Profit Taking May Lead To Initial Pullback On Wall Street

The major U.S. index futures are currently pointing to a lower open on Wednesday, with stocks likely to give back ground following the rally seen in the previous session.

Traders may look to cash in on yesterday’s gains amid lingering concerns about the economy, inflation and interest rates.

Lingering uncertainty about the strength of corporate earnings may also inspire some profit taking ahead of the release of quarterly results from a number of big-name companies in the coming days.

Tesla (TSLA), AT&T (T), Travelers (TRV), American Express (AXP), Twitter (TWTR) and Verizon (VZ) are just a few of the companies due to report their results before the end of the week.

Earnings season will continue to pick up steam next week, with Coca-Cola (KO), McDonald’s (MCD), Alphabet (GOOGL), Microsoft (MSFT), Boeing (BA), Pfizer (PFE), Amazon (AMZN), and Intel (INTC) among a slew of companies due to report their quarterly results.

However, any early negative sentiment on Wall Street may be partly offset by a notable advance by shares of Netflix (NFLX), with the streaming giant jumping by 4.2 percent in pre-market trading.

The advance by Netflix comes after the company reported better than expected second quarter earnings and a smaller than expected subscriber loss.

Stocks moved sharply higher during trading on Tuesday, more than offsetting the significant downturn seen over the course of the session on Monday. The major averages jumped early in the session and saw further upside as the day progressed.

The major averages ended the session just off their best levels of the day. The Dow surged 754.44 points or 2.4 percent to 31,827.05, the Nasdaq soared 353.10 points or 3.1 percent to 11,713.15 and the S&P 500 spiked 105.84 points or 2.8 percent to 3,936.69.

The rebound on Wall Street came as traders made another attempt at bargain hunting after the rally seen in early trading on Monday faded as the day progressed.

Optimism about upcoming earnings news was also cited as a reason for the rally, with a majority of the S&P 500 companies beating expectations so far this season.

Toymaker Hasbro (HAS) and oil services giant Halliburton (HAL) posted notable gains after reporting better than expected quarterly earnings.

On the other hand, shares of IBM Corp. (IBM) moved sharply lower after the tech giant reported better than expected second quarter results but lowered its cash flow forecast.

Healthcare giant Johnson & Johnson (JNJ) also moved to the downside after reporting second quarter results that beat analyst estimates but cutting its full-year guidance.

Meanwhile, traders largely shrugged off a report from the Commerce Department unexpectedly showing a continued decline in housing starts in the month of June.

The Commerce Department said housing starts slumped by 2.0 percent to an annual rate of 1.559 million after plunging by 11.9 percent to a revised rate of 1.591 million in May.

The continued decrease came as a surprise to economists, who had expected housing starts to jump by 2.3 percent to an annual rate of 1.585 million from the 1.549 million originally reported for the previous month.

With the unexpected decrease, housing starts dropped to the lowest annual rate since hitting 1.505 million in April of 2021.

The report showed building permits also fell by 0.6 percent to an annual rate of 1.685 million in June after tumbling by 7.0 percent to a rate of 1.695 million in May.

Building permits, an indicator of future housing demand, were expected to slump by 2.7 percent to an annual rate of 1.650 million.

Semiconductor stocks turned in some of the market’s best performances on the day, resulting in a 4.6 percent spike by the Philadelphia Semiconductor Index.

Substantial strength was also visible among airline stocks, with the NYSE Arca Airline Index soaring by 4.1 percent.

Networking stocks also saw considerable strength on the day, resulting in a 3.8 percent surge by the NYSE Arca Networking Index.

Energy, chemical, brokerage and computer hardware stocks also showed strong moves to the upside, reflecting broad based buying interest on Wall Street.

Commodity, Currency Markets

Crude oil futures are slumping $1.89 to $102.33 a barrel after jumping $1.62 to $104.22 a barrel on Tuesday. Meanwhile, after inching up $0.50 to $1,710.70 an ounce in the previous session, gold futures are edging down $1.30 to $1,709.40 an ounce.

On the currency front, the U.S. dollar is trading at 138.05 yen versus the 138.19 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.0196 compared to yesterday’s $1.0227.

Asia

Asian stocks posted strong gains on Wednesday after Wall Street rallied to its best day in more than three weeks overnight, helped by reasonably healthy corporate earnings.

Sentiment was also underpinned after Netflix reported better than expected results and a smaller subscriber loss than analysts had feared.

