Bargain Hunting May Lead To Initial Strength On Wall Street

The major U.S. index futures are currently pointing to a higher opening on Monday, with stocks likely to move back to the upside following the sell-off seen last Friday.

Stocks appear poised to extend their recent roller coaster ride amid a continued flurry of speculative trading by retail investors.

Traders may look to pick up stocks at somewhat reduced levels after the markets saw their biggest weekly decline since October.

Nonetheless, worries the so-called “retail investor revolt” could be a precursor to a more sustained pullback may keep buying interest relatively subdued.

Stocks showed a substantial move back to the downside during trading on Friday, more than offsetting the notable rebound seen on Thursday. With the steep drop on the day, the Dow fell to its lowest closing level in well over a month.

The major averages all moved sharply lower for the session. The Dow plunged 620.74 points or 2 percent to 29,982.62, the Nasdaq plummeted 266.46 points or 2 percent to 13,070.69 and the S&P 500 tumbled 73.14 points or 1.9 percent to 3,714.24.

For the week, the Nasdaq sank by 3.5 percent, while the Dow and the S&P 500 both slumped by 3.3 percent.

The sell-off on Wall Street partly reflected concerns about recent market volatility as traders kept a close eye on heavily shorted stocks like GameStop (GME) and AMC Entertainment (AMC).

GameStop and AMC Entertainment moved sharply higher 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 was also 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.

In U.S. economic news, the Commerce Department released a report showing a much bigger than expected increase in U.S. personal income in the month of December, although 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.

The University of Michigan also released a report showing consumer sentiment deteriorated by slightly more than initially estimated in the month of January.

The report said the consumer sentiment index for January was downwardly revised to 79.0 from the preliminary reading of 79.2.

Economists had expected the consumer sentiment index to be unrevised from the preliminary reading, which was still down from 80.7 in December.

Oil stocks moved sharply lower over the course of the session, dragging the NYSE Arca Oil Index down by 3.9 percent. The sell-off by oil stocks came amid a modest decrease by the price of crude oil.

Substantial weakness was also visible among airline stocks, as reflected by the 3.7 percent nosedive by the NYSE Arca Airline Index.

Steel stocks also showed a significant move to the downside on the day, resulting in a 3.6 percent slump by the NYSE Arca Steel Index.

Transportation, banking and chemical stocks also saw considerable weakness, moving lower along with most of the major sectors amid a broad based sell-off.

Commodity, Currency Markets

Crude oil futures are rising $0.37 to $52.57 a barrel after edging down $0.14 to $52.20 a barrel last Friday. Meanwhile, after climbing $9.40 to $1,847.30 an ounce in the previous session, gold futures are jumping $17.70 to $1,865 an ounce.

On the currency front, the U.S. dollar is trading at 104.91 yen versus the 104.68 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.2088 compared to last Friday’s $1.2136.

Asia

Asian stocks ended broadly higher on Monday after AstraZeneca said it would increase its coronavirus vaccine deliveries to the EU by 30 percent, helping ease worries about a slow recovery caused by unexpected issues with the vaccine rollouts.

Chinese shares rose after the country’s central bank injected more cash into money markets. The benchmark Shanghai Composite Index rose 22.21 points, or 0.6 percent, to 3,505.28, while Hong Kong’s Hang Seng Index surged up 609.15 points, or 2.2 percent, to 28,892.86.

On the economic front, two surveys showed China’s manufacturing growth weakened in January as restrictions took a toll in some regions.

Japanese shares ended higher after two straight days of losses on fears about further market turbulences in the United States. The Nikkei 225 Index rallied 427.66 points, or 1.6 percent, to 28,091.05 on the back of upbeat earnings forecasts. The broader Topix closed 1.2 percent higher at 1,829.84.

NEC Corp. surged 12.8 percent after the information technology company reported a 5.7 percent rise in its nine-month operating profit. Toilet maker Toto soared 12.4 percent after raising its profit outlook. Beaten-down chip-related shares such as Advantest, Nidec and Keyence climbed 2-3 percent.

Investors shrugged off the latest survey from Jibun Bank showing that the manufacturing sector in Japan fell into contraction in January with a PMI score of 49.8, down from 50 in December.

Australian markets hit two-month lows before reversing direction to end notably higher for the day as the latest manufacturing and housing data painted a positive picture of the economy.

