Profit Taking May Lead To Initial Pullback On Wall Street

The major U.S. index futures are currently pointing to a lower open on Monday, with stocks likely to give back ground following the strong upward move seen last week.

Profit taking may contribute to initial weakness on Wall Street after the Dow and the S&P 500 ended last Friday’s trading at new record closing highs.

Recent consolidation efforts have proved short-lived, however, potentially resulting in a half-hearted pullback by the markets.

Analysts have expressed concerns about the markets being overbought for months, but traders have continued to push stocks higher amid concerns about missing out on further upside.

A lack of major U.S. economic data may also keep traders on the sidelines following last week’s huge batch of largely upbeat data.

Extending the rally seen during trading on Thursday, stocks moved mostly higher over the course of the trading day on Friday. With the continued upward move, the Dow and the S&P 500 once again set new record closing highs.

The Dow climbed 164.68 points or 0.5 percent to 34,200.67 and the S&P 500 rose 15.05 points or 0.4 percent to 4,185.47. Meanwhile, the tech-heavy Nasdaq posted a more modest gain, inching up 13.58 points or 0.1 percent to 14,052.34.

The major averages all posted notable gains for the week. The S&P 500 surged up by 1.4 percent, while the Dow and the Nasdaq jumped by 1.2 percent and 1.1 percent, respectively.

Stocks continued to benefit from yesterday’s strong U.S. economic data, with upbeat economic data from China adding to optimism about a global economic recovery.

A report from the National Bureau of Statistics showed the Chinese economy saw record growth in the first quarter, as GDP spiked 18.3 percent year-over-year.

Upbeat earnings news also generated continued buying interest, as Morgan Stanley (MS) joined other financial giants in reporting better than expected first quarter earnings.

On the U.S. economic front, the Commerce Department released a report showing a substantial rebound in new residential construction in the month of March.

The Commerce Department said housing starts skyrocketed by 19.4 percent to an annual rate of 1.739 million in March after plunging by 11.3 percent to a revised rate of 1.457 million in February.

Economists had expected housing starts to spike by 13.5 percent to a rate of 1.613 million from the 1.421 million originally reported for the previous month.

With the bigger than expected increase, housing starts reached their highest level since hitting an annual rate of 1.802 million in June of 2006.

Meanwhile, the University of Michigan released a report showing sentiment has continued to improve in April but by much less than anticipated.

The preliminary report showed the consumer sentiment index rose to 86.5 in April after soaring to 84.9 in March. Economists had expected the index to jump to 89.6.

Despite the much smaller than expected increase, the consumer sentiment index still reached its highest level since hitting 89.1 in March of 2020.

Housing stocks showed a strong move to the upside following the housing starts data, with the Philadelphia Housing Sector Index climbing by 2.1 percent to its best closing level since a two-for-one split in early 2006.

Significant strength was also visible among chemical stocks, as reflected by the 1.3 percent gain posted by the S&P Chemical Sector Index. The index ended the day at a record closing high.

Steel stocks also turned in a strong performance on the day, resulting in a 1.2 percent advance by the NYSE Arca Steel Index. The gain lifted the index to its best closing level in almost ten years.

Meanwhile, oil service stocks continued to give back ground amid a decrease by the price of crude oil, with the Philadelphia Oil Service Index falling by 1.2 percent.

Commodity, Currency Markets

Crude oil futures are inching up $0.03 to $63.16 a barrel after falling $0.33 to $63.13 a barrel last Friday. Meanwhile, after climbing $13.40 to $1,780.20 an ounce in the previous session, gold futures are slipping $3.50 to $1,776.70 an ounce.

On the currency front, the U.S. dollar is trading at 108.09 yen versus the 108.80 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.2031 compared to last Friday’s $1.1983.

Asia

Asian stocks ended mostly higher on Monday as positive earnings updates and upbeat economic data from the United States boosted optimism about a solid global economic recovery.

Chinese shares led regional gains after China’s financial regulator said Huarong Asset Management Co., a distressed-debt manager, had ample liquidity, its first official comments since the company delivered a jolt by missing a deadline to report earnings.

The benchmark Shanghai Composite Index jumped 50.93 points, or 1.5 percent, to 3,477.55, while Hong Kong’s Hang Seng Index rose 136.44 points, or 0.5 percent, to 29,106.15.

Japanese shares ended on a subdued note as the country faced a fourth surge of coronavirus cases before the scheduled opening of the Olympic Games. Upbeat exports data failed to ease worries about the fragile recovery of the world’s third-largest economy.

The Nikkei 225 Index gave up early gains to end little changed at 29,685.37, while the broader Topix closed 0.2 percent lower at 1,956.56.

Semiconductor company Sumco jumped 5.7 percent after Japan and the United States agreed last week to cooperate on investment in semiconductor supply chains in response to a global shortage of chips.

