Futures Pointing To Pullback On Wall Street Amid Continued Volatility

The major U.S. index futures are currently pointing to a lower open on Friday, with stocks likely to move back to the downside following the rebound seen in the previous session.

Concerns about recent market volatility may weigh on the markets as traders keep a close eye on heavily shorted stocks like GameStop (GME), AMC Entertainment (AMC) and Bed Bath & Beyond (BBBY).

GameStop, AMC Entertainment and Bed Bath & Beyond are all moving notably higher in pre-market trading after Robinhood eased restrictions on certain stocks that have skyrocketed in recent trading.

The spikes by the heavily shorted stocks have been described as a “retail investor revolt,” raising concerns hedge funds may have to sell other securities to make up for their losses.

Negative sentiment may also be generated in reaction to news that Johnson & Johnson’s (JNJ) one-dose coronavirus vaccine appears to be less potent against variants.

J&J said the vaccine demonstrated 72 percent effectiveness in the U.S. compared to 66 percent in Latin America and 57 percent in South Africa.

Following the sell-off seen on Wednesday, stocks showed a strong move back to the upside in morning trading on Thursday. The major averages gave back ground in the afternoon but managed to remain firmly positive.

While selling pressure picked up going into the close, the major averages held on to notable gains. The Dow surged up 300.19 points or 1 percent to 30,603.36, the Nasdaq climbed 66.56 points or 0.5 percent to 13,337.16 and the S&P 500 jumped 36.61 points or 1 percent to 3,787.38.

The early rally on Wall Street comes as traders looked to pick up stocks at somewhat reduced levels following the steep drop seen on Wednesday.

The Dow and the S&P 500 saw their biggest one-day declines since October in the previous session, reflecting concerns about new coronavirus strains, uncertainty about a new stimulus bill and worries about highly speculative trading.

While all those issues remain, traders seemed unfazed by analyst warnings that the markets could be headed for a sharp pullback.

Buying interest may also have been generated by a report from the Labor Department showing a bigger than expected decline in first-time claims for U.S. unemployment benefits in the week ended January 23rd.

The Labor Department said initial jobless claims fell to 847,000, a decrease of 67,000 from the previous week’s revised level of 914,000.

Economists had expected jobless claims to drop to 875,000 from the 900,000 originally reported for the previous week.

Jobless claims declined for the second consecutive week after reaching a more than four-month high of 927,000 in the week ended January 9th.

The Commerce Department also released a report showing economic growth matched economist estimates in the fourth quarter of 2020.

The report said real gross domestic product jumped by 4.0 percent in the fourth quarter after skyrocketing by 33.4 percent in the third quarter.

Despite the rebound in the second half of the year, GDP for 2020 contracted by 3.5 percent following the 2.2 percent growth seen in 2019.

A separate report from the Commerce Department showed new home sales in the U.S. rebounded in the month of December after falling for four consecutive months.

Despite the advance by the broader markets, shares of Apple (AAPL) and Tesla (TSLA) showed notable moves to the downside on the day.

Apple slumped by 3.5 percent after the tech giant reported better than expected fiscal first quarter results but provided cautious guidance.

Electric car maker Tesla tumbled by 3.3 percent after reporting fourth quarter earnings that missed analyst estimates.

Meanwhile, airline stocks soared early in the session and managed to hold on to strong gains throughout the day, driving the NYSE Arca Airline Index up by 4.4 percent.

American Airlines (AAL) helped lead the sector higher, jumping by 9.3 percent after reporting a narrower than expected fourth quarter loss on revenues that exceeded expectations.

Substantial strength was also visible among gold stocks, as reflected by the 3.8 percent spike by the NYSE Arca Gold Bugs Index. The index bounced off its lowest closing level in seven months.

The rebound by gold stocks came even though the price of the precious metal closed lower for the sixth straight session.

Banking, software and semiconductor stocks also showed strong moves back to the upside, moving higher along with most of the other major sectors.

Meanwhile, telecom stocks moved sharply lower over the course of the session, dragging the North American Telecom Index down by 3.1 percent.

Commodity, Currency Markets

Crude oil futures are rising $0.50 to $52.84 a barrel after sliding $0.51 to $52.34 a barrel on Thursday. Meanwhile, after falling $7 to $1,837.90 an ounce in the previous session, gold futures are jumping $32 to $1,869.90 an ounce.

