U.S. Stocks Poised To Extend Recently Volatility With Early Rally

The major U.S. index futures are currently pointing to a notably higher open on Monday, with stocks likely to regain ground following the sharp pullback seen last Friday.

An early rally would extend recent volatility on Wall Street, as stocks showed wild swings to close out the previous week.

Traders may look to pick up stocks at reduced levels following the steep drop seen on Friday, which dragged the Nasdaq down to its lowest closing level in over two years.

A pullback by treasury yields may add to the buying interest, with the yield on the benchmark ten-year note falling below 4.0 percent.

The markets may also benefit from a positive reaction to earnings news from financial giant Bank of America (BAC).

Shares of Bank of America are jumping by 2.6 percent in pre-market trading after the company reported third quarter results that beat expectations on both the top and bottom lines.

Earnings season will continue to pick up in the coming days, as Goldman Sachs (GS), Johnson & Johnson (JNJ), Netflix (NFLX), Procter & Gamble (PG), IBM Corp. (IBM), Tesla (TSLA), AT&T (T) and American Express (AXP) are among the companies due to report their quarterly results.

After ending Thursday’s wild ride sharply higher, stocks showed a substantial pullback over the course of the trading session on Friday. The major averages all posted steep losses, with the tech-heavy Nasdaq plunging to its lowest closing level in over two years.

The major averages saw further downside going into the close, ending the day near their lows of the session. The Dow slumped 403.89 points or 1.3 percent to 29,634.83, the Nasdaq dove 327.76 points or 3.1 percent to 10,321.39 and the S&P 500 tumbled 86.84 points or 2.4 percent to 3,583.07.

For the week, the major averages turned in a mixed performance. While the Dow jumped by 1.2 percent, the S&P 500 slid by 1.5 percent and the Nasdaq plunged by 3.1 percent.

The sharp pullback on Wall Street extended the volatility seen during trading on Thursday, when stocks recovered from an early sell-off to close sharply higher.

Renewed selling pressure was generated in reaction to a report from the University of Michigan showing a rebound in inflation expectations in the month of October.

One-year inflation expectations climbed to 5.1 in October after dropping to a one-year low of 4.7 in September, while five-year inflation expectations increased to 2.9 percent in October after falling to 2.7 percent in September.

“Last month, long run inflation expectations fell below the narrow 2.9-3.1% range for the first time since July 2021, but since then expectations have returned to that range at 2.9%,” said Surveys of Consumers Director Joanne Hsu.

The data has to renewed inflation concerns after optimism inflation has peaked contributed to the substantial turnaround on Thursday.

“Wall Street can’t seem to get a handle on how high the Fed will have to take rates,” said Edward Moya, senior market analyst at OANDA.

He added, “Last week, traders were growing confident that we would just see 125bp more in rate hikes this year, now it seems like we could see 150 this year and also another one or two 25 bps rate increases next year.”

Meanwhile, traders were also reacting to earnings news from several big-name financial companies, with JPMorgan Chase (JPM) posting a strong gain after reporting third quarter results that beat analyst estimates on both the top and bottom lines.

Shares of Wells Fargo (WFC) also move to upside after the company reported better than expected third quarter revenues.

On the other hand, shares of Morgan Stanley (MS) moved notably lower after the investment bank reported third quarter results that missed analyst estimates.

Semiconductor stocks moved sharply lower over the course of the session, dragging the Philadelphia Semiconductor Index down by 4.5 percent to a two-year closing low.

Substantial weakness was also visible among steel stocks, as reflected by the 4.3 percent nosedive by the NYSE Arca Steel Index.

A steep drop by the price of crude oil also weighed on energy stocks. Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index plummeted by 4.2 percent and the NYSE Arca Oil Index tumbled by 3.8 percent.

Gold, brokerage and chemical stocks also showed considerable moves to the downside on the day, reflecting broad based weakness on Wall Street.

Commodity, Currency Markets

Crude oil futures are rising $0.32 to $85.93 a barrel after plunging $3.50 to $85.61 a barrel last Friday. Meanwhile, after tumbling $28.10 to $1,648.90 an ounce in the previous session, gold futures are jumping $21.40 to $1,670.30 an ounce.

On the currency front, the U.S. dollar is trading at 148.69 yen versus the 148.67 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $0.9772 compared to last Friday’s $0.9722.

Asia

Asian stocks ended mixed on Monday after reports suggested that Apple has put on hold plans to use memory chips from China’s Yangtze Memory Technologies Co. in its products.

