also lead investors to focus more on the latest news on the coronavirus front, although the markets have largely shrugged off the recent spike in new cases.

After showing a strong move to the upside early in the session, stocks remained firmly positive throughout the trading day on Monday. The major averages extended last week's upward trend, with the tech-heavy Nasdaq reaching another new record closing high.

While the major averages all posted strong gains, the Nasdaq outperformed its counterparts. The Nasdaq soared 226.02 points or 2.2 percent to 10,433.65, the Dow surged up 459.67 points or 1.8 percent to 26,287.03 and the S&P 500 jumped 49.71 points or 1.6 percent to 3,179.72.

Strength in overseas has carried over to Wall Street, as Chinese shares skyrocketed on the day amid positive commentary on the market from state media.

China's Securities Times said fostering a "healthy" bull market after the coronavirus pandemic is now more important to the economy than ever.

Traders also remain generally optimistic about the U.S. economic outlook following last Thursday's better than expected jobs data.

In the latest sign of the rapid economic recovery, the Institute for Supply Management released a report showing a substantial turnaround in U.S. service sector activity in the month of June.

The ISM said its non-manufacturing index spiked to 57.1 in June from 45.4 in May, with a reading above 50 indicting an increase in service sector activity. Economists had expected the index to climb to 50.1.

The sharp increase by the non-manufacturing index reflected the largest single-month percentage-point increase since its debut in 1997.

"The non-manufacturing composite index indicated growth after two consecutive months of contraction," said Anthony Nieves, Chair of the ISM Non-Manufacturing Business Survey Committee.

He added, "Respondents remain concerned about the coronavirus and the more recent civil unrest; however, they are cautiously optimistic about business conditions and the economy as businesses are beginning to reopen."

The economic optimism continues to overshadow the recent spike in coronavirus cases even as the World Health Organization reported the biggest single-day increase in cases on Saturday.

Retail stocks moved sharply higher over the course of the trading session, driving the Dow Jones U.S. Retail Index up by 3.1 percent to a new record closing high.

Substantial strength was also visible among oil service stocks, as reflected by the 3.2 percent spike by the Philadelphia Oil Service Index.

The rally by oil service stocks came even though the price of crude oil for August delivery ended the day nearly flat, edging down $0.02 to $40.63 a barrel.

Computer hardware, semiconductor, and networking stocks also saw considerable strength on the day, contributing to the continued advance by the tech-heavy Nasdaq.

Most of the other major sectors also moved to the upside, with brokerage, airline and housing stocks posting notable gains.

Commodity, Currency Markets

Crude oil futures are slipping $0.28 to $40.35 a barrel after edging down $0.02 to $40.63 a barrel on Monday. Meanwhile, after rising $3.50 to $1,793.50 an ounce in the previous session, gold futures are falling $8.80 to $1,784.70 an ounce.

On the currency front, the U.S. dollar is trading at 107.64 yen compared to the 107.35 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1293 compared to yesterday’s $1.1309.


Asian stocks turned in a mixed performance on Tuesday as investors weighed a spike in coronavirus cases in some U.S. states and other parts of the world against further signs of economic recovery.

Chinese shares extended gains from the previous session on optimism about a quick economic recovery. The benchmark Shanghai Composite Index rose 12.46 points, or 0.4 percent, to 3,345.34, its highest close since February 6, 2018. Hong Kong's Hang Seng Index ended down 1.4 percent at 25,975.66.

Japanese shares ended lower to snap a three-day winning streak as investors assessed the impact of deadly floods and landslides triggered by record heavy rain in western Japan. The Nikkei 225 Index fell 99.75 points, or 0.4 percent, to 22,614.69, while the broader Topix closed 0.3 percent lower at 1,571.71.

Automaker Toyota Motor fell 1.3 percent and Mazda Motor slumped 3.6 percent after the disaster forced them to temporarily close their western Japan plants. Meanwhile, SoftBank Group spiked 4.6 percent.

In economic news, the average of household spending in Japan was down 16.2 percent year on year in May, the Ministry of Internal Affairs and Communications said. That missed expectations for a drop of 12.2 percent following the 11.1 percent decline in April.

On a monthly basis, household spending fell 0.1 percent - missing expectations for a gain of 1.8 percent following the 6.2 percent slide in the previous month.

Australian markets gave up early gains to end on a flat note after the country's central bank maintained its key interest rate and said it is prepared to scale-up its bond purchases again and will do whatever is necessary to ensure bond markets remain functional and to achieve the yield target for 3-year Australian government securities.

On the data front, the latest survey from the Australian Industry Group showed that the services sector in Australia continued to contract in June, and at a slightly faster rate.

The corresponding index edged down to 31.5 from 31.6 in May, as reduced customer demand continued to drag down most businesses across all services sectors in the month.

