Bargain Hunting May Lead To Rebound On Wall Street

The major U.S. index futures are currently pointing to a higher open on Monday, with stocks likely to move back to the upside after moving notably lower last week.

Bargain hunting may contribute to initial strength on Wall Street after the steep drop seen last Friday dragged the Dow down to its lowest closing level in well over two months.

The Dow closed lower for five straight sessions and tumbled 3.4 percent last week, marking the worst week for the blue chip index since last October.

Last week’s sell-off came amid concerns about the outlook for monetary policy after the Federal Reserve latest projections called for two interest rates hikes in 2023.

St. Louis Fed President Jim Bullard told CNBC’s “Squawk Box” the first rate hike by the Fed could come as soon as next year.

A lack of major U.S. economic data may keep some traders sidelines ahead of the release of reports on new and existing home sales, durable goods orders and personal income and spending in the coming days.

Fed Chair Jerome Powell is also scheduled to testify before the House Select Subcommittee on the Coronavirus Crisis on Tuesday.

Powell is due to discuss the Fed’s response to the pandemic but could also face questions about the outlook for monetary policy.

Following the mixed performance seen on Thursday, stocks moved mostly lower during trading on Friday. With the drop on the day, the Dow ended the session at its lowest closing level in over two months.

The major averages came under pressure going into the close, with the Dow and the S&P 500 hitting new lows for the session. The Dow tumbled 533.37 points or 1.6 percent to 33,290.08, the Nasdaq slid 130.97 points or 0.9 percent to 14,030.38 and the S&P 500 slumped 55.41 points or 1.3 percent to 4,166.45.

For the week, the Dow plunged by 3.4 percent, the S&P 500 tumbled by 1.9 percent and the tech-heavy Nasdaq fell by 0.3 percent.

The Dow extended a recent downtrend, which saw the blue chip index close lower for the fifth straight session and eight out of the past ten.

Concerns about the outlook for monetary policy continued to weigh on the markets following the Federal Reserve’s announcement on Wednesday.

The Fed’s forecast for two interest rates hikes in 2023 has led to speculation that the central bank will soon start tapering its asset purchases.

Fed Chair Jerome Powell said the central bank would provide “advance notice” before making any changes to its asset purchases, but traders remain on edge about stocks losing a key layer of support.

Overall trading activity was somewhat subdued, however, with a lack of major U.S. economic data keeping some traders on the sidelines.

Brokerage stocks moved sharply lower over the course of the session, dragging the NYSE Arca Broker/Dealer Index down by 2.7 percent to its lowest closing level in a month.

Substantial weakness was also visible among oil stocks, reflected by the 2.8 percent slump by the NYSE Arca Oil Index.

The weakness in the oil sector came despite a rebound by the price of crude oil, with crude for July delivery climbing $0.60 to $71.64 a barrel after tumbling $1.11 to $71.04 a barrel on Thursday.

Natural gas, gold and networking stocks also saw considerable weakness on the day, moving lower along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are rising $0.16 to $71.80 barrel after climbing $0.60 to $71.64 a barrel last Friday. Meanwhile, after falling $5.80 to $1,769 an ounce in the previous session, gold futures are advancing $7.10 to $1,776.10 an ounce.

On the currency front, the U.S. dollar is trading at 110.14 yen versus the 110.21 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.1887 compared to last Friday’s $1.1864.

Asia

Asian stocks fell sharply on Monday on fears about early tapering after a Fed official said inflation risks may warrant higher interest rates by 2022, a year sooner than his colleagues’ projections. Federal Reserve Chair Jerome Powell is scheduled to testify at a House hearing on Tuesday.

Chinese shares ended a tad higher as the country’s central bank kept its benchmark lending rates unchanged, as widely expected. The one-year loan prime rate was maintained at 3.85 percent and the five-year loan prime rate was retained at 4.65 percent.

China’s Shanghai Composite Index ended up 4.09 points, or 0.1 percent, at 3,529.18, while Hong Kong’s Hang Seng Index slumped 312.27 points, or 1.1 percent, to 28,489.

Japanese shares plummeted and the safe-haven yen firmed up as the Fed’s hawkish tilt hit riskier assets. The Nikkei 225 Index plunged 953.15 points, or 3.3 percent, to 28,010.93, logging its lowest closing since May 17 and the biggest point drop since February 26. The broader Topx closed 2.4 percent lower at 1,899.45.

Rubber product, chemical and insurance issues paced the decliners, while air transportation issues bucked the weak trend.

