Negative Reaction To Earnings May Lead To Initial Weakness On Wall Street

The major U.S. index futures are currently pointing to a lower open on Friday, with stocks likely to see further downside following the pullback seen late in the previous session.

A negative reaction to earnings news from financial giants JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC) may lead to initial weakness on Wall Street.

Shares of JPMorgan are seeing pre-market weakness even though the company reported fourth quarter results that beat expectations on both the top and bottom lines.

JPMorgan benefited from the release of money previously set aside for expected loan defaults, although its earnings would have still beat estimates with the boost.

Citigroup and Wells Fargo may also move the downside after both reported better than expected fourth quarter earnings but on revenues that missed estimates.

Negative sentiment may also be generated in reaction to a report from the Commerce Department showing a continued decline in U.S. retail sales in the month of December.

Stocks saw modest strength for much of the trading session on Thursday before giving back ground going into the close. The major averages all slid into negative territory, with the Dow and the Nasdaq pulling back off the record intraday highs set in early trading.

The major averages finished the day modestly below the unchanged line. The Dow slipped 68.95 points or 0.2 percent to 30,991.52, the Nasdaq edged down 16.31 points or 0.1 percent to 13,112.64 and the S&P 500 fell 14.30 points or 0.4 percent to 3,795.54.

Optimism about additional fiscal stimulus helped generate early buying interest, as President-elect Joe Biden prepared to unveil his COVID-19 relief plan.

Meanwhile, trades were also reacting to a report from the Labor Department showing initial jobless claims jumped to their highest level in over four months in the week ended January 9th.

The report said initial jobless claims rose to 965,000, an increase of 181,000 from the previous week’s revised level of 784,000.

Economists had expected jobless claims to inch up to 795,000 from the 787,000 originally reported for the previous week.

With the bigger than expected increase, jobless claims reached their highest level since hitting 1.011 million in the week ended August 22nd.

Traders have recently viewed disappointing jobs data as a positive for the markets, as it could put further pressure on lawmakers to approve additional stimulus.

The pullback by stocks seemed to coincide with an advance by treasury yields, which rebounded following the pullback seen on Wednesday.

The increase by yields was partly attributed to remarks by Federal Reserve Chair Jerome Powell during a virtual event hosted by Princeton University.

In wide-ranging remarks, Powell suggested that the economy could return to pre-pandemic levels sooner than feared due to unprecedented fiscal stimulus and the Fed’s aggressive intervention.

“The thing that we’re most focused on is getting back to a strong labor market quickly enough that people’s lives can get back to where they want to be,” Powell said.

He added, “We were in a good place in February of 2020, and we think we can get back there, I would say, much sooner than we had feared.”

Nonetheless, Powell said the Fed does not intend to raise interest rate anytime soon and downplayed talk of the central bank tapering its bond purchases in the near future.

Despite the late-day pullback by the broader markets, most of the major sectors moved to the upside during the session.

Airline stocks moved sharply higher on the day, with the NYSE Arca Airline Index soaring by 4.8 percent to its best closing level in a month.

Delta Air Lines (DAL) posted a notable gain after the airline reported a wider than expected fourth quarter loss but CEO Ed Bastian said he is optimistic 2021 will be a “year of recovery.”

Considerable strength was also visible among energy stocks, which moved higher along with the price of crude oil.

Semiconductor stocks also turned in a strong performance on the day, driving the Philadelphia Semiconductor Index up by 2.1 percent to a new record closing high.

Steel, banking and networking stocks also ended the day notably higher, while weakness emerged among software, retail and chemical stocks.

Commodity, Currency Markets

Crude oil futures are sliding $0.60 to $52.97 a barrel after climbing $0.66 to $53.57 a barrel on Thursday. Meanwhile, after slipping $3.50 to $1,851.40 an ounce in the previous session, gold futures are falling $5.50 to $1,845.90 an ounce.

On the currency front, the U.S. dollar is trading at 103.72 yen versus the 103.80 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.2118 compared to yesterday’s $1.2155.

Asia

Asian stocks ended mixed on Friday as worries about rising U.S.-China tensions offset investor optimism over U.S. President-elect Joe Biden announcing a $1.9 trillion stimulus package to boost the world’s largest economy.

Biden revealed details of the $1.9 trillion stimulus proposal to support American households and businesses amid the pandemic.

Chinese shares ended a choppy session on a flat note after the U.S. government blacklisted Chinese smartphone maker Xiaomi Corp. and ten other companies over alleged military links.

Hong Kong stocks ended modestly higher even as Xiaomi shares crashed almost 10 percent on U.S. sanctions. The Hang Seng Index edged up 77.00 points, or 0.3 percent, to 28,573.86.

Japanese shares fell from the 30-year high hit the previous day even as tech shares gained ground on the back of robust earnings from Taiwanese chipmaker TSMC.

The Nikkei 225 Index ended down 179.08 points, or 0.6 percent, at 28,519.18, snapping a five-day winning streak. The broader Topix closed 0.9 percent lower at 1,856.61.

Seiko Epson surged 7.3 percent, Tokyo Electron gained 3.9 percent and Advantest added 2.8 percent after Taiwan Semiconductor Manufacturing Co. (TSMC) posted its best-ever quarterly profit and raised revenue and capital spending estimates.

