Profit Taking May Lead To Initial Weakness On Wall Street

The major U.S. index futures are currently pointing to a modestly lower open on Tuesday, with stocks likely to give back some ground following yesterday’s rally.

Profit taking may contribute to initial weakness on Wall Street, as some traders look to cash in on the recent strength in the markets.

The Dow and the S&P 500 both ended Monday’s trading at record closing highs, while the tech-heavy Nasdaq extended last week’s rally to reach its best closing level in well over a month.

Any early selling pressure is likely to be relatively subdued, however, with traders worried about missing out on further upside.

A quiet day on the U.S. economic front may also keep traders on the sidelines ahead of the release of the minutes of the Federal Reserve’s latest monetary policy meeting on Wednesday.

Reports on weekly jobless claims, the U.S. trade deficit and producer price inflation may also attract attention in the coming days along with remarks by Fed Chair Jerome Powell.

Stocks showed a significant move to the upside on Monday as trading resumed following the long holiday weekend. With the upward move on the day, the Dow and the S&P 500 reached new record closing highs.

The major averages all closed firmly in positive territory. The Dow jumped 373.98 points or 1.1 percent to 33,527.19, the Nasdaq spiked 225.49 points or 1.7 percent to 13,705.59 and the S&P 500 surged up 58.04 points or 1.4 percent to 4,077.91.

The rally on Wall Street came as traders finally had an opportunity to react to the monthly jobs report, which was released while the markets were closed on Friday.

The closely watched report from the Labor Department showed employment in the U.S. spiked by much more than expected in the month of March.

The Labor Department said non-farm payroll employment surged up by 916,000 jobs in March after climbing by an upwardly revised 468,000 jobs in February.

Economists had expected employment to jump by 647,000 jobs compared to the addition of 379,000 jobs originally reported for the previous month.

The bigger than expected increase in employment reflected widespread job growth, with employment in the leisure and hospitality sector once again leading the way.

The stronger than expected job growth resulted in a continued decrease by the unemployment rate, which fell to 6.0 percent in March from 6.2 percent in February. The drop matched expectations.

With the decrease, the unemployment rate fell to its lowest level since hitting 4.4 percent in March of 2020, when coronavirus lockdowns were just starting to take effect.

Stocks saw further upside following the release of a report from the Institute for Supply Management showing its reading on activity in the service sector soared to an all-time high in March.

The ISM said its Services PMI surged up to 63.7 in March from 55.3 in February, with a reading above 50 indicating growth. Economists had expected the index to rise to 58.5.

“Respondents’ comments indicate that the lifting of coronavirus (COVID-19) pandemic-related restrictions has released pent-up demand for many of their respective companies’ services,” said Anthony Nieves, Chair of the ISM Services Business Survey Committee.

Steel stocks showed a substantial move to the upside on the day, driving the NYSE Arca Steel Index up by 2.4 percent to its best closing level in well over nine years.

Substantial strength was also visible among airline stocks, with the NYSE Arca Airline Index soaring by 2 percent.

Software stocks also turned in a partly strong performance, resulting in a 1.9 percent jump by the Dow Jones U.S. Software Index. The index reached its best closing level in well over a month.

Semiconductor, retail and computer hardware stocks also saw considerable strength on the day, moving higher along with most of the other major sectors.

On the other hand, energy stocks were among the few groups to buck the uptrend, with a steep drop by the price of crude oil weighing on the sector.

Commodity, Currency Markets

Crude oil futures are surging up $1.20 to $59.85 a barrel after plummeting $2.80 to $58.65 barrel on Monday. Meanwhile, after inching up $0.40 to $1,728.80 an ounce in the previous session, gold futures are climbing $7.70 to $1,736.50 an ounce.

On the currency front, the U.S. dollar is trading at 110.02 yen compared to the 110.18 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1827 compared to yesterday’s $1.1813.

Asia

Asian stocks ended mixed on Tuesday as worries about rising coronavirus cases and the extension of lockdown restrictions offset signs of the U.S. economy accelerating out of recession.

Chinese shares ended little changed with a negative bias after the country’s central bank asked the nation’s major lenders to curtail loan growth for the rest of this year to bring the housing boom under control. Markets in Hong Kong were closed for a holiday.

China’s service sector growth accelerated in March, driven by steeper increases in activity and overseas sales, survey results from IHS Markit showed earlier today.