The benchmark S&P/ASX 200 Index finished marginally lower at 6,012.90, while the broader All Ordinaries Index ended little changed at 6,126.70.

Banks ANZ, NAB and Westpac fell between 1.6 percent and 1.9 percent. Strong commodity prices helped lift miners, with BHP and Rio Tinto rising 1.3 percent and 0.9 percent, respectively. Smaller rival Fortescue Metals Group jumped 6.3 percent and lithium miner Orocobre surged 4.8 percent.

Gold explorer St Barbara soared 10.3 percent after reporting record quarterly production. Evolution Mining gained 0.8 percent and Newcrest added 2.6 percent after gold prices settled at a nearly 1-week high overnight.

Afterpay shares entered a trading halt after the buy now, pay later company said it would raise $800 million in a share sale.

Seoul stocks fell sharply, with growing concerns over the resurgence of the coronavirus around the globe and caution ahead of the quarterly earnings season denting sentiment.

South Korea reported 44 new coronavirus cases today, bringing the national tally to 13,181. The benchmark Kospi slumped 23.76 points, or 1.1 percent, to 2,164.17.

Market bellwether Samsung Electronics tumbled 2.9 percent despite providing upbeat second quarter earnings guidance. No. 2 chipmaker S K Hynix declined 1.4 percent.

South Korea posted a current account surplus of $2.29 billion in May, the Bank of Korea said today - following the $3.12 billion deficit in April. The goods account surplus narrowed to $2.50 billion, compared to $5.50 billion in May 2019.


European stocks have come under pressure on Tuesday amid concerns the economic recovery in the U.S. may be "leveling off" amid a recent surge in coronavirus infections.

Atlanata Federal Reserve President Raphael Bostic told the Financial Times in an interview that there are signs that the American recovery is “leveling off.”

While the U.K.’s FTSE 100 Index has tumbled by 1.6 percent, the German DAX Index is down by 1.4 percent and the French CAC 40 Index is down by 1.2 percent.

HeidelbergCement has moved lower. The building materials company said that it will record 3.4 billion euros of asset impairment in the second quarter due to Brexit and the impact of the coronavirus pandemic on its business.

French catering and food services group Sodexo has also fallen sharply. The company warned that its fourth-quarter and half-year sales will fall more sharply than previously expected.

Geoscience technology company CGG has also moved to the downside. The company announced that Sercel has acquired a 34 percent shareholding in start-up AMBPR.

Telecommunications operator Orange SA has also slid after announcing the appointment of Julien Ducarroz as CEO of Orange Polska, and Xavier Pichon as CEO of Orange Belgium.

Micro Focus International is posting a steep loss. The technology company swung to a loss after writing off $922 million because of Covid-19 uncertainty.

Whitbread has also tumbled 0after the hotel and restaurant group unveiled a significant slump in first-quarter sales.

Derwent London has also come under pressure. The property investment and development company said that for the June quarter so far it had collected 75 percent of office rents due and 70 percent from the portfolio in its entirety.

In economic news, German industrial production recovered in May, helped by an easing of lockdown measures, Destatis reported.

Industrial output grew 7.8 percent on a monthly basis in May in contrast to a revised 17.5 percent slump in April. Production was forecast to grow 10 percent in May.

On a yearly basis, industrial production declined 19.3 percent versus a revised 25 percent decrease in April.

U.S. Economic Reports

Atlanta Federal Reserve President Raphael Bostic is due to speak to the Tennessee Business Roundtable and respond to questions in a Zoom video webinar at 9 am ET.

At 1 pm ET, the Treasury Department is scheduled to announce the results of its auction of $46 billion worth of three-year notes.

Federal Reserve Vice Chair for Supervision Randal Quarles is also due to give a speech entitled “Financial Stability Board Remarks” via webcast at the Exchequer Club Luncheon at 1 pm ET.

At 2 pm ET, Richmond Fed President Thomas Barkin and San Francisco Fed President Mary Daly are scheduled to speak about the U.S. economy in the wake of Covid-19 at a National Association for Business Economics webinar event.

Stocks In Focus

Shares of Novavax (NVAX) are soaring in pre-market trading after the biotechnology company announced it has been awarded $1.6 billion in funding by the federal government’s Covid-19 vaccine development program.

Solar energy company Vivint Solar (VSLR) is also seeing substantial pre-market strength after agreeing to be acquired by rival Sunrun (RUN) for approximately $1.5 billion in stock.

Shares of Endo International (ENDP) are also likely to move to the upside after the FDA approved the pharmaceutical company’s Qwo for the treatment of moderate to severe cellulite in the buttocks of adult women.

On the other hand, shares of Dominion Energy (D) may extend yesterday’s downward move after several analysts downgraded their rating on the power company’s stock.
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