Profit Taking May Lead To Initial Pullback On Wall Street

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

Traders may look to cash in on some of the recent strength in the markets, which saw the Nasdaq and the S&P 500 close higher for six consecutive sessions.

The recent upward trend has seen the major averages largely offset the sell-off seen early this month, although they remain well off the record highs set in July.

Selling pressure is likely to remain somewhat subdued, however, as recent economic data has eased concerns about the economic outlook while also increasing confidence the Federal Reserve will cut interest rates next month.

While yesterday’s upbeat retail sales data has reduced the likelihood of a 50 basis point rate cut, the Fed is still widely expected to cut rates by at least 25 basis points.

After trending higher over the past several sessions, stocks showed another significant move to the upside during trading on Thursday. The major averages all posted strong gains, with the Nasdaq and the S&P 500 extending their winning streaks to six days.

The major averages pulled back off their best levels going into the close but remained sharply higher. The Nasdaq soared 401.89 points or 2.3 percent to 17,594.50, the S&P 500 surged 88.01 points or 1.6 percent to 5,543.22 and the Dow jumped 554.67 points or 1.4 percent to 40,563.06.

The rally on Wall Street came as the Commerce Department released a report showing much stronger than expected retail sales growth in July, easing concerns about the economic outlook.

The Commerce Department said retail sales jumped by 1.0 percent in July after edging down by a revised 0.2 percent in June.

Economists had expected retail sales to rise by 0.3 percent compared to the unchanged reading originally reported for the previous month.

Excluding a surge in sales by motor vehicle and parts dealers, retail sales still rose by 0.4 percent in July after climbing by 0.8 percent in June. Ex-auto sales were expected to inch up by 0.1 percent.

Shares of Walmart (WMT) also moved sharply higher after the retail giant reported fiscal second quarter results that exceeded analyst estimates and raised its full-year guidance.

Positive sentiment was also generated in reaction to a Labor Department report showing an unexpected decline by first-time claims for U.S. unemployment benefits in the week ended August 10th.

The Labor Department said initial jobless claims fell to 227,000, a decrease of 7,000 from the previous week’s revised level of 234,000.

Economists had expected jobless claims to inch up to 235,000 from the 233,000 originally reported for the previous week.

“If the economy continues to be resilient – especially in conjunction with slowing inflation – then the Fed can begin a rate cutting cycle without the economy entering recession and history shows this is an extremely positive environment for the stock market,” said Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance.

Meanwhile, traders largely shrugged off a report from the Federal Reserve showing industrial production in the U.S. fell by much more than expected in the month of July.

The report said industrial production decreased by 0.6 percent in July after rising by a downwardly revised 0.3 percent in June.

Economists had expected industrial production to dip by 0.3 percent compared to the 0.6 percent increase originally reported for the previous month.

Semiconductor stocks saw substantial strength on the day, resulting in a 4.9 percent spike by the Philadelphia Semiconductor Index.

Significant strength was also visible among airline stocks, with the NYSE Arca Airline Index soaring by 4.4 percent.

Networking stocks also moved sharply higher, as reflected by the 3.5 percent surge by the NYSE Arca Networking Index.

Cisco Systems (CSCO) led the sector higher after reporting better than expected fiscal fourth quarter results and announcing plans to lay off 7 percent of its workforce.

Computer hardware, retail and oil service stocks also saw considerable strength amid broad based buying interest on Wall Street.

Commodity, Currency Markets

Crude oil futures are plunging $2.12 to $76.04 a barrel after jumping $1.18 to $78.16 a barrel on Thursday. Meanwhile, after climbing $12.70 to $2,492.40 an ounce in the previous session, gold futures are surging $20.20 to $2,512.60 an ounce.

On the currency front, the U.S. dollar is trading at 147.81 yen versus the 149.28 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.0988 compared to yesterday’s $1.0972.

Asia

Asian stocks advanced on Friday as encouraging U.S. data on inflation and retail sales allayed recession fears in the world’s largest economy but prompted traders to push back expectations for aggressive rate cuts by the Federal Reserve.

The dollar and U.S. Treasury yields held broadly steady in Asian trading on growing optimism that the U.S. economy is headed for a soft landing.

Gold was marginally lower but was on track for a weekly gain on optimism that the Fed will ease the interest rate by at least 25 points in September.

Likewise, oil prices dipped but were poised for a weekly gain on renewed enthusiasm about the U.S. economic outlook and amid heightened tensions in the Middle East.

