Market Analysis

Beyond the Numbers

Profit Taking May Lead To Initial Weakness On Wall Street
11/12/2020 8:56 AM

The major U.S. index futures are pointing to a lower open on Thursday, with stocks likely to give back ground after ending the previous session mostly higher.

Profit taking may lead to initial weakness on Wall Street after the major averages reached record intraday highs earlier this week.

The Dow edged slightly lower on Wednesday, although the blue chip index remains just shy of setting a new record closing high.

Upbeat news on the coronavirus vaccine front has contributed to recent strength in the markets, although the positive sentiment may be partly offset by a continued surge in cases across the U.S. and Europe.

Indications that the distribution of a potential vaccine is likely to face significant logistical challenges may also keep traders from making significant bets.

However, any early selling pressure is likely to be partly offset by a report from the Labor Department showing a bigger than expected decrease in first-time claims for unemployment benefits in the week ended November 7th.

Following the mixed performance seen on Tuesday, stocks moved mostly higher during trading on Wednesday. The tech-heavy Nasdaq showed a particularly strong move to the upside, although the Dow closed slightly lower.

While the Dow edged down 23.29 points or 0.1 percent to 29,397.63, the broader Nasdaq and S&P 500 both closed firmly in positive territory. The Nasdaq surged up 232.58 points or 2 percent to 11,786.43 and the S&P 500 climbed 27.13 points or 0.8 percent to 3,572.66.

The strength on Wall Street largely reflected a rebound by technology stocks, as reflected by the jump by the Nasdaq.

The Nasdaq reached a record intraday high in early trading on Monday before coming under pressure and ending the day sharply lower. The index saw further downside on Tuesday, slumping by 2.9 percent over the course of the two days.

The pullback by tech stocks came as upbeat news regarding a potential coronavirus vaccine led traders to cycle out of stocks that benefited from the lockdowns imposed as a result of the pandemic.

Traders seemed to shift back into those stocks in today's trading, with Zoom (ZM), Amazon (AMZN), and Apple (AAPL) posting notable gains on the day.

Meanwhile, traders cashed on the rally by cyclical stocks seen over the past two sessions, contributing to the modest pullback by the Dow.

Overall trading activity was somewhat subdued due to the Veterans Day holiday, as banks and the bond markets were closed and no major U.S. economic data was released.

Semiconductor stocks showed a substantial move back to the upside on the day, with the Philadelphia Semiconductor Index spiking by 3.7 percent after plunging by 4.2 percent over the two previous sessions.

Bargain hunting also contributed to considerable strength among software stocks, as reflected by the 2.7 percent jump by the Dow Jones U.S. Software Index.

Retail stocks also showed a strong move to the upside on the day, driving the Dow Jones U.S. Retail Index up by 1.8 percent.

Meanwhile, airline stocks gave back ground, with the NYSE Arca Airline Index tumbling by 3.5 percent. The index edged slightly lower on Tuesday after soaring to a five-month closing high on Monday.

Chemical, banking and oil service stocks are also seeing notable weakness, partly offsetting the strength in the aforementioned sectors.

Commodity, Currency Markets

Crude oil futures are rising $0.14 to $41.59 a barrel after inching up $0.09 to $41.45 a barrel on Wednesday. Meanwhile, after slumping $14.80 to $1,861.60 an ounce in the previous session, gold futures are climbing $10.50 to $1,872.10 an ounce.

On the currency front, the U.S. dollar is trading at 105.25 yen versus the 105.43 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1804 compared to yesterday’s $1.1777.


Asian stocks fell broadly on Thursday as investors fretted over a continued surge in coronavirus cases in the U.S. and Europe as well as different logistical challenges in distributing vaccines.

Chinese shares fell slightly after U.S. national security adviser Robert O'Brien said the U.S. would "continue to utilize all the powers granted" under various laws and "identify and sanction those responsible for extinguishing Hong Kong's freedom."

The warning came after China's top legislative body passed a resolution allowing for the disqualification of any Hong Kong lawmakers who were not deemed sufficiently loyal.

The benchmark Shanghai Composite Index slipped 3.52 points, or 0.1 percent, to 3,338.68, while Hong Kong's Hang Seng Index ended down 57.60 points, or 0.2 percent, at 26,169.38.

Meanwhile, Japanese share rose notably to close near a 29-1/2-year high as investors switched back to technology stocks. The Nikkei 225 Index climbed 171.28 points, or 0.7 percent, to 25,520.88, after reaching as high as 25,587.96 earlier in the session.

Heavyweight SoftBank Group advanced 1.5 percent, while gaming giant Nintendo surged 4.3 percent after four consecutive sessions of losses.

Sony gained 1.3 percent after the company unveiled its next-generation PlayStation 5 gaming console in major regions, including Japan and the U.S.

Department store operator Isetan Mitsukoshi Holdings plunged 5 percent after reporting its largest consolidated net losses ever for the April to September period. Takashimaya gave up 4.8 percent and J.Front Retailing slumped 4.7 percent.

Japan core machinery orders declined more than expected in September, a government report showed today, weighing on the prospects of a sustained recovery in business investment.

Core machinery orders declined 4.4 percent on a monthly basis, in contrast to a 0.2 percent rise in August. This was the first decrease in three months and worse than economists' forecast of a 0.7 percent drop. Year-on-year, core machinery orders were down 11.5 percent versus an expected fall of 11.6 percent.