On the currency front, the U.S. dollar is trading at 104.63 yen versus the 104.24 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.2149 compared to yesterday’s $1.2122.

Asia

Asian stocks retreated on Friday as rising coronavirus cases, signs of a liquidity squeeze in China and persisting concerns over a retail trading frenzy in the United States triggered risk aversion.

Chinese shares ended lower as concerns over tight liquidity and loft valuations rattled investors. The benchmark Shanghai Composite Index slid 22.11 points, or 0.6 percent, to 3,483.07 despite the country’s central bank injecting 100 billion yuan into the financial system. Hong Kong’s Hang Seng Index ended down 267.06 points, or 0.9 percent, at 28,283.71.

Japanese shares ended lower due to position unwinding at the end of the month. Downbeat industrial production and unemployment data also dented sentiment.

Industrial production in Japan dropped a seasonally adjusted 1.6 percent sequentially in December, while the annual unemployment rate rose for the first time in 11 years, separate reports showed.

The Nikkei 225 Index tumbled 534.03 points, or 1.9 percent, to 27,663.39, marking its biggest fall since July 31 and slipping below its 25-day moving average price after Citron Research, a short-selling hedge fund caught in the short-squeezing of Gamestop shares, said it will make a major announcement later in the day. The broader Topix closed 1.6 percent lower at 1,808.78.

Canon fell 7.4 percent on profit taking after recent gains. The company said its fourth quarter net profit rose an annual 64 percent, helped by better demand for camera and inkjet printers in the second half of the year.

Likewise, chip-related firms fell despite announcing robust earnings. Advantest gave up 1.9 percent and Tokyo Electron shed 4.9 percent.

Australian markets fell for a third straight session as slumping iron ore prices pressured miners. The benchmark S&P/ASX 200 Index dropped 42.30 points, or 0.6 percent, to 6,607.40, while the broader All Ordinaries Index ended down 46.70 points, or 0.7 percent, at 6,870.90.

Miners BHP, Rio Tinto and Fortescue Metals Group lost 2-4 percent after China said it would lower steel production this year. Similarly, energy stocks Woodside Petroleum and Santos fell around 3 percent after China imposed travel restrictions to contain Covid outbreaks.

Lender NAB declined 1.6 percent after it agreed to buy out the neobank 86 400 in $220 million deal. The other three banks fell between 1.5 percent and 2.1 percent.

Healthcare stocks bucked the weak trend, with heavyweight CSL rising 1.8 percent. Industrial giants Aristocrat Leisure and Transurban rose 2.4 percent and 1.4 percent, respectively. Steelmaker Bluescope rallied 3.5 percent after delivering its second earnings upgrade in two months.

In economic news, official data showed private sector credit in Australia rose 0.3 percent month-on-month in December, accelerating from the 0.1 percent gain in November.

Seoul stocks tumbled as foreign investors dumped shares on concerns over stretched valuations and a liquidity squeeze in China. The benchmark Kospi ended down 92.84 points, or 3 percent, to close below 3,000, marking the largest single-day loss since August 20.

Market bellwether Samsung Electronics dropped 2 percent, chemical firm LG Chem declined 2.2 percent, automaker Hyundai Motor gave up 4 percent and pharmaceutical firm Samsung Biologics plunged 5.4 percent.

On the economic front, industrial production in South Korea advanced a seasonally adjusted 3.7 percent sequentially in December, Statistics Korea said. That beat forecasts for an increase of 1.2 percent following the 0.3 percent gain in November.

On a yearly basis, industrial production jumped 3.4 percent – again exceeding expectations for a gain of 0.9 percent following the 0.5 percent increase in the previous month.

The total value of retail sales in South Korea was up a seasonally adjusted 0.2 percent month-on-month in December, another report revealed. That followed the 1.0 percent contraction in November. On a yearly basis, retail sales dropped 2.0 percent after sinking 1.5 percent in the previous month.

Europe

European stocks have moved sharply lower on Friday, with investor sentiment jolted by a surge in speculative trading from retail investors organized over online forums, such as Reddit.

Hedge funds and other large investors that bet against GameStop have lost more than $5 billion after a cohort of amateur investors joined forces to inflate the price of shares in the U.S. video game chain, according to data analytics company S3.

Lingering concerns over tight liquidity in China, rising Covid-19 cases and the slow and chaotic nature of the bloc’s vaccination rollout has also rattled investors.

