Profit Taking May Contribute To Initial Pullback On Wall Street

The major U.S. index futures are currently pointing to a lower open on Tuesday, with stocks likely to give back ground after moving sharply higher over the course of the previous session.

Profit taking may contribute to an initial pullback on Wall Street, as traders cash in on recent strength in the markets.

The rally seen on Monday added to the strong gains posted last week, with the Dow and the S&P 500 reaching their best levels in a month.

Traders may look to pull some money out of stocks amid uncertainty ahead of the release of quarterly results from tech giants Alphabet (GOOGL) and Microsoft (MSFT) after the close of trading.

The downward momentum on Wall Street comes despite a positive reaction to earnings news from a number of big-name companies.

Shares of General Motors (GM), Coca-Cola (KO) and UPS (UPS) are seeing pre-market strength after the companies all reported better than expected third quarter earnings.

On the other hand, shares of 3M (MMM) may move to the downside after the conglomerate reported mixed third quarter results and lowered its full-year guidance.

Stocks fluctuated early in the session on Monday but moved sharply higher over the course of the trading day. The major averages added to the strong gains posted last Friday, with the Dow and the S&P 500 reaching their best closing levels in a month.

The major averages pulled back off their highs of the session going into the close but remained firmly positive. The Dow surged 417.06 points or 1.3 percent to 31,499.62, the Nasdaq advanced 92.90 points or 0.9 percent to 10,952.61 and the S&P 500 jumped 44.59 points or 1.2 percent to 3,797.34.

The strength that emerged on Wall Street partly reflected optimism the Federal Reserve will signal a slowdown in monetary policy tightening following its meeting next week.

The Fed is widely expected to raise interest rates by another 75 basis points next week, but traders are hopeful the central bank will indicate plans to slow the pace of rates hikes beginning in December.

The optimism partly stems from a Wall Street Journal report suggesting some Fed officials have expressed greater unease with the aggressive pace of rate hikes.

“U.S. stocks rallied as momentum builds on calls that the Fed will be tapping the tightening brakes after next week’s policy meeting,” said Edward Moya, senior market analyst at OANDA.

He added, “Fed rate hike expectations will remain volatile, but expectations are growing that a weaker economy will let the Fed pause their tightening after the February policy meeting.”

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

A report on personal income and spending that includes a reading on inflation said to be preferred by the Fed is likely to be in focus in the coming days.

Traders are also likely to keep an eye on reports on consumer confidence, new home sales, and durable goods orders and third quarter GDP.

Transportation stocks turned in some of the market’s best performances on the day, resulting in a 2.9 percent surge by the Dow Jones Transportation Average. The average jumped to its best closing level in a month.

Significant strength was also visible among banking stocks, as reflected by the 1.8 percent gain posted by the KBW Bank Index.

Healthcare and pharmaceutical stocks also saw considerable strength, with the Dow Jones U.S. Health Care Index and the NYSE Arca Pharmaceutical Index climbing by 1.7 percent and 1.6 percent, respectively.

Oil, retail and housing stocks also moved notably higher over the course of the session, while steel stocks showed a substantial move to the downside.

Commodity, Currency Markets

Crude oil futures are sliding $0.94 to $83.64 a barrel after falling $0.47 to $84.58 a barrel on Monday. Meanwhile, after edging down $2.20 to $1,654.10 an ounce in the previous session, gold futures are slipping $7.70 to $1,646.40 an ounce.

On the currency front, the U.S. dollar is trading at 148.84 yen compared to the 148.91 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $0.9864 compared to yesterday’s $0.9874.

Asia

Asian stocks turned in a mixed performance on Tuesday, as concerns over China’s growth prospects and a new political order in the country offset hopes of a Fed pivot.

The U.S. dollar stabilized at lower levels amid growing bets that a pronounced economic slowdown will push the Federal Reserve into softening its hawkish stance after a 75 basis point rate hike in November.

China’s Shanghai Composite Index finished marginally lower at 2,976.28 amid signs that the country won’t compromise on issues over Taiwan and the zero-COVID policy.

Hong Kong’s Hang Seng Index edged down 0.1 percent to 15,165.59 amid fears about Xi Jinping’s shocking move to tighten his grip on power at a major leadership reshuffle.

