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Beyond the Numbers

Airlines, Cruise And Tech Stocks May Lead Rebound On Wall Street
8/12/2020 8:49 AM

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

Continued optimism about a potential coronavirus vaccine may lead to a rebound on Wall Street, with airlines and cruise operators seeing notable strength in pre-market trading.

Airlines and cruise operators, which are among the companies that have been hurt the most by the coronavirus pandemic, largely resisted the pull back seen late in the previous session after Russia claimed to have approved an effective vaccine.

The markets may also benefit from a rebound by technology stocks, which helped to lead the late-day sell-off on Tuesday.

Tech giants like Apple (AAPL), Facebook (FB), and Microsoft (MSFT) are moving notably higher in pre-market trading following the sharp pullback seen in recent days.

Buying interest may be somewhat subdued, however, as lawmakers in Washington remain at a stalemate over a new coronavirus relief bill.

After turning in a mixed performance for most of the session, the major U.S. stock averages came under pressure late in the trading day on Tuesday. The Dow and the S&P 500 pulled back into negative territory, joining the tech-heavy Nasdaq, which posted a particularly steep loss.

The major averages ended the session just off their worst levels of the day. While the Nasdaq tumbled 185.53 points or 1.7 percent to 10,782.83, the Dow fell 104.53 points or 0.4 percent to 27,686.91 and the S&P 500 slid 26.78 points or 0.8 percent to 3,333.69.

The late-day sell-off on Wall Street came as traders continued to cycle out of big-name tech stocks, with the Nasdaq extending the pullback seen over the two previous session.

The Nasdaq pulled back further off the record closing high set last Thursday amid steep drops by tech giants such as Netflix (NFLX), Apple (AAPL), and Facebook (FB).

Before the downturn, the Dow and the S&P 500 were moving higher for the eighth consecutive session and reached their best intraday levels in over five months. The S&P 500 climbed within striking distance of its record high before turning lower.

The mixed performance seen earlier in the day came as the weakness among tech stocks was offset by strength among airlines and cruse operators.

Companies that have been hurt the most by the coronavirus pandemic benefited from news that Russia has approved a vaccine, with Russian President Vladimir Putin claiming it works "quite effectively."

"It forms a stable immunity and, I repeat, has passed all the necessary checks," Putin said at a meeting with members of the government, according to RIA Novosti.

The speed of the development of the vaccine has raised questions about its safety, although the news still generated optimism the coronavirus pandemic can be contained in the relatively near future.

In U.S. economic news, the Labor Department released a report showing producer prices climbed by more than expected in the month of July.

The Labor Department said its producer price index for final demand rose by 0.6 percent in July after dipping by 0.2 percent in June.

The rebound in producer prices reflected the largest increase since October of 2018 and exceeded economist estimates for an uptick of 0.3 percent.

Excluding food and energy prices, core producer prices still climbed by 0.5 percent in July after falling by 0.3 percent in June. Economists had expected core prices to inch up by 0.1 percent.

Gold stocks turned in some of the market's worst performances on the day, resulting in a 7.4 percent nosedive by the NYSE Arca Gold Bugs Index. The sell-off by gold stocks came amid a steep drop by the price of the precious metal.

Considerable weakness also emerged among utilities stocks, as reflected by the 2.3 percent slump by the Dow Jones Utilities Average. The average continued to give back ground after ending last Friday's trading at a two-month closing high.

Natural gas, software and commercial real estate stocks also came under pressure over the course of the session, while significant strength remained visible among airline and financial stocks.

Commodity, Currency Markets

Crude oil futures are climbing $0.61 to $42.22 a barrel after falling $0.33 to $41.61 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,941, down $5.30 compared to the previous session’s close of $1,946.30. On Tuesday, gold plummeted $93.40.

On the currency front, the U.S. dollar is trading at 106.88 yen compared to the 106.49 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1786 compared to yesterday’s $1.1740.

Asia

Asian stocks ended mixed in cautious trading on Wednesday as Russia's announcement that its coronavirus vaccine has been approved was offset by worries about a political holdup in Washington over coronavirus relief.

Chinese shares fell after central bank data showed the country's bank lending declined more than expected in July. Banks extended CNY 992.7 billion in loans in July, while economists had forecast bank lending to fall to CNY 1.2 trillion from CNY 1.81 trillion in June.

The benchmark Shanghai Composite Index shed 21.02 points, or 0.6 percent, to close at 3,319.27, while Hong Kong's Hang Seng Index jumped 353.34 points, or 1.4 percent, to 25,244.02.

Japanese shares eked out modest gains as a weaker yen boosted shares of exporters. The Nikkei 225 Index rose 93.72 points, or 0.4 percent, to 22,843.96, while the broader Topix index closed 1.2 percent higher at 1,605.53.

Toyota Motor, Honda Motor, Canon, Nissan Motor and Panasonic gained between 1.3 percent and 2 percent after U.S. Republican Senate leader Mitch McConnell poured cold water on the prospects for a deal on a new pandemic aid bill.

SoftBank Group gave up 2.7 percent despite the company rebounding from a record loss to post a first quarter profit.

Australian markets finished marginally lower as virus fears deepened, with Victoria recording its highest overnight death toll from Covid-19. The benchmark S&P/ASX 200 Index edge down 6.70 points, or 0.1 percent, to 6,132, while the broader All Ordinaries Index ended down 15.10 points, or 0.2 percent, at 6,257.

Newcrest Mining, Northern Star Resources and Regis Resources tumbled 3-5 percent after bullion prices plunged overnight amid a broader lift in risk appetite.