The Caixin Purchasing Managers’ Index rose to 54.3 from 51.5 in February. The survey showed that new orders increased at the fastest pace in three months despite a slight drop in export business.

Japanese shares fell on profit taking after three days of gains. The Nikkei 225 Index tumbled 392.62 points, or 1.3 percent, to t 29,696.63 after data showed household spending plunged 6.6 percent year-on-year in February, marking the third consecutive monthly drop. The broader Topix closed 1.5 percent lower at 1,954.34.

Market heavyweight SoftBank Group dropped 1.1 percent and Uniqlo operator Fast Retailing gave up 1.5 percent. Banks Sumitomo Mitsui Financial and Mitsubishi UFJ Financial fell over 2 percent.

Australian markets rallied as the Reserve Bank maintained its policy settings as widely expected. The benchmark S&P/ASX 200 Index climbed 57.20 points, or 0.8 percent, to 6,885.90, while the broader All Ordinaries Index ended up 69.70 points, or 1 percent, at 7,133.90.

Tech stocks led the gainers, with Afterpay surging 10 percent, WiseTech Global rising 5.2 percent and Xero rallying 3.2 percent. Cleanaway Waste Management soared 15.9 percent after Suez has reached an agreement to sell its Australian business to the company.

Agri-chemical producer Incitec Pivot slumped 8.2 percent after it has delayed the resumption of the operations at its Waggaman ammonia plant in the U.S.

Seoul stocks rose for the fourth straight session on hopes for a swift global economic recovery. The benchmark Kospi ended a choppy session up 6.25 points, or 0.2 percent, at 3,127.08.

Internet portal operator Naver rallied 3 percent and rival Kakao surged 8.4 percent. Top automaker Hyundai Motor shed 1.7 percent to lead losses.

Europe

European stocks have advanced on Tuesday as investors look past the region’s slow pace of vaccinations to focus on signs of a robust U.S. economic recovery.

While the French CAC 40 Index has risen by 0.5 percent, the German DAX Index and the U.K.’s FTSE 100 Index are jumping by 1.1 percent and 1.2 percent, respectively.

Miners Anglo American, Antofagasta and Glencore have shown strong moves to the upside on optimism for a swift economic recovery.

BP Plc and Royal Dutch Shell have also risen as oil prices rebound on dollar weakness. Banks and automakers are also broadly higher on economic recovery hopes.

Oxford Biomedica, a gene and cell therapy group, has also rallied after it signed a new three-year Development & Supply Agreement with German Pharmaceutical company Boehringer Ingelheim for the manufacture and supply of various types of viral vectors.

Credit Suisse Group shares have also risen. The Swiss lender announced the departure of two top executives and said it expects a one-time charge of 4.4 billion francs ($4.7 billion) tied to the implosion of Archegos Capital Management.

Suez SA shares have edged higher. The waste and water utility fighting the takeover ambitions of rival Veolia Environnement SA has reached an agreement to sell its Australian business to Cleanaway Waste Management Ltd.

Meanwhile, airline easyJet and Ryanair have dipped after British Prime Minister Boris Johnson warned against booking foreign summer holidays.

In economic news, Eurozone investor confidence reached its strongest level in more than two years in April, as lockdowns in many euro area countries had little effect on the overall economic recovery, survey data from Sentix showed.

The investor confidence index rose sharply to 13.1 in April from 5.0 in March. This was the highest level since August 2018 and well above economists’ forecast of 7.5.

Although the Eurozone economy recently lagged significantly behind the global trend, it started to catch up in April, the survey revealed.

New car registrations in the U.K. climbed 12 percent annually in March, the first month of growth since August, an industry body said, adding to investor optimism about the economic recovery.

U.S. Economic Reports

The Labor Department is scheduled to release the results of its Job Openings and Labor Turnover Survey for the month of February at 10 am ET. Economists expect job openings to dip to 6.8 million in February from 6.9 million in January.

Stocks In Focus

Shares of Cara Therapeutics (CARA) are moving sharply higher in pre-market trading on news the biopharmaceutical will replace MTS Systems (MTSC) in the S&P SmallCap 600 effective prior to the opening of trading on Thursday.

Biotechnology company Illumina (ILMN) is also likely to see initial strength after forecasting first quarter and full year results above analyst estimates.

On the other hand, shares of Phillips 66 (PSX) may move to the downside after the energy producer warned of a wider than expected first quarter loss due to the severe winter storms.