Profit Taking May Lead To Initial Pullback On Wall Street

The major U.S. index futures are currently pointing to a lower open on Monday, with stocks likely to give back ground after closing higher for four consecutive sessions.

Profit taking may contribute to initial weakness on Wall Street after the recent winning streak lifted the major averages to record closing highs last Friday.

The rally represented a remarkable turnaround for the markets following the sell-off last Monday, which dragged the major averages down to their lowest closing levels in almost a month.

Upbeat earnings news contributed to rebound along with continued optimism about the economy despite some concerns about the spread of new coronavirus variants.

Overall trading activity may be somewhat subdued, however, as traders may be reluctant to make significant moves ahead of the Federal Reserve’s monetary policy announcement on Wednesday.

The Fed is expected to leave interest rates unchanged, but traders will be paying close attention to any comments regarding the central bank’s asset purchase program.

Traders are also likely to keep an eye on some key U.S. economic data, including reports on durable goods orders, consumer confidence, second quarter GDP and personal income and spending.

Not long after the start of trading, the Commerce Department is scheduled to release its report on new home sales in the month of June. New home sales are expected to jump by 3.5 percent in June after tumbling by 5.9 percent in May.

Earnings news may also continue to attract attention this week, with Tesla (TSLA), General Electric (GE), Alphabet (GOOGL), Apple (AAPL), Microsoft (MSFT), Boeing (BA), McDonald’s (MCD), Pfizer (PFE), Amazon (AMZN), and Exxon Mobil (XOM) among a slew of companies due to report their quarterly results.

Stocks showed a strong move to the upside during trading on Friday, extending the rebound from the steep drop seen on Monday. With the continued advance, the major averages all reached new record closing highs.

The major averages finished the session just off their highs of the day. The Dow climbed 238.20 points or 0.7 percent to 35,061.55, the Nasdaq surged up 152.39 points or 1 percent to 14,836.99 and the S&P 500 jumped 44.31 points or 1 percent to 4,411.79.

For the week, the Dow shot up by 1.1 percent, while the S&P 500 spiked by 2 percent and the Nasdaq soared by 2.8 percent.

The continued strength on Wall Street partly reflected a positive reaction to upbeat earnings news from several big-name companies.

Shares of Snap (SNAP) soared after the Snapchat parent reported an unexpected second quarter profit on better than expected revenues.

Social media giant Twitter (TWTR) also moved notably higher after reporting second quarter results that exceeded analyst estimates and providing upbeat revenue guidance.

Shares of American Express (AXP) also moved to the upside after the financial services company reported second quarter results that beat expectations on both the top and bottom lines.

On the other hand, shares of Intel (INTC) came under pressure after the semiconductor giant reported better than expected second quarter results but provided disappointing guidance.

Housing stocks moved sharply higher over the course of the session, driving the Philadelphia Housing Sector Index up by 2.3 percent.

The index continued to rebound after ending Monday’s trading at its lowest closing level in almost four months.

Significant strength also emerged among utilities stocks, as reflected by the 1.3 percent advance by the Dow Jones Utilities Average.

Networking, software and pharmaceutical stocks also saw notable strength on the day, while oil service stocks fell sharply despite amid a modest increase by the price of crude oil.

Commodity, Currency Markets

Crude oil futures are edging down $0.08 to $71.99 barrel after inching up $0.16 to $72.07 a barrel last Friday. Meanwhile, after slipping $3.60 to $1,801.80 an ounce in the previous session, gold futures are ticking up $1.30 to $1,803.10 an ounce.

On the currency front, the U.S. dollar is trading at 110.38 yen versus the 110.55 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.1782 compared to last Friday’s $1.1771.

Asia

Asian stocks ended mostly lower on Monday as Beijing’s widening technology sector crackdown overshadowed investor optimism over economic and earnings growth.

Investors also turned their attention to the U.S. Federal Open Market Committee meeting this week for clues on the timing of stimulus tapering.

China’s Shanghai Composite Index tumbled 82.96 points, or 2.3 percent, to close at 3,467.44 amid concerns over China’s crackdowns on industries from tech to real estate and education firms.

Hong Kong’s Hang Seng Index plunged 1,129.66 points, or 4.1 percent, to 26,192.32, as tech firms took another hit from China’s clampdown on the sector.

Tencent Holdings plummeted 7.7 percent after China’s market regulator said it would bar the company from exclusive music copyright agreements.

Japanese shares posted strong gains as traders returned to their desks after a four-day weekend that marked the opening of the Tokyo Olympics.