While the U.K.’s FTSE 100 Index has slumped by 1.7 percent, the French CAC 40 Index and the German DAX Index are down by 1.3 percent and 1.2 percent, respectively.

Swedish fashion retailer H&M has moved sharply lower on the day after it reported a drop in full-year sales and profit.

BBVA has also moved to the downside. The Spanish bank said it intends to buy back 10 percent of its shares and return to paying 35-40 percent of its profits in dividends.

Givaudan, a Swiss manufacturer of fragrance and flavor products, has also declined after confirming its mid-term targets.

SAP shares have edged lower. The German software company said it expects fiscal 2021 adjusted operating profit of 7.8 billion euros to 8.2 billion euros, compared to last year’s 8.28 billion euros. The outlook represents a 1 percent to 6 percent drop at constant currencies.

British mining company Polymetal has also shown a notable move to the downside after it warned of higher costs in 2021.

Meanwhile, telecommunications equipment company Ericsson has surged higher after posting forecast-beating fourth quarter net profit.

In economic releases, German GDP grew 0.1 percent sequentially in the fourth quarter, slower than the 8.5 percent expansion posted in the third quarter due to the restrictions imposed to contain the spread of Covid-19, data from Destatis showed. Economists had forecast nil growth.

On a yearly basis, GDP adjusted for calendar effects declined 3.9 percent after falling 4 percent in the third quarter.

Separately, the labor office said the number of people out of work in Europe’s largest economy fell by 41,000 in seasonally adjusted terms to 2.729 million.

The seasonally adjusted unemployment rate remained unchanged at 6 percent compared with the previous month.

French GDP fell 1.3 percent sequentially in the fourth quarter, in contrast to an 18.5 percent spike in the third quarter, Insee said. Economists had forecast a quarterly decline of 4 percent.

Another report from the statistical office revealed that household spending in France surged 23 percent in December from November, when consumption was down 18 percent due to the second lockdown.

U.S. Economic Reports

While the Commerce Department released a report on Friday showing a much bigger than expected increase in U.S. personal income in the month of December, the report also showed a modest decrease in personal spending.

The report said personal income climbed by 0.6 percent in December after tumbling by a downwardly revised 1.3 percent in November.

Economists had expected personal income to inch up by 0.1 percent compared to the 1.1 percent slump originally reported for the previous month.

Meanwhile, the Commerce Department said personal spending dipped by 0.2 percent in December after falling by a downwardly revised 0.7 percent in November.

Economists had expected spending to decrease by 0.4 percent, matching the drop originally reported for the previous month.

At 9:45 am ET, MNI Indicators is scheduled to release its report on Chicago-area business activity in the month of January. The Chicago business barometer is expected to slip to 58.5 in January from 59.5 in December, but a reading above 50 would still indicate continued growth.

The National Association of Realtors is due to release its report on pending home sales in the month of December at 10 am ET. Pending home sales are expected to edge down by 0.1 percent.

Also at 10 am ET, the University of Michigan is scheduled to release its revised reading on consumer sentiment in the month of January.

The consumer sentiment index for January is expected to be unrevised from the preliminary reading of 79.2, which was down from 80.7 in December.

Dallas Federal Reserve President Robert Kaplan is due to participate in a moderated question-and-answer session before the virtual North Dallas Chamber of Commerce Annual Energy Forum at 1 pm ET.

At 4 pm ET, Kaplan is scheduled to participate in a moderated question-and-answer session before a virtual Forecasters Club of New York event.

San Francisco Federal Reserve President Mary Daly is due to participate in a fireside chat before the virtual 6th Annual State of Latino Entrepreneurship Forum at 5:25 pm ET.

Stocks In Focus

Shares of Skyworks Solutions (SWKS) are moving sharply higher in pre-market trading after the semiconductor company reported better than expected fiscal first quarter results and announced a new $2 billion stock repurchase program.

Drug maker Eli Lilly (LLY) is also likely to see initial strength after reporting fourth quarter results that exceeded analyst estimates on both the top and bottom lines.

Shares of Western Digital (WDC) may also move to the upside after the data storage company reported fiscal second quarter results that beat expectations.

On the other hand, shares of Chevron (CVX) may come under pressure after the energy giant reported an unexpected fourth quarter adjusted loss.

Juniper Networks (JNPR) is also seeing pre-market weakness even though the networking company reported better than expected fourth quarter results.