MARKET ANALYSIS: Bargain Hunting May Contribute To Rebound On Wall Street

WASHINGTON (Alliance News) - The major US index futures are pointing to a higher opening on ...

Alliance News 21 November, 2018 | 2:10PM
Email Form

WASHINGTON (Alliance News) - The major US index futures are pointing to a higher opening on Wednesday, with stocks likely to regain ground following the steep drop seen over the course of the two previous sessions.

Bargain hunting may contribute to initial strength on Wall Street as traders look to pick up stocks at reduced levels following the sell-off seen early this week.

Upbeat earnings news from companies like Foot Locker (FL), BJ's Wholesale (BJ), and Autodesk (ADSK) may also contribute to the rebound.

Buying interest may be somewhat subdued, however, as the Commerce Department recently released a report showing a much steeper than expected drop in durable goods orders in October.

Traders may also look to get a head start on the Thanksgiving Day holiday on Thursday, leading to below average trading activity.

Following the sell-off seen on Monday, stocks showed another significant move to the downside during trading on Tuesday. With the continued drop, the tech-heavy Nasdaq fell to its lowest closing level in over seven months.

The major averages ended the session off their worst levels of the day but still sharply lower. The Dow plunged 551.80 points or 2.2% to 24,465.64, the Nasdaq tumbled 119.65 points or 1.7% to 6,908.82 and the S&P 500 slumped 48.84 points or 1.8% to 2,641.89.

The continued weakness on Wall Street partly reflected a negative reaction to the latest batch of earnings news from companies such as Target (TGT).

Shares of Target plummeted by 10.5% after the retail giant reported third quarter earnings that missed analyst estimates on slightly weaker than expected comparable store sales growth.

Department store operator Kohl's (KSS) and Victoria's Secret parent L Brands (LB) also posted steep losses after reporting their quarterly results.

A continued decline by Apple (AAPL) also weighed on the markets, with the tech giant tumbling by 4.8% to a six-month closing low.

On the US economic front, a report from the Commerce Department showed housing starts rebounded in the month of October, although the report also showed a decrease in building permits.

The Commerce Department said housing starts jumped by 1.5% to an annual rate of 1.228 million in October after plunging by 5.5% to a revised rate of 1.210 million in September.

Economists had expected housing starts to climb to a rate of 1.225 million from the 1.201 million originally reported for the previous month.

Meanwhile, the report said building permits fell by 0.6% to an annual rate of 1.263 million in October after surging up by 1.7% to an upwardly revised 1.270 million in September.

Building permits, an indicator of future housing demand, had been expected to increase to 1.267 million from the 1.241 million originally reported for the previous month.

Energy stocks showed a substantial move to the downside on the day amid a steep drop by the price of crude oil.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index plummeted by 5.7%, while the NYSE Arca Natural Gas Index and the NYSE Arca Oil Index plunged by 3.9% and 3.3%, respectively.

Considerable weakness was also visible among steel stocks, as reflected by the 3.9% nosedive by the NYSE Arca Steel Index. The steep drop reflected concerns about the outlook for global demand.

Transportation, retail, telecom and financial stocks also saw significant weakness, reflecting another broad based sell-off on Wall Street. Commodity, Currency Markets

Crude oil futures are jumping USD1.21 to USD54.64 a barrel after plunging USD3.77 to USD53.43 a barrel on Tuesday. Meanwhile, after falling USD4.10 to USD1,221.20 an ounce in the previous session, gold futures are climbing USD5.80 to USD1,227 an ounce.

On the currency front, the US dollar is trading at 112.93 yen compared to the 112.77 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at USD1.1413 compared to yesterday's USD1.1370.

Asia

Asian stocks ended mixed on Wednesday, with the Chinese and Hong Kong markets finishing modestly higher, while markets elsewhere across the region closed mostly lower on worries about corporate earnings and slowing global growth.

China's Shanghai Composite Index rose 0.2% to 2,651.51 and Hong Kong's Hang Seng Index gained 0.5% to finish at 25,971.41.

Meanwhile, Japanese shares ended modestly lower after reaching three-week lows earlier in the day amid falling oil prices and worries about weak global growth.

The Nikkei 225 Index fell as low as 21,243.38 in early trading before recouping most of its losses to end the session down 75.58 points or 0.4% at 21,507.54. The broader Topix Index closed 0.6% lower at 1,615.89.

Sumitomo Corp, Inpex, Credit Saison, Dentsu, Takeda Pharma and Olympus slumped 3-9%. Department store operator Takashimaya plummeted 16% after unveiling fund raising plans.

On the other hand, Nissan Motor climbed 0.4% after recent steep losses following the arrest of its chairman Carlos Ghosn. Tech stocks also rebounded, with Advantest climbing 4.5% and Tokyo Electron rallying 4.9%.