The report comes just a week after the White House unveiled sweeping regulations that limit the sale of semiconductors and chip-making equipment to Chinese customers.

Meanwhile, the iPhone manufacturing hub of Zhengzhou locked down one of its most-populated districts to tame a virus flare-up as President Xi Jinping signaled no change to the Covid-Zero policy.

Expectations of continued monetary policy tightening by the U.S. Federal Reserve and the escalating Russia-Ukraine war also added to worries over global financial stability.

Chinese shares closed higher as President Xi promised steps to boost the struggling economy and the country’s central bank held its key policy rates steady. The benchmark Shanghai Composite Index rose 0.4 percent to 3,084.94.

Hong Kong’s Hang Seng Index reversed course to end 0.2 percent higher at 16,612.90 as investors kept their eyes on the weeklong Communist Party congress in China and key economic data out of China due later in the week.

The Taiwan Weighted Index slumped 1.2 percent to 12,966.05 after Xi’s speech at the party congress. At the opening ceremony of the ruling Communist Party of China’s 20th National Congress, Xi said China “will never promise to renounce the use of force” for reunification.

Japanese shares fell sharply as worries lingered over rising bond yields and recession risks. The Nikkei 225 Index tumbled 1.2 percent to 26,775.79, while the broader Topix index closed 1.0 percent lower at 1,879.56.

Drug makers led the losses, with Astellas losing 1.4 percent and Daiichi Sankyo falling 3.3 percent. Heavyweights SoftBank and Fast Retailing ended down 1.8 percent and 1.3 percent, respectively.

Seoul stocks rose for a second straight session, with the Kospi rising 0.3 percent to 2,219.71 as investors hunted for bargains. Kakao Corp., the country’s top messaging app, plummeted 5.9 percent after a major outage over the weekend disrupted service for more than 53 million users worldwide.

Australian stocks fell as worries about a potential global recession pulled down commodity-related stocks. Investors also awaited quarterly production reports from mining giants for direction.

The benchmark S&P/ASX 200 Index slid 1.4 percent to 6,664.40, while the broader All Ordinaries Index ended 1.4 percent lower at 6,854.30. Construction materials producer Adbri plunged 22 percent on news of its CEO’s exit.

Europe

European stocks have moved notably higher on Monday as investors react to the latest news regarding the U.K.’s fiscal plan.

British new finance minister Jeremy Hunt revealed he would reverse virtually all the government’s planned tax cuts. The announcement comes two weeks early in an effort to calm worries about the U.K.’s economic credibility.

While the U.K.’s FTSE 100 Index has advanced by 0.8 percent, the French CAC 40 Index and the German DAX Index are both up by 1.2 percent.

Eurozone government bond yields have dropped, taking cues from British gilts, after the Bank of England outlined the various liquidity operations it holds following last week’s conclusion of emergency market support.

Credit Suisse has moved to the upside after the Swiss bank reached a final settlement with the New Jersey Attorney General related to its Residential Mortgage-Backed Securities business with transactions dating back to before 2008.

Broadcaster ITV has surged, buoyed by a Financial Times report that the company is reviewing the future of its production arm ITV Studios.

Meanwhile, investment platform Hargreaves Lansdown, which is facing a £100 million ($113 million) lawsuit from thousands of investors, has moved sharply lower.

ASOS has also plummete. The online fashion retailer confirmed reports suggesting that it is in negotiations with its lenders over changing the terms of its 350 million pound ($394 million) borrowing facility.

Drägerwerk shares have also tumbled. The German company reported that its preliminary net sales for the third quarter declined 9.1 percent, net of currency effects, to around 725 million euros from the prior year’s 769.6 million euros.

U.S. Economic Reports

A report released by the Federal Reserve Bank of New York on Monday showed regional manufacturing activity has contracted by more than expected in the month of October.

The New York Fed said its general business conditions index slid to a negative 9.1 in October from a negative 1.5 in September, with a negative reading indicating a contraction in regional manufacturing activity. Economists had expected the index to dip to a negative 4.0.

Looking ahead, the New York Fed said firms do not expect business conditions to improve over the next six months.

Stocks In Focus

Shares of Archaea Energy (LFG) are skyrocketing in pre-market trading after the natural gas producer agreed to be acquired by BP (BP) for $26 per share in cash of approximately $4.1 billion.

Energy producer Continental Resources (CLR) is also likely to see initial strength after announcing founder Harold G. Hamm and his family will acquire all shares of the company they do not already own for $74.28 per share.

Shares of Bank of New York Mellon (BK) may also move to the upside after the bank reported better than expected third quarter results.