The benchmark S&P/ASX 200 Index climbed 55.60 points, or 0.8 percent, to 6,663.00, while the broader All Ordinaries Index ended up 51.90 points, or 0.8percent, at 6,922.80.

Banks ANZ, Commonwealth and NAB rose between 1.2 percent and 1.5 percent while energy majors eked out modest gains.

Mining heavyweights BHP and Rio Tinto gained 1.3 percent and 0.9 percent, respectively. Silver miner Argent Minerals soared 59.7 percent after futures contracts for silver surged to a six-month high amid indications of retail investor interest in the metal.

Seoul markets rallied, led by pharmaceutical stocks. The benchmark Kospi jumped 80.32 points, or 2.7 percent, to 3,056.53 as foreign and institutional investors became net buyers after a four-day selling streak.

Celltrion spiked 14.5 percent after reports that its drug Remsima SC for the treatment of autoimmune diseases won sales approval in Canada. Samsung Biologics advanced 2.5 percent.

The manufacturing sector in South Korea expanded at a faster pace in January, the latest survey from Markit Economics revealed today, with a seasonally adjusted PMI score of 53.2, up from 52.9 in December. Trade data for January came in roughly in line with expectations.

Europe

European stocks are rebounding from their worst weekly decline since October on Monday after data showed Eurozone manufacturing growth remained resilient at the start of the year.

IHS Markit’s final Manufacturing Purchasing Managers’ Index (PMI) fell to 54.8 in January from December’s 55.2 amid renewed lockdown measures across the continent. However, that was a tad above the initial 54.7 “flash” estimate.

The U.K. manufacturing sector activity improved more than expected in January, with the final PMI rising to 54.1 versus 52.9 expected and 52.9 in the first readout.

Also helping boost investor sentiment, AstraZeneca said it would deliver 9 million additional vaccine doses to the European Union in the first quarter of this year and added that deliveries will start one week earlier than expected.

Meanwhile, investors shrugged off data from Destatis showing that German retail sales decreased sharply in December due to the restrictions imposed to control the spread of the coronavirus.

While the U.K.’s FTSE 100 Index is up by 1 percent, the French CAC 40 Index and the German DAX Index are up by 1.4 percent and 1.5 percent, respectively.

Mining stocks have rallied after silver prices surged to a five-month high in a Reddit-fueled frenzy. Fresnillo, Polymetal International and Boliden AB are posting standout gains.

ASOS has also moved sharply higher on the day after announcing it has acquired four brands from beleaguered Arcadia Group.

JD Sports Fashion has also jumped after the sportswear retailer entered a conditional agreement to buy Baltimore-based DTLR Villa LLC for $495 million.

Siemens Healthineers shares have also moved higher. The company reported that its first-quarter net income climbed 44 percent to 437 million euros from last year’s 304 million euros.

Meanwhile, Ryanair Holdings has fallen after it reported a €306 million quarterly loss and warned that fiscal year 2021 will continue to be the most challenging year in the company’s 35-year history.

Julius Baer, Switzerland’s third-largest listed bank, has also slumped despite reporting a 50 percent increase in 2020 net profit and announcing a 450 million franc share buyback.

U.S. Economic Reports

At 10 am ET, the Institute for Supply Management is scheduled to release its report on manufacturing activity in the month of January at 10 am ET.

The ISM’s manufacturing PMI is expected to edge down to 60.0 in January from 60.7 in December, although a reading above 50 would still indicate growth.

The Commerce Department is also due to release its report on construction spending in the month of December at 10 am ET. Construction spending is expected to climb by 0.9 percent.

At 2 pm ET, Atlanta Federal Reserve President Raphael Bostic is scheduled to speak before a virtual “Uneven Outcomes in the Labor Market: Understanding Trends and Identifying Solutions” event.

Boston Federal Reserve President Eric Rosengren is also due to speak at the virtual “Uneven Outcomes in the Labor Market: Understanding Trends and Identifying Solutions” event at 3 pm ET.

Stocks In Focus

Shares of IFF (IFF) are moving sharply higher in pre-market trading after the flavors and fragrances producer announced it will complete the previously announced merger with DuPont’s Nutrition & Biosciences business today.

German drugmaker CureVac (CVAC) is also likely to see initial strength amid news the company will get manufacturing help from Bayer for its experimental Covid-19 vaccine.

Shares of Otis Worldwide (OTIS) may also move to the upside after the elevator and escalator maker reported better than expected fourth quarter results and provided upbeat guidance.