U.S. Stocks May Regain Ground In Early Trading

The major U.S. index futures are currently pointing to a higher open on Monday, with stocks likely to regain ground following the steep drop seen last week.

Bargain hunting may contribute to initial strength on Wall Street, as some traders look to pick up stocks at reduced levels following recent weakness.

The sell-off seen last Friday dragged the Dow down to a two-month closing low, while the S&P 500 tumbled to its lowest closing level in over a month.

Overall trading activity may remain somewhat subdued, however, as traders continue to express concerns about the outlook for interest rates.

Recent economic data has led to worries the Federal Reserve will raise rates more than currently anticipated and hold rates at an elevated level for an extended period.

Stocks moved sharply lower in early trading on Friday and remained firmly negative throughout the session. With the steep drop on the day, the Dow fell to a two-month closing low, while the S&P 500 dropped to its lowest closing level in over a month.

The major averages all posted steep losses on the day. The Dow slumped 336.99 points or 1.0 percent to 32,816.92, the Nasdaq plunged 195.46 points or 1.7 percent to 11,394.94 and the S&P 500 tumbled 42.28 points or 1.1 percent to 3,970.04.

For the holiday-shortened week, the S&P 500 dove by 2.7 percent, while the Dow and the Nasdaq plummeted by 3.0 percent and 3.3 percent, respectively.

The early sell-off on Wall Street came following the release of a report from the Commerce Department showing an unexpected acceleration in the annual rate of growth by core consumer prices in the month of January.

The report said annual growth by core consumer prices, which exclude food and energy prices, accelerated to 4.7 percent in January from an upwardly revised 4.6 percent in December.

Economists had expected the annual rate of growth by core consumer prices to slow to 4.3 percent from the 4.4 percent originally reported for the previous month.

Including food and energy prices, consumer price growth also accelerated to 5.4 percent in January from 5.3 percent in December. The rate of growth was expected to slow to 4.9 percent.

The unexpected acceleration in core consumer price growth added to recent concerns about the outlook for interest rates.

Paul Ashworth, Chief North America Economist at Capital Economics, called the data “another sign that the Fed might have to leave its policy rate higher for longer.”

Meanwhile, traders largely shrugged off separate reports showing a surge in new home sales and a slightly bigger than previously estimated improvement in consumer sentiment.

Networking stocks turned in some of the worst performances on the day, with the NYSE Arca Networking Index plunging by 2.5 percent to its lowest closing level in a month.

Substantial weakness was also visible among software stocks, as reflected by the 2.3 percent slump by the Dow Jones U.S. Software Index

Adobe (ADBE) is posting a steep loss after a report from Bloomberg said the Justice Department is preparing an antitrust lawsuit seeking to block the company’s $20 billion acquisition of startup Figma.

Steel stocks also saw considerable weakness amid concerns about the outlook for demand, dragging the NYSE Arca Steel Index down by 1.9 percent.

Semiconductor, commercial real estate and biotechnology stocks also showed notable moves to the downside, while oil service and chemical stocks bucked the downtrend.

Commodity, Currency Markets

Crude oil futures are edging down $0.13 to $76.19 a barrel after jumping $0.93 to $76.32 a barrel last Friday. Meanwhile, after falling $9.70 to $1,817.10 an ounce in the previous session, gold futures are inching up $2 to $1,819.10 an ounce.

On the currency front, the U.S. dollar is trading at 136.02 yen versus the 136.48 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $01.0572 compared to last Friday’s $1.0548.

Asia

Asian stocks declined on Monday as hot inflation data from the United States stoked concerns the Federal Reserve may prolong its rate tightening cycle.

An unexpected acceleration in January of the personal consumption expenditures price index, the Fed’s favored inflation gauge, boosted Treasury yields and sent investors fleeing riskier assets. Oil prices fell on recession fears and a firmer dollar, while gold neared a two-month low.

The Fed is still very much focused on reducing inflation without collapsing demand and growth. It is feared that continued monetary policy tightening could lead to a so-called hard landing.

Chinese shares fluctuated before closing a tad lower. The benchmark Shanghai Composite Index slipped 0.3 percent to 3,258.03, while Hong Kong’s Hang Seng Index ended 0.3 percent lower at 19,943.51.

Japanese shares fell slightly, dragged down by tech stocks. The Nikkei 225 Index edged down 0.1 percent to 27,423.96, while the broader Topix closed 0.2 percent higher at 1,992.78.

Advantest, Tokyo Electron and SoftBank Group all fell around 2 percent. Gaming company Nintendo shed 1.9 percent after a downgrade by Citi.

The yen traded marginally higher versus the dollar after Bank of Japan Governor nominee Kazuo Ueda said he had ideas on how the central bank could exit its massive stimulus.

Seoul stocks declined as hotter-than-expected U.S. inflation data weighed on tech and biotechnology stocks. The Kospi settled 0.9 percent lower at 2,402.64.

Australian and New Zealand markets fell sharply as 1-year bond yields rose on concerns the Fed will keep on raising rates.

Australia’s benchmark S&P/ASX 200 Index slumped 1.1 percent to 7,224.80 as weak commodity prices weighed on mining and energy stocks. The broader All Ordinaries Index closed 1.2 percent lower at 7.419.60.

Europe

European stocks have moved notably higher Monday after suffering their worst weekly performance this year last week on concerns the Federal Reserve will keep raising rates to tame inflation.

While the U.K.’s FTSE 100 Index has climbed by 0.7 percent, the German DAX Index and the French CAC 40 Index are up by 1.6 percent and 17 percent, respectively.

British outsourcing specialist Bunzl has moved sharply higher after reporting a jump in pre-tax profits.

Auto and aircraft parts supplier Senior Plc has also moved to the upside after it returned an annual adjusted profit from a loss in the year-ago period.

Primark owner Associated British Foods has also advanced after delivering strong first-half performance and lifting its full-year earnings forecast.

Airbus has also moved higher in Paris. The plane maker, in its latest study of future demand, stated that airlines based in the Pacific region would need delivery of 920 new aircraft over the next 20 years.

Thales Group shares has also risen. The maker of electrical systems and devices announced that it is continuing its recruitment initiative in 2023 with a plan to hire over 12, 000 staff around the globe.

U.S. Economic Reports

New orders for U.S. manufactured durable goods pulled back sharply in the month of January, according to a report released by the Commerce Department on Monday.

The report said durable goods orders plunged by 4.5 percent in January after surging by a downwardly revised 5.1 percent in December.

Economists had expected durable goods orders to tumble by 4.0 percent compared to the 5.6 percent spike that had been reported for the previous month.

The steep drop by durable goods orders came as orders for transportation equipment plummeted by 13.3 percent in January after soaring by 15.8 percent in December.

Excluding orders for transportation equipment, durable goods orders climbed by 0.7 percent in January after falling by 0.4 percent in December. Economists had expected a 0.1 percent uptick.

At 10 am ET, the National Association of Realtors is scheduled to release its report on pending home sales in the month of January. Pending home sales are expected to increase by 1.0 percent in January after surging by 2.5 percent in December.

Stocks In Focus

Shares of Seagen (SGEN) are moving sharply higher in pre-market trading after a report from the Wall Street Journal said Pfizer (PFE) is in talks to acquire the cancer drug maker in a deal likely valued at more than $30 billion.

Union Pacific (UNP) is also likely to see initial strength after the railroad said it expects to name a successor to CEO Lance Fritz later this year.

Meanwhile, shares of Best Buy (BBY) may move to the downside after Telsey Advisory Group downgraded its rating on the consumer electronics retailer to Market Perform from Outperform.