Toshiba Corp fell 4.4 percent on a Nikkei report that private equity firm CVC Capital Partners will delay submitting a formal proposal to buy the Japanese industrial group.

Australian markets ended flat with a positive bias as a long-awaited quarantine-free travel bubble between Australia and New Zealand opened.

Banks rose broadly, with Commonwealth climbing 1 percent. Macquarie Group gained 0.7 percent on a Bloomberg report that it is nearing a deal to take Australian waste management company Bingo Industries Ltd. private.

Miners Fortescue Metals Group and Rio Tinto advanced 1.8 percent and 1.7 percent, respectively. Lithium miners Galaxy Resources and Orocobre surged around 6 percent after they entered into a binding merger implementation deed to form the world’s fifth-largest lithium miner company valued at A$4 billion (S$4.12 billion).

Sims Metal jumped 9 percent after the metal recycler boosted its full-year earnings guidance on strong scrap prices and cost savings. Origin Energy, Oil Search, Santos and Woodside Petroleum lost 1-2 percent after crude oil prices declined on Friday.

Seoul stocks finished marginally higher, extending gains for the sixth day running on expectations of strong corporate earnings in the January-March season. The benchmark Kospi inched up 0.22 points to 3,198.84. Bio stocks led gainers amid concerns over the fourth wave of the pandemic.

Europe

European stocks have struggled for direction on Monday as Pfizer Inc. and BioNTech SE announced that they will supply an additional 100 million doses of COMIRNATY, the companies’ COVID-19 vaccine, to the 27 European Union member states in 2021.

The agreement follows the European Commission’s decision to exercise its option to purchase an additional 100 million doses under its expanded Advanced Purchase Agreement signed on February 17.

Eurozone government bond yields followed U.S. Treasury yields lower after the U.S. Federal Reserve reiterated its view that any spike in inflation was likely to be temporary.

While the French CAC 40 Index is up by 0.3 percent, the U.K.’s FTSE 100 Index is down by 0.1 percent and the German DAX Index down by 0.2 percent.

ABN AMRO Bank N.V. has moved higher. The Dutch bank has accepted a settlement offer from the Dutch Public Prosecution Service regarding the anti-money laundering investigation in the Netherlands.

Equiniti Group shares have soared. The financial services company confirmed today that it has received a highly conditional non-binding takeover proposal from Siris Capital Group, LLC of 170 pence per share in cash.

BP Plc and Royal Dutch Shell have fallen as oil prices fell on concerns that stronger measures to contain the COVID-19 pandemic in India would hurt economic activity.

Kier Group has jumped. The construction company has agreed to sell Kier Living Limited to Foster BidCo Limited.

Takeover specialist Melrose Industries has dropped after it entered into an agreement to sell its Nortek Air Management business to Chicago-based Madison Industries for about 2.62 billion pounds or $3.625 billion, in cash.

Chemicals company Johnson Matthey has gained after it announced strategic developments in the commercialization of eLNO.

Daimler has dropped. The automaker will create about 1,000 jobs for software programmers at its S-Class production facility in Germany to develop its planned operating system for electric vehicles, magazine Automobilwoche reported.

Evotec SE has risen. The company said that it reached a licensing and master service agreement with Kazia Therapeutics Limited.

Sanofi has climbed. The drug maker said that the European Commission approved Sarclisa or isatuximab in combination with carfilzomib and dexamethasone for the treatment of adult patients with relapsed multiple myeloma who have received at least one prior therapy.

It marks the second EC approval of Sarclisa in combination with a standard of care regimen in less than 12 months.

In economic news, the euro area current account surplus declined in February largely due to a fall in the goods trade surplus, data published by the European Central Bank showed. The current account surplus totaled EUR 26 billion versus a EUR 35 billion surplus in January.

The surplus on goods trade fell to EUR 32 billion from EUR 38 billion and that on services trade decreased to EUR 11 billion from EUR 12 billion in the previous month.

Eurozone’s construction output fell 2.1 percent month-on-month in February, after a 0.8 percent rise in January. Eurostat reported. In December, construction output decreased 1.4 percent.

U.S. Economic Reports

No major U.S. economic data is scheduled to be released today.

Stocks In Focus

Shares of Peloton (PTON) are moving sharply lower in pre-market trading after the Consumer Product Safety Commission warned owners of the Peloton Tread+ exercise machine after “multiple incidents of small children and a pet being injured beneath the machines.”

Office furniture maker Herman Miller (MLHR) is also likely to come under pressure after announcing an agreement to acquire furniture and accessories company Knoll (KNL) for $1.8 billion in cash and stock.

On the other hand, shares of GameStop (GME) are seeing significant pre-market strength after announcing George Sherman will be stepping down as CEO on July 31, 2021, or earlier upon the appointment of a successor.

Motorcycle maker Harley-Davidson (HOG) may also move to the upside after reporting better than expected first quarter results and providing upbeat guidance.