Evolution Mining lost 5.3 percent as it suspended operations at its Red Lake Gold mine in Canada due to a nearby forest fire.

Mining heavyweights BHP and Rio Tinto fell 0.7 percent and 1.4 percent, respectively. Transurban Group declined 1.1 percent as the toll road operator reported a loss and a 13 percent decrease in revenue for the year ended June 30.

Banks ANZ, NAB and Westpac rose about 2 percent each. Commonwealth Bank gave up half a percent after the country's largest lender reported an 11 percent decrease in cash net profit after tax for fiscal 2020 and said it has set aside A$2.5 billion for loan impairment expenses.

On the data front, wage prices in Australia were up 1.8 percent year-on-year in the second quarter of 2020, the Australian Bureau of Statistics said. That was shy of expectations for 1.9 percent and down from 2.1 percent in the three months prior.

Seoul stocks advanced for the eighth straight session to close at their highest level in more than two years amid hopes of vaccine development and an economic recovery. The benchmark Kospi climbed 13.68 points, or 0.6 percent, to 2,432.35, its highest close since June 12, 2018.

In economic news, South Korea's unemployment rate fell for a second month in July as business sentiment improved from the fallout of the coronavirus crisis, data from Statistics Korea revealed.

Europe

European stocks have moved mostly higher on Wednesday after data showed factory output in the euro zone grew for the second straight month in June following a marked relaxation of the coronavirus containment measures.

Industrial output soared 9.1 percent, Eurostat said, although that was slower than the 12.3 percent spike in May and the 10 percent jump economists had forecast.

On a yearly basis, the decline in industrial output slowed to 12.3 percent from 20.4 percent in the previous month. Economists had expected an annual decrease of 11.5 percent.

Meanwhile, the U.K. economy contracted for the second straight quarter amid the coronavirus pandemic, although there was some pick up in June after the government relaxed restrictions on movement, data from the Office for National Statistics showed.

Gross domestic product contracted by 20.4 percent sequentially in the second quarter following a 2.2 percent drop in the first quarter. Economists had forecast a quarterly drop of 20.5 percent.

The latest plunge was the biggest contraction since records began in 1955. On a yearly basis, GDP plummeted 21.7 percent in the second quarter, smaller than economists' forecast of 22.4 percent.

While the U.K.’s FTSE 100 Index has jumped by 1.4 percent, the French CAC 40 Index is up by 0.6 percent and the German DAX Index is up by 0.1 percent.

Sunrise Communications has moved sharply higher after Liberty Global launched a takeover offer for the Swiss telecoms group.

Food-ordering firm Just Eat Takeaway.com NV has also risen after reporting higher revenue and underlying profit for the first half of 2020, benefiting from continuing tailwinds.

Online fashion retailer ASOS has also shown a strong move to the upside after upgrading sales and profit outlook.

Freenet has also soared after announcing customer growth and increase in earnings in the first half of 2020. Leoni has also surged. The German company said it has seen a gradual recovery in its customers' production since April.

On the other hand, infrastructure group Balfour Beatty has tumbled after it reported a £26 million pre-tax loss in the first half of 2020.

U.S. Economic Reports

Consumer prices in the U.S. increased by more than anticipated in the month of July, according to a report released by the Labor Department on Wednesday.

The Labor Department said its consumer price index climbed by 0.6 percent in July, matching the increase seen in June. Economist had expected consumer prices to rise by 0.3 percent.

Excluding food and energy prices, core consumer prices still advanced by 0.6 percent in July after inching up by 0.2 percent in the previous month. Core prices were expected to edge up by another 0.2 percent.

At 10 am ET, Boston Federal Reserve President Eric Rosengren is due to speak to the South Shore Chamber of Commerce about the U.S. economy and current financial conditions.

The Energy Information Administration is scheduled to release its report on oil inventories in the week ended August 7th at 10:30 am ET.

Crude oil inventories are expected to decrease by 3.2 million barrels after tumbling by 7.4 million barrels in the previous week.

At 11 am ET, Dallas Federal Reserve Bank President Robert Kaplan is due to speak at a Lubbock Chamber of Commerce event.

The Treasury Department is scheduled to announce the results of this month’s auction of $38 billion worth of ten-year notes at 1 pm ET.

At 3 pm ET, San Francisco Federal Reserve President Mary Daly is due to speak on the current status of the U.S. economy and the ongoing impacts of Covid-19 at an Economic Club of Las Vegas live-streamed virtual event.

Kaplan is scheduled to participate in a moderated discussion about Houston's response to the Covid-19 pandemic, Fed monetary policy actions during the pandemic, and reopening the economy at 6 pm ET.

Stocks In Focus

Shares of Moderna (MRNA) are moving sharply higher in pre-market trading after the biotechnology company announced the U.S. government has secured 100 million doses of its experimental COVID-19 vaccine in a deal valued at up to $1.525 billion.

Electric car maker Tesla (TSLA) is also likely to see initial strength after announcing its Board of Directors has approved and declared a five-for-one split of the company’s common stock in the form of a stock dividend.

Shares of American Eagle Outfitters (AEO) are also seeing significant pre-market strength after J.P. Morgan Securities upgraded its rating on the apparel retailer’s stock to Overweight from Neutral.

On the other hand, shares of Red Robin Gourmet Burgers (RRGB) are likely to come under pressure after the restaurant chain reported a wider than expected second quarter loss on revenues that came in below analyst estimates.

Online retailer Overstock.com (OSTK) is also seeing notable pre-market weakness after pricing a public offering of 2.1 million shares of its common stock at $84.50 per share compared to Tuesday’s closing price of $92 per share.
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