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 following the strong upward move seen last week.

Traders may look to cash in on recent gains for the markets amid lingering concerns about the outlook for the economy, inflation and interest rates.

Trading activity may be somewhat subdued, however, as traders look ahead to the release of the closely watched monthly jobs report on Friday.

Stocks moved sharply higher over the course of the trading day on Friday, adding to the strong gains posted on Wednesday and Thursday. With the extended rally, the tech-heavy Nasdaq reached a nearly three-month closing high, while the Dow and the S&P 500 reached their best closing levels in well over a month.

The major averages pulled back off their highs going into the close but remained firmly positive. The Dow jumped 315.50 points or 1 percent to 32,845.13, the Nasdaq shot up 228.09 points or 1.9 percent to 12,390.69 and the S&P 500 surged 57.86 points or 1.4 percent to 4,130.29.

For the week, the Nasdaq and the S&P 500 spiked by 4.7 percent and 4.3 percent, respectively, while the narrower Dow leapt by 3.0 percent.

The three-day rally also capped off a strong month for stocks, with the major averages recording their best monthly gains since 2020.

The continued strength on Wall Street partly reflected a largely positive reaction to the latest batch of earnings news from big-name companies.

Shares of Amazon (AMZN) moved sharply higher after the online retail giant reported better than expected second quarter revenues and provided upbeat guidance.

Tech giant Apple (AAPL) also showed a strong move to the upside after reporting fiscal third quarter results that exceeded analyst estimates on both the top and bottom lines.

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

A steep drop by Procter & Gamble (PG) also limited the upside for the Dow after the consumer products giant reported fiscal fourth quarter earnings that missed analyst estimates and forecast results for fiscal 2023 below expectations.

Meanwhile, traders largely shrugged off a report from the Commerce Department showing an acceleration in the pace of consumer price growth.

The report showed the annual rate of growth by the personal consumption expenditures price index accelerated to 6.8 percent in June from 6.3 percent in May, showing the fastest growth since January 1982.

The annual rate of growth by core consumer prices, which exclude food and energy prices, also accelerated to 4.8 percent in June from 4.7 percent in May.

The inflation data, which is said to be preferred by the Federal Reserve, was included in a report showing personal income increased by slightly more than expected in the month of June.

Retail stocks saw substantial strength on the upbeat earnings news from Amazon, driving the Dow Jones U.S. Retail Index up by 4.3 percent to its best closing level in almost three months.

Substantial strength was also visible among energy stocks, which surged along with the price of crude oil. Reflecting the strength in the energy sector, the Philadelphia Oil Service Index and the NYSE Arca Oil Index spiked by 4.1 percent and 3.7 percent, respectively.

Energy giants Exxon Mobil (XOM) and Chevron (CVX) posted strong gains after reporting better than expected quarterly earnings.

Steel, transportation and financial also saw considerable strength on the day, while tobacco and pharmaceutical stocks bucked the uptrend.

Commodity, Currency Markets

Crude oil futures are plunging $3.54 to $95.08 a barrel after surging $2.20 to $98.62 a barrel last Friday. Meanwhile, after climbing $12.60 to $1,781.80 an ounce in the previous session, gold futures are rising $5.80 to $1,787.60 an ounce.

On the currency front, the U.S. dollar is trading at 132.27 yen versus the 133.27 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.0235 compared to last Friday’s $1.0220.

Asia

Asian stocks ended broadly higher on Monday after key U.S. benchmark indexes finished July 2022 with the largest gains since 2020 on the back of better-than-expected earnings and easing concerns over the need for continued aggressive interest rate hikes by the U.S. Federal Reserve.

The dollar index fell and U.S. Treasury yields declined following some slightly less hawkish messaging from the Fed last week. Oil prices declined in Asian trading as weak Chinese factory activity data stoked demand concerns.

Chinese stocks fluctuated before ending slightly higher for the day. The benchmark Shanghai Composite Index edged up 0.2 percent to 3,259.96, while Hong Kong’s Hang Seng Index closed marginally higher at 20,165.84, reversing an early slide.

China’s factory activity contracted unexpectedly in July, the National Bureau of Statistics said Sunday, with the corresponding PMI falling to 49 from 50.2 in June as a result of fresh COVID-19 outbreaks.