The Nikkei 225 Index climbed 285.29 points, or 1 percent, to 27,833.29, while the broader Topix closed 1.1 percent higher at 1,925.62.

Tokyo Steel Manufacturing soared 9.3 percent after raising its earnings forecast. Nippon Steel jumped 3.7 percent and JFE Holdings surged 4.7 percent. Nidec tumbled 3.2 percent after the company stuck to its full-year forecast.

Heavyweight SoftBank Group dropped 2.1 percent on concerns over China’s abrupt crackdown on Didi and other tech firms.

The manufacturing sector in Japan continued to expand in July, albeit at a slower pace, the latest survey from Jibun Bank revealed, with a manufacturing PMI score of 52.2. That’s down from 52.4 in June.

Australian markets gave up early gains to end marginally lower after three straight sessions of gains. Gold miners Evolution, Newcrest and Regis Resources dropped about 2 percent as bullion prices fell.

Energy stocks such as Oil Search, Origin Energy, Santos and Woodside Petroleum gave up 1-2 percent as oil prices fell nearly $1 barrel in Asian trading on concerns about fuel demand due to the spread of COVID-19 variants as well as floods in China.

Commercial property giant GPT Group lost 2.7 percent after withdrawing its 2021 guidance. Lynas shares soared 10.6 percent after the rare earth producer reported record revenue in its fourth quarter. BHP, Mineral Resources and Rio Tinto climbed 1-2 percent, while OZ Minerals surged 3.9 percent.

Seoul stocks ended notably lower after health authorities decided to tighten social-distancing rules across most of the country amid worries that the worst-ever COVID-19 wave might spread further during the summer holiday season.

The benchmark Kospi slid 29.47 points, or 0.9 percent, to 3,224.95, with SK Hynix and LG Chem both falling around 1.3 percent.

Europe

European stocks have fallen in cautious trade on Monday after a government crackdown pushed China stocks to their worst day in a year and a survey showed German business confidence weakened unexpectedly in July.

The German business sentiment index fell to 100.8 in July from a revised 101.7 in June, the ifo Institute said. The score was forecast to rise to 102.1 from June’s initially estimated value of 101.8.

Rising COVID-19 infections also dented sentiment, with Russia’s total virus cases surpassing 6 million and Turkey reporting a tripling of cases on Sunday compared with earlier this month.

The key event of the week for markets is the Fed meeting, where investors will look for Fed Chair Jerome Powell’s comments on inflation and interest rates.

On the earnings front, more than one third of S&P 500 companies are set to unveil their quarterly earnings this week, headlined by Facebook, Tesla, Apple, Alphabet, Microsoft and Amazon.com.

While the French CAC 40 Index is just below the unchanged line, the U.K.’s FTSE 100 Index is down by 0.1 percent and the German DAX Index is down by 0.3 percent.

Dutch technology investor Prosus, which has a 28.9 percent stake in Tencent Holdings, has moved sharply lower after Beijing intensified its regulatory crackdown on the Chinese internet giant.

Koninklijke Philips has also shown a notable move to the downside after reporting a decrease in second quarter net profit.

Credit Suisse was marginally lower after the Swiss banking giant said it reached an out-of-court settlement with its former wealth-management executive over allegations of spying.

ABB was little changed after reports it is in advanced talks to sell its mechanical power transmission business to RBC Bearings Inc.

Faurecia shares have declined despite the French car parts maker posting higher first-half sales and profit and upgrading its 2021 cash flow target.

Meanwhile, low-cost carrier Ryanair has jumped. The company lifted its full-year traffic forecasts after reporting a narrower than expected first quarter loss.

Meat producer Cranswick has also moved to the upside after saying its full-year outlook remains in line with management expectations.

U.S. Economic Reports

The Commerce Department is scheduled to release its report on new home sales in the month of June at 10 am ET. New home sales are expected to jump by 3.5 percent in June after tumbling by 5.9 percent in May.

At 1 pm ET, the Treasury Department is due to announce the results of this month’s auction of $60 billion worth of two-year notes.

Stocks In Focus

Shares of Didi Global (DIDI) are moving sharply lower in pre-market trading after Atlantic Equities downgraded its rating on the Chinese ride hailing company to Neutral from Overweight amid concerns about the impact of new regulations.

Chinese education companies TAL Education Group (TAL) and Gaotu Techedu (GOTU) are also likely to see significant after China announced new restrictions related to for-profit tutoring services.

On the other hand, shares of Hasbro (HAS) may move to the upside after the toy maker reported second quarter results that exceeded analyst estimates on both the top and bottom lines.