Australian markets finished modestly lower, snapping a five-day rally. The benchmark S&P/ASX 200 Index dropped 31.50 points, or 0.5 percent, to 6,418.20, while the broader All Ordinaries Index ended down 31.70 points, or 0.5 percent, at 6,619.40.

Santos fell 1.5 percent and Origin Energy declined 2 percent after sharp gains this week. Gold miners Northern Star Resources and Regis Resources fell over 1 percent after bullion prices dropped over 1 percent in the previous session, tracking a firmer dollar on hopes for a quick economic recovery.

Tech stocks followed their U.S. peers higher, with Xero gaining 0.6 percent after reporting a sharp rise in first-half net profit. Afterpay climbed 3.3 percent and Appen advanced 1.2 percent.

Telecom firm Telstra rallied 3 percent after announcing plans to split into three units. Broadcaster Nine Entertainment surged 5.1 percent after issuing an upbeat outlook.

Seoul stocks ended lower to snap an eight-day winning streak amid concerns over another round of lockdowns in some major European economies.

Closer to home, the daily caseload hovered above 100 for the fifth consecutive day due to imported cases and small cluster infections in Seoul and its surrounding Gyeonggi province.

The benchmark Kospi slid 10.25 points, or 0.4 percent, to close at 2,475.62 after having hit a more than two-year high the previous day on vaccine hopes.


European stocks have pulled back from eight-month highs on Thursday as Covid-19 cases continued to rise in the U.S. and Europe, raising doubts about a quicker economic rebound from the pandemic.

France is now the worst coronavirus affected country in Europe, overtaking Russia, while the U.K. became the first country in Europe to register over 50,000 coronavirus-related deaths.

While the French CAC 40 Index has tumbled by 1.5 percent, the German DAX Index is down by 1.2 percent and the U.K.’s FTSE 100 Index is down by 0.9 percent.

German engineering group Siemens has tumbled. After reporting a 28 percent rise in net profit in the most recent quarter, the company said it expects "a moderate increase" in net profit for the group in its 2021 fiscal year.

Media company RTL Group has also moved to the downside after reporting a decrease in revenue for the third quarter.

Industrial services provider Bilfinger has plummeted after saying it has attracted preliminary takeover interest from private equity firms.

British financial services company Legal & General has also moved notably lower after outlining five-year targets.

Italian insurer Generali Group has also declined as it delayed the payment of the second tranche of 2019 dividends to next year following recommendations from the European Systemic Risk Board (ESRB) to conserve cash in the coronavirus emergency.

On the other hand, private investor 3i Group has moved significantly higher after its profit rose strongly in the first half of fiscal 2021.

Luxury brand Burberry Group has also shown a strong move to the upside. The company said its sales returned to growth in October.

In economic news, official data showed that German consumer prices fell 0.2 percent year-on-year in October, the same as seen in September, as initially estimated.

A government report showed the U.K. economy grew by a slower than expected pace in September from August, even before the latest restrictions on businesses.

U.S. Economic Reports

Reflecting many offsetting increases and decreases, the Labor Department released a report on Thursday showing U.S. consumer prices came in flat in the month of October.

The Labor Department said its consumer price index was unchanged in October after rising by 0.2 percent in September. Economists had expected another 0.2 percent uptick.

Excluding food and energy prices, consumer prices were still flat in October after edging up by 0.2 percent in September. Core prices were also expected to inch up by another 0.2 percent.

A separate report released by the Labor Department showed a bigger than expected decrease in first-time claims for U.S. unemployment benefits in the week ended November 7th.

The Labor Department said initial jobless claims fell to 709,000, a decrease of 48,000 from the previous week’s revised level of 757,000.

Economists had expected jobless claims to dip to 735,000 from the 751,000 originally reported for the previous week.

At 11 am ET, the Energy Information Administration is due to release its report on oil inventories in the week ended November 6th.

Crude oil inventories are expected to edge down by 0.9 million barrels after tumbling by 8.0 million barrels in the previous week.

The Treasury Department is also scheduled to announce the details of this month’s auction of twenty-year bonds at 11 am ET.

At 11:45 am ET, Federal Reserve Chair Jerome Powell is due to speak on a policy panel at the European Central Bank Forum on Central Banking virtual event.

Federal Reserve Vice Chair for Supervision Randal Quarles is scheduled to testify about “Supervision and Regulation” before the House Financial Services Committee at 12 pm ET.

At 1 pm ET, Chicago Federal Reserve President Charles Evans is due to speak about current economic conditions and monetary at a virtual Detroit Community Forum on “Building a Strong and More Equitable Future.”

The Treasury Department is also scheduled to announce the results of its auction of $27 billion worth of thirty-year bonds at 1 pm ET.

At 2pm ET, New York Federal Reserve President John Williams is due to speak at a virtual conversation event held by the Economic Club of New York.
Stocks In Focus

Shares of Vroom (VRM) are moving sharply lower in pre-market trading after the online used car seller reported better than expected third quarter results but provided disappointing guidance.

Battery manufacturer Energizer Holdings (ENR) is also likely to see initial weakness after reporting fiscal fourth quarter earnings that missed analyst estimates.

On the other hand, shares of Fossil (FOSL) are seeing substantial pre-market strength after the watchmaker reported a third quarter profit compared to a year-ago loss on better than expected revenues.

Biotechnology company Moderna (MRNA) may also move to the upside after announcing it has completed case accrual for the first interim analysis of a Phase 3 study of its COVID-19 vaccine candidate.
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