Chinese shares advanced amid renewed bets of a tech crackdown ending after reports suggested that authorities are preparing to impose a fine of more than $1 billion on ride-hailing firm Didi Global over data breaches.

In another development, China’s central bank kept its loan prime rate steady amid signs of economic recovery. The benchmark Shanghai Composite Index climbed 0.8 percent to 3,304.72, while Hong Kong’s Hang Seng Index ended 1.1 percent higher at 20,890.22.

Japanese stocks jumped on improved sentiment after reports suggested that Russia’s Gazprom would resume gas deliveries through the Nord Stream 1 pipeline this week, albeit at reduced capacity.

The Nikkei 225 Index soared 2.7 percent to 27,680.26, extending gains for a fifth straight session ahead of Thursday’s BoJ decision. The broader Topix closed 2.3 percent higher at 1,946.44.

Tech shares led the surge, with Advantest, Screen Holdings and Tokyo Electron rallying 4-5 percent. Technology investor SoftBank Group advanced 2.4 percent.

Seoul stocks rose notably as U.S. Treasury Secretary Janet Yellen started her two-day visit to South Korea. The Kospi climbed 0.7 percent to close at 2,386.85, with financials and chemical firms pacing the gainers. KB Financial, Shinhan Financial Group and LG Chem surged 3-5 percent.

Australian markets rose, led by gains in the banking and mining sectors. The benchmark S&P ASX 200 Index jumped 1.7 percent to 6,759.20, while the broader All Ordinaries Index shot up 1.8 percent to settle at 6,975.20.

Banks Commonwealth, NAB and Westpac rose between 0.8 percent and 1.1 percent as central bank governor Philip Lowe reiterated the need for higher interest rates to keep inflation in check.

Mining heavyweights BHP and Rio Tinto gained 1-2 percent on the back of strong metal prices. Cloud services firm Megaport soared 23 percent after reporting its first ever quarterly EBITDA profit.

Europe

After seeing early strength, European stocks have come under pressure over the course of the session ahead of the European Central Bank’s monetary policy decision on Thursday.

The European Central Bank is seen raising interest rates for the first time in 11 years at Thursday’s meeting of the governing council.

Italian Prime Minister Mario Draghi said in a speech to the Senate that he was willing to put together a new coalition.

In economic news, German producer price inflation unexpectedly eased in June from a record high in May, while U.K. consumer inflation hit a new 40-year high in June on rising motor fuel and food prices, separate reports showed.

While the German DAX Index has tumbled by 1.4 percent, the French CAC 40 Index and the U.K.’s FTSE 100 Index are down by 0.6 percent and 0.5 percent, respectively.

Postal service and courier company Royal Mail has tumbled after its fiscal first quarter group revenue fell 11.5 percent year-on-year.

Morses Club shares have also plunged after the subprime lender said it was looking at a potential program to settle customer redress claims.

ASML Holding N.V. shares are also moving lower after the Dutch semiconductor equipment maker trimmed its revenue growth forecast for fiscal 2022.

Meanwhile, Advertising firm WPP has jumped after U.S. rival Omnicom Group reported second quarter earnings that beat analysts’ forecasts.

Uniper shares have also surged after a report from Bloomberg said the company is nearing a bailout deal that may see the German government inject billions of euros and take a direct stake in the energy giant.

U.S. Economic Reports

The National Association of Realtors is scheduled to release its report on existing home sales in the month of June at 10 am ET. Existing home sales are expected to decrease by 0.6 percent to an annual rate of 5.38 million in June after slumping by 3.4 percent to a rate of 5.41 million in May.

At 10:30 am ET, the Energy Information Administration is due to release its report on oil inventories in the week ended July 15. Crude oil inventories are expected to increase by 1.4 million barrels after jumping by 3.3 million barrels in the previous week.

The Treasury Department is scheduled to announce the results of this month’s auction of $14 billion worth of twenty-year bonds at 1 pm ET.

Stocks In Focus

Shares of Baker Hughes (BKR) are seeing significant pre-market weakness after the oil services company reported weaker than expected second quarter results.

Drug giant Merck (MRK) may also move to the downside after a late-stage trial of its Keytruda cancer drug did not meet its primary endpoint of event-free survival in head and neck cancer patients.

On the other hand, shares of Omnicom Group (OMC) are moving sharply higher in pre-market trading after the ad agency operator reported second quarter results that beat analyst estimates on both the top and bottom lines.