The Taiwan Weighted Index, which is heavily exposed to the Chinese market, tumble 1.5 percent to 12,666.12 on concerns over U.S. restrictions on semiconductor exports to China.

Japanese stocks rallied on earnings optimism after electric motor maker Nidec Corp. posted record second-quarter operating profits. The Nikkei 225 Index jumped 1.0 percent to 27,250.28, while the broader Topix closed 1.1 percent higher at 1,907.14.

Nidec shares surged 5 percent, while market heavyweight SoftBank Group climbed 3.8 percent. Tsuburaya Fields Holdings, a pachinko machine maker, soared 16.6 percent after raising its full-year operating profit forecast.

Seoul stocks ended little changed with a negative bias as caution set in ahead of earnings reports to be released by major companies later this week.

Chemical and steel companies led losses, with LG Chem tumbling 4 percent and Posco Holdings declining 3.4 percent.

Australian stocks eked out modest gains, led by tech and financial stocks. The benchmark S&P/ASX 200 Index rose 0.3 percent to 6,798.60 as investors awaited the country’s annual budget for cues on economic outlook.

The broader All Ordinaries Index edged up 0.2 percent to 6,993.70. Fuel refiner Ampol slumped 12.6 percent after missing its earnings estimates.

Europe

European shares are turning in a mixed performance on Tuesday, as investors digest a slew of earnings updates and look ahead to the policy meetings by the European Central Bank and Federal Reserve for directional cues.

As the initial euphoria over the election of Rishi Sunak as the U.K. Prime Minister fades, investors now await Finance Minister Jeremy Hunt’s budget on October 31 to see how he plans to plug a £40 billion black hole in Britain’s public finances exacerbated by Lizz Truss’s disastrous package of unfunded tax cuts.

In economic news, German business confidence dropped slightly in October, survey results from ifo Institute showed earlier today. The business confidence index fell less than expected to 84.3 in October from 84.4 in the previous month. The score was seen at 83.3.

While the French CAC 40 Index is up by 0.2 percent, the U.K.’s FTSE 100 Index is down by 0.8 percent and the German DAX Index is down by 1.0 percent.

Swiss banking giant UBS Group AG has shown a strong move to the upside after beating profit expectations in its third quarter.

Sika AG has also moved higher. The U.K.’s Competition and Markets Authority announced that it was considering a solution to address concerns relating to the merger of Sika AG and MBCC Group.

Online beauty products seller THG has also moved sharply higher after reiterating its full-year guidance.

Air Liquide has also jumped. After delivering significantly higher revenue in the third quarter, the industrial gases company said it is confident in its ability to further increase its operating margin and to deliver recurring net profit growth, at constant exchange rates.

SAP has also rallied after the German business software maker said it would miss deadline to exit Russia before the end of the year.

On the other hand, Alfa Laval has plummeted after the Swedish engineering group missed quarterly earnings forecasts.

HSBC Holdings has also plunged after the bank reported higher than expected charges for possible loan losses in its third-quarter results.

Remy Cointreau shares have also slumped in Paris after the spirits firm said that sales and profit growth in the second half would be slower than the first half.

Chemicals maker Covestro has also moved to the downside after cutting its 2022 earnings guidance for the third time this year.

U.S. Economic Reports

Standard & Poor’s is scheduled to release its report on home prices in major metropolitan areas in the month of August at 9 am ET.

At 10 am ET, the Conference Board is due to release its report on consumer confidence in the month of October. The consumer confidence index is expected to dip to 106.0 in October from 108.0 in September.

The Treasury Department is scheduled to announce the results of this month’s auction of $42 billion worth of two-year notes at 1 pm ET.

Stocks In Focus

Shares of Xerox (XRX) are moving sharply lower in pre-market trading after the office equipment maker reported weaker than expected third quarter earnings.

JetBlue Airways (JBLU) may also move to the downside after the airline reported a third quarter profit but missed analyst estimates.

Meanwhile, shares of Logitech (LOGI) are seeing significant pre-market strength after reporting better than expected fiscal second quarter earnings and reiterating is full-year guidance.

Paint and coatings company Sherwin-Williams may also seen an initial jump after reporting third quarter results bat beat analyst estimates on both the top and bottom lines.