Exporters Toyota, Panasonic, Sharp Corp and Honda Motor lost 2-4 percent as the U.S. dollar slipped into the upper 109-yen range amid safe haven demand.

Heavyweight Softbank Group tumbled 3.5 percent, Uniqlo operator Fast Retailing shed 4.4 percent and robot maker Fanuc gave up 5.6 percent.

Australian markets registered their steepest drop in nearly five weeks as investors fretted over a U.S. rate hike approaching faster than previously expected.

The benchmark S&P/ASX 200 Index tumbled 133.60 points, or 1.8 percent, to finish at 7,235.30, while the broader All Ordinaries Index ended down 139.10 points, or 1.8 percent, at 7,485.20.

Financials declined the most, with Commonwealth Bank plunging 5.4 percent after announcing it would sell its general insurance business CommInsure. The other three big banks lost 2-3 percent.

Mining heavyweights BHP and Rio Tinto gave up 2 percent and 2.8 percent, respectively, while gold miners Evolution and Newcrest posted modest gains.

Energy stocks such as Woodside Petroleum, Santos, Origin Energy and Oil Search dropped 1-3 percent. Boral gained 1.3 percent on news the company would sell its North American building products business for $2.15 billion.

The total value of retail sales in Australia was up a seasonally adjusted 0.1 percent month-on-month in May, official data showed today, missing expectations for an increase of 0.5 percent following the 1.1 percent increase in April.

Seoul stocks ended notably lower on concerns about rising prices and possible rate hikes sooner and faster. The Kospi slid 27.14 points, or 0.8 percent, to close at 3,240.79.

Automaker Hyundai Motor shed 0.9 percent and chipmaker SK Hynix lost 2 percent, while pharmaceutical firm Samsung Biologics rallied 2.2 percent.

Europe

European stocks have moved higher on Monday and yields have held steady, as investors await a speech by ECB President Christine Lagarde before the European Parliament for directional cues. Analysts expect her to maintain the ECB’s dovish stance, saying that it is too soon to consider tapering support.

Elsewhere, St. Louis Federal Reserve President Jim Bullard offered a fresh dose of hawkishness, saying he sees an initial interest rate increase happening in 2022.

While the German DAX Index has climbed by 0.7 percent, the French CAC 40 Index and the U.K.’s FTSE 100 Index are both up by 0.2 percent.

Banks have moved broadly lower on concerns that they could face challenges in their bond portfolios in a rising interest rate regime.

Italian-American vehicle maker CNH Industrial has rallied after it agreed to buy Raven Industries at an enterprise value of $2.1 billion.

Vivendi shares have edged higher in Paris. Hedge fund billionaire William Ackman’s Pershing Square Tontine Holdings Ltd. has agreed to acquire 10 percent of Universal Music Group from the French media conglomerate for about $4 billion, the companies said in a statement on Sunday.

British supermarket chain Morrisons Supermarkets has shown a substantial move to the upside following a takeover pursuit.

The company confirmed an unsolicited highly conditional non-binding cash offer of 230 pence per share from Clayton, Dubilier & Rice Funds XI or CD&R. The Board, however, rejected the conditional proposa,l saying it significantly undervalues the firm.

Travel-related stocks are moving lower as U.K. scientists warned of a “miserable winter” due to new respiratory viruses related to the Delta variant, which originated in India.

In economic news, British households’ optimism about their finances over the next twelve months reached its highest level in five years in the second quarter, survey results from IHS Markit showed.

The headline Scottish Widows household finance index, which measures households’ overall perceptions of financial wellbeing, rose to 44.7 in the second quarter from 42.0 in the first quarter.

The indicator signaled the weakest deterioration in U.K. household finances since the COVID-19 pandemic began.

U.S. Economic Reports

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

Stocks In Focus

Shares of Raven Industries (RAVN) are skyrocketing in pre-market trading after the agricultural equipment maker agreed to be acquired by CNH Industrial (CNHI) for $58 per share or approximately $2.1 billion.

Sam Adams brewer Boston Beer (SAM) is also likely to see initial strength after Guggenheim reiterated its Buy rating on the company’s stock and named it a “top pick.”

Shares of ZipRecruiter (ZIP) may also move to the upside after Goldman Sachs initiated coverage of the jobs website operator’s stock with a Buy rating,

On the other hand, shares of MicroStrategy (MSTR) is moving lower along with bitcoin in pre-market trading, as the business analytics company is a major investors in the cryptocurrency.