China’s Shanghai Composite Index finished marginally higher at 2,879.43 after a choppy session. Hong Kong’s tech-heavy Hang Seng Index jumped 1.9 percent to 17,430.16.

Japanese markets rallied as the yen gave back some of its recent gains and growth fears faded. The Nikkei 225 Index surged 3.6 percent to 38,062.67, logging its second-largest daily gain for the year and posting its best weekly gain in more than four years. The broader Topix Index settled 3.0 percent higher at 2,678.60.

Index heavyweight Fast Retailing spiked 6.2 percent and electrical component maker Fujikura soared 11.4 percent, while tech stocks such as Advantest and Tokyo Electron shot up 5-7 percent.

Seoul stocks posted strong gains, with the Kospi jumping 2.0 percent to 2,697.23 led by technology stocks. Market bellwether Samsung Electronics surged 3.9 percent and SK Hynix soared 7 percent as U.S. economic slowdown fears eased. Automaker Hyundai Motor climbed 5.8 percent and Kia Corp. added 3.5 percent.

Australian markets notched their sixth straight session of gains, with miners leading the surge on optimism about the U.S. economy. BHP, Rio Tinto and Fortescue Metals Group rose 2-3 percent.

The benchmark S&P/ASX 200 Index ended 1.3 percent higher at 7,971.10, while the broader All Ordinaries Index leapt 1.3 percent to 8,189.90.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index edged up 0.1 percent to 12,727.75.

Europe

European stocks were broadly higher on Friday, rising for a fourth straight session as strong U.S. retail sales data and low weekly jobless claims figures soothed fears of an impending recession in the world’s largest economy.

This week’s benign producer and consumer price inflation reports also re-affirmed bets for a 25 basis point rate cut by the Federal Reserve in September.

The pan European STOXX 600 Index is up by 0.2 after rising 1.2 percent in the previous session. The German DAX Index is up by 0.5 percent and the French CAC 40 Index is up by 0.1 percent, although the U.K.’s FTSE 100 Index is down by 0.6 percent.

The British pound strengthened against other major currencies after official data showed that U.K. retail sales volume rebounded in July – dashing investor hopes of a fourth quarter Bank of England rate cut.

U.K. retail sales increased 0.5 percent on a monthly basis in July following a revised 0.9 percent decrease in June, as summer discounting and the European football Championship boosted department stores and sports equipment stores sales.

Sales volumes advanced 1.4 percent in the year to July after poor weather impacted sales in July 2023. This follows a 0.3 percent decrease in June.

In corporate news, AstraZeneca was marginally higher after receiving priority review from the U.S. FDA for its supplemental Biologics License Application for Imfinzi to treat limited-stage small cell lung cancer.

Nibe Industrier AB has moved sharply after posting better-than -expected second quarter results.

U.S. Economic Reports

New residential construction in the U.S. saw a steep drop in the month of July, according to a report released by the Commerce Department on Friday.

The report said housing starts plunged by 6.8 percent to an annual rate of 1.238 million in July after jumping by 1.1 percent to a revised rate of 1.329 million in June.

Economists had expected housing starts to slump by 1.7 percent to an annual rate of 1.330 million from the 1.353 million originally reported for the previous month.

The Commerce Department said building permits also plummeted by 7.0 percent to an annual rate of 1.396 million in July after surging by 3.9 percent to a revised rate of 1.454 million in June.

Building permits, an indicator of future housing demand, were expected to decrease by 1.1 percent to an annual rate of 1.430 million from the 1.446 million originally reported for the previous month.

At 10 am ET, the University of Michigan is scheduled to release its preliminary reading on consumer sentiment in the month of August. The consumer sentiment index is expected to inch up to 66.9 in August after falling to 66.4 in July.

Chicago Federal Reserve President Austan Goolsbee is due to participate in a fireside chat before the Angeles Investors’ Q3 Summit and Awards Event at 1:25 pm ET.

Stocks In Focus

Shares of H&R Block (HRB) are moving sharply higher in pre-market trading after the tax services company reported better than expected fiscal fourth quarter results, increased its quarterly dividend by 17 percent and announced a $1.5 billion stock buyback.

Chinese e-commerce company JD.com (JD) may also move to the upside after reporting second quarter results that exceeded analyst estimates on both the top and bottom lines

On the other hand, shares of Applied Materials (AMAT) are seeing pre-market weakness even though the semiconductor equipment maker reported better than expected fiscal third quarter results.

Beauty company Estee Lauder (EL) may also move to the downside after Bank of America downgraded its rating on the company’s stock to Neutral from Buy.