The non-manufacturing gauge, which measures activity in the construction and services sectors, dropped to 53.8 from 54.7, and overall property loans rose at the slowest rate on record as of the end of June -underlining the economic challenges facing the country.

The Caixin/Markit manufacturing PMI eased to 50.4 from 51.7 in the previous month, adding to calls for more policy stimulus to fuel growth.

Japanese shares advanced as earnings optimism outweighed lingering concerns about a challenging macroeconomic environment.

Japan’s manufacturing activity expanded at the weakest rate in 10 months in July, as pressure from rising prices and supply disruptions hurt output and new orders, a survey showed.

The final au Jibun Bank Japan manufacturing PMI dropped to a seasonally adjusted 52.1 in July from the previous month’s 52.7 final – marking the slowest pace of growth since September last year.

The Nikkei 225 Index rose 0.7 percent to 27,993.35, while the broader Topix Index closed 1 percent higher at 1,960.11. Chip-linked shares led the surge, with Tokyo Electron, Screen Holdings, Shin-Etsu Chemical and Advantest climbing 1-4 percent.

Toyota Motor jumped 3.5 percent and Nippon Yusen surged 3.1 percent ahead of their earnings results due later in the week. Sony Group lost 3.2 percent after downgrading its profit outlook for the fiscal year.

Seoul stocks ended on a flat note as data showed the country’s factory activity shrank in July for the first time in nearly two years. Exports grew at a faster annual pace in July than a month earlier, while the trade deficit widened to the biggest in six months due to high commodity prices, separate data showed.

Australian markets rose notably, led by miners, utilities and energy companies. The benchmark S&P/ASX 200 Index climbed 0.7 percent to 6,993, extending gains for a fifth straight session and marking the longest winning streak since April. The broader All Ordinaries Index ended up 0.6 percent at 7,213.

Europe

European stocks have moved mostly higher on Monday after key U.S. benchmark indexes finished July 2022 with largest gains since 2020 on the back of better-than-expected earnings and easing concerns over the need for continued aggressive interest rate hikes by the U.S. Federal Reserve.

The upside remained capped by mixed earnings updates and the latest manufacturing surveys showed weakening factory activity in Asia and Europe.

Asian manufacturing output continued to weaken in July amid lingering supply-chain complications and a slowing global economy, a slew of surveys showed earlier in the day.

Also, factory activity across the euro zone contracted in July, adding to concerns the bloc could fall into a recession. The region’s manufacturing PMI index fell to 49.8 from 52.1 in June, S&P Global said.

German retail sales logged an annual decline of 8.8 percent in June, the biggest fall since the beginning of time series in 1994, Destatis said. Sales were expected to fall 8.0 percent after rising 1.1 percent in May.

The Eurozone unemployment rate came in unchanged at 6.6 percent in June, matching expectations.

While the French CAC 40 Index has risen by 0.4 percent, the German DAX Index and the U.K.’s FTSE 100 Index are both up by 0.6 percent.

HSBC Holdings soared 6 percent after the British lender reported second-quarter earnings that beat analysts’ forecasts.

Pearson surged 6.2 percent. The publishing and education firm reaffirmed its full-year guidance after posting a 22 percent rise in first-half adjusted operating profit.

Spectris, a supplier of precision instrumentation and controls, plunged nearly 7 percent despite reporting higher revenue and adjusted operating profit for the first six months of 2022.

AstraZeneca dropped 1 percent. Innate Pharma SA announced that a planned futility interim analysis of the INTERLINK-1 Phase 3 study sponsored by AstraZeneca did not meet a pre-defined threshold for efficacy.

Heineken NV fell 1.8 percent. After posting strong first-half results, the world’s second-largest brewer has warned of strong headwinds from inflation in the next 18 months.

Swedish real estate company SBB slumped 5.6 percent after Goldman Sachs downgraded the stock to ‘sell’ from ‘neutral’.

U.S. Economic Reports

The Institute for Supply Management is scheduled to release its report on activity in the manufacturing sector in the month of July at 10 am ET.

The ISM’s manufacturing PMI is expected to edge down to 52.0 in July from 53.0 in June, although a reading above 50 would still indicate growth in the sector.

Also at 10 am ET, the Commerce Department is due to release its report on construction spending in the month of June. Construction is expected to inch up by 0.2 percent.