Australian stocks hit a 15-month low before ending off their worst levels, dragged down by mining and energy stocks. The benchmark S&P/ASX 200 Index dropped 29.00 points or 0.5% to 5,642.80, while the broader All Ordinaries Index ended down 37.10 points or 0.6% at 5,722.10.

Mining heavyweights BHP Billiton and Rio Tinto fell over 3% as base metal prices fell on worries about global growth amid ongoing uncertainty over the US-China trade war.

Woodside Petroleum, Origin Energy and Santos lost 2-4% after oil plunged as much as 7% on Tuesday to enter a bear market on worries about rising global supplies and fears of an economic slowdown.

Retail conglomerate Wesfarmers nosedived 27.7% after the demerger of its supermarket division Coles Group.

Meanwhile, Reject Shop soared 14% after the discount retailer said it would consider a "somewhat opportunistic" AUD78 million takeover bid for it from Allensford.

The big four banks rose between half a % and 1.2%, while investment bank Macquarie Group declined 1.9%. In the tech space, Afterpay Touch Group fell more than 5% and Computershare lost 3%.

Europe

European stocks are rebounding on Wednesday after media reports suggested that Italian Deputy Prime Minister Matteo Salvini might be willing to compromise on a budget criticized by the EU.

The European Commission is due to publish its assessment of Italy's draft budgetary plans later in the day.

While the French CAC 40 Index has advanced by 0.5%, the German DAX Index and the UK's FTSE 100 Index are up by 1% and 1.1%, respectively.

Renault shares have jumped in Paris. The French automaker has appointed interim leaders to manage the company and oversee its share of a globe-spanning alliance with Nissan Motor following the arrest of Chairman and CEO in Japan.

Johnson Matthey has also soared 7.2% after the company said it expects its full-year earnings to be at the upper end of expectations.

On the other hand, home improvement retailer Kingfisher has moved sharply lower. After reporting flat sales for the third quarter, the company said it would exit Russia, Spain and Portugal.

Software group Sage Group is also posting a steep loss after warning of lower margins this year. Drugmaker Indivior has also plummeted after losing a US court ruling in a case against Dr Reddy's Laboratories.

US Economic Reports

A report released by the Commerce Department showed a much steeper than expected drop in new orders for US durable goods in the month of October, with the sharp decline largely reflecting a substantial decrease in orders for transportation equipment.

The Commerce Department said durable goods orders plunged by 4.4% in October following a revised 0.1% dip in September.

Economists had expected orders to slump by 2.5% compared to the 0.7% increase that had been reported for the previous month.

Excluding the steep drop in orders for transportation equipment, durable goods orders inched up by 0.1% in October after a revised 0.6% decrease in September.

Ex-transportation orders had been expected to rise by 0.4% compared to the 0.1% uptick originally reported for the previous month.

A separate report from the Labor Department showed first-time claims for US unemployment benefits unexpectedly edged higher in the week ended November 17th.

The report said initial jobless claims rose to 224,000, an increase of 3,000 from the previous week's upwardly revised level of 221,000.

Economists had expected jobless claims to slip to 215,000 from the 216,000 originally reported for the previous week.

At 10 am ET, the National Association of Realtors is scheduled to release its report on existing home sales in the month of October. Existing home sales are expected to climb by 1.0% in October after tumbling by 3.4% in September.

The University of Michigan is also due to release its final report on consumer sentiment in the month of November at 10 am ET. The consumer sentiment index is expected to be unrevised from the preliminary reading of 98.3.

Also at 10 am ET, the Conference Board is scheduled to release its report on leading economic indicators in the month of October. The leading economic index is forecast to inch up by 0.1% in October after climbing by 0.5% in September.

The Energy Information Administration is due to release its report on oil inventories in the week ended November 16th at 10:30 am ET.

Crude oil inventories are expected to rise by 2.9 million barrels after spiking by 10.3 million barrels in the previous week.

At 11 am ET, the Treasury Department is scheduled to announce the details of next week's auctions of two-year, five-year, and seven-year notes.

Stocks In Focus

Shares of Foot Locker (FL) are moving sharply higher in pre-market trading after the sportswear and footwear retailer reported third quarter results that beat expectations on both the top and bottom lines.

Design software developer Autodesk (ADSK) is also likely to see initial strength after reporting better than expected third quarter results and providing upbeat guidance for the current quarter.

Shares of BJ's Wholesale (BJ) may also move to the upside after the wholesale retailer reported third quarter earnings and revenues that exceeded analyst estimates.

On the other hand, shares of Deere & Co. (DE) are seeing notable pre-market weakness after the heavy equipment maker reported fiscal fourth quarter earnings that missed expectations.

Copyright RTT News/dpa-AFX

Email Form
About Author Alliance News

Alliance News provides Morningstar with continuously updating coverage of news affecting listed companies.