Canon soared 8.4 percent after the company raised its profit forecast for the year just ended. Fast Retailing dropped 2.9 percent after reporting a drop in first quarter revenue.

Australian markets ended little changed with a positive bias as there was a muted reaction to the U.S. economic stimulus plan.

Lender Commonwealth fell 1.1 percent, while NAB and Westpac both rose about 1.5 percent. Miners BHP, Fortescue Metals Group and Rio Tinto rose between 0.7 percent and 1.7 percent. Energy stocks ended mixed, with Santos falling 1.1 percent and Beach Energy falling half a percent.

Gold Miners Evolution Mining, Regis Resources and Northern Star Resources fell about 1 percent. In the tech sector, WiseTech Global lost 2.5 percent and Appen gave up 1.7 percent, while Afterpay surged 10 percent.

Objective Corp. jumped 4.3 percent after the software vendor forecast a 70 percent surge in its profit for the first half of the year.

On the economic front, the Australian Bureau of Statistics said that the total value of overall home loans in Australia was up a seasonally adjusted 5.6 percent month-on-month in November.

Seoul stocks tumbled as investors booked profits from the recent rally. The benchmark Kospi lost 64.03 points, or 2 percent, to finish at 3,085.90. Samsung Electronics, SK Hynix, LG Chem and Hyundai Motor declined 2-4 percent.

After keeping policy rates unchanged, Bank of Korea’s Governor Lee Ju-yeol warned against the excessive borrowing that has spurred a rally in the country’s stock and property markets.

Europe

European stocks have come under pressure on Friday as worries about rising U.S.-China tensions and tighter Covid-19 restrictions around Europe offset optimism over U.S. President-elect Joe Biden announcing a $1.9 trillion stimulus package to boost the world’s largest economy.

While the French CAC 40 Index has tumbled by 1.2 percent, the German DAX Index is down by 1 percent and the U.K.’s FTSE 100 Index is down by 0.9 percent.

Babcock International shares have plunged after the defense firm said profits had suffered a “negative impact” from civil nuclear insourcing.

Siemens Energy is also posting a steep loss after General Electric accused a subsidiary of the power distribution company of stealing trade secrets to rig bids for gas turbine contracts.

Meanwhile, information technology company AVEVA has surged after saying it remains confident in the full year outlook.

Pharmaceutical company Indivior has also moved sharply higher after raising its annual revenue forecast.

German business software group SAP has also advanced. The company reported fourth-quarter profit after tax on IFRS basis of 1.93 billion euros, up 18 percent from 1.64 billion euros last year.

In economic news, official data showed that Britain’s economy contracted at a slower than expected pace in November.

Gross domestic product shrank 2.6 percent month-on-month in November, slower than the 5.7 percent fall economists’ had forecast.

French consumer prices remained stable on a yearly basis in December, as initially estimated, after rising 0.2 percent in November, final data released by the statistical office Insee revealed.

U.S. Economic Reports

Retail sales in the U.S. continued to decline in the month of December, according to a report released by the Commerce Department on Friday.

The Commerce Department said retail sales fell by 0.7 percent in December after tumbling by a revised 1.4 percent in November.

Economists had expected retail sales to come in unchanged compared to the 1.1 percent slump originally reported for the previous month.

Excluding sales by motor vehicle and parts dealers, retail sales plunged by 1.4 percent in December after sliding by 1.3 percent in November.

Ex-auto sales were expected to edge down by 0.1 percent compared to the 0.9 percent decrease originally reported for the previous month.

Meanwhile, a separate report released by the Labor Department showed U.S. producer prices increased by slightly less than expected in the month of December.

The Labor Department said its producer price index for final demand rose by 0.3 percent in December after inching up by 0.1 percent in November. Economists had expected producer prices to rise by 0.4 percent.

Excluding food and energy prices, core producer prices crept up by 0.1 percent in December, matching the uptick seen in the previous month. Core prices were expected to edge up by 0.2 percent.

Activity in the New York manufacturing sector unexpectedly grew at a slower pace in the month of January, the Federal Reserve Bank of New York revealed in a report released on Friday.

The New York Fed said its general business conditions index slipped to 3.5 in January from 4.9 in December, although a positive reading still indicates growth in regional manufacturing activity. Economist had expected the index to inch up to 6.0.

Looking ahead, the New York Fed said firms remained optimistic that conditions would improve over the next six months.

At 9:15 am ET, the Federal Reserve is scheduled to release its report on industrial production in the month of December. Industrial production is expected to rise by 0.4 percent in December, matching the increase seen in November.

The University of Michigan is due to release its preliminary reading on consumer sentiment in the month of January at 10 am ET. The consumer sentiment index is expected to edge down to 80.0 in January from 80.7 in December.

Also at 10 am ET, the Commerce Department is scheduled to release its report on business inventories in the month of November. Business inventories are expected to climb by 0.5 percent.

Stocks In Focus

Shares of Accolade (ACCD) are moving sharply higher in pre-market trading after the healthcare services provider announced an agreement to acquire 2nd.MD for $460 million in cash and stock.

Zoom (ZM) may also move to the upside after Bernstein named the video conferencing services provider a top 2021 stock pick.

Meanwhile, shares of Progress Software (PRGS) may see initial weakness after the business software developer reported better than expected fourth quarter results but provided a mixed outlook.