Profit Taking May Contribute To Initial Pullback On Wall Street

The major U.S. index futures are currently pointing to a modestly lower open on Monday, with stocks likely to give back ground following the strong upward move seen last week.

Profit taking may contribute to initial weakness on Wall Street after last week’s rally lifted the Nasdaq and the S&P 500 to their best levels in over a year.

Trading activity is likely to remain somewhat subdued, however, as traders look ahead to the release of some key economic data over the coming days.

Reports on retail sales, industrial production, housing starts and existing home sales are likely to attract attention, as traders look for additional clues about the outlook for the economy and interest rates.

Earnings season will also start to pick up steam this week, with Bank of America (BAC), Morgan Stanley (MS), Goldman Sachs (GS), IBM Corp. (IBM), Netflix (NFLX), Tesla (TSLA), Johnson & Johnson (JNJ) and American Express (AXP) among the companies due to report their quarterly results.

Stocks extended their recent rally in early trading on Friday but gave back ground over the course of the session. The major averages pulled back off their highs of the session, with the Nasdaq and the S&P 500 dipping into negative territory.

The major averages eventually ended the session narrowly mixed. While the Dow rose 113.89 points or 0.3 percent to 34,509.03, the Nasdaq slipped 24.87 points or 0.2 percent to 14,113.70 and the S&P 500 edged down 4.62 points or 0.1 percent to 4,505.42.

Despite the mixed performance on the day, the major averages all moved sharply higher for the week. While the Nasdaq surged by 3.3 percent, the S&P 500 and the Dow jumped by 2.4 percent and 2.4 percent, respectively.

The early strength on Wall Street partly reflected ongoing optimism about the Federal Reserve being close to ending its monetary policy tightening following recent encouraging inflation data.

Buying interest was also generated in reaction to upbeat earnings news from financial giants JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C).

However, shares of JPMorgan and Wells Fargo subsequently pulled back near the unchanged line, and shares Citigroup came under pressure as the company’s second quarter earnings beat analyst estimates but decreased year-over-year.

Traders may also have been somewhat reluctant to continue buying stocks following the rally seen this week, which lifted the Nasdaq and the S&P 500 to their best levels in over a year.

The Dow managed to hold on to a modest gain amid a spike by shares of UnitedHealth (UNH), which soared by 7.2 percent after the health insurer reported better than expected second quarter results.

In U.S. economic news, a report released by the Labor Department showed a modest decrease in import prices in the month of June.

The Labor Department said import prices dipped by 0.2 percent in June after falling by a revised 0.4 percent in May.

Economists had expected import prices to edge down by 0.1 percent compared to the 0.6 percent decrease originally reported for the previous month.

Meanwhile, the report said export prices slumped by 0.9 percent in June after tumbling by 1.9 percent in May. Export prices were expected to slip by 0.2 percent.

A separate report released by the University of Michigan showed consumer sentiment has improved by much more than anticipated in the month of July

The report showed the consumer sentiment index soared to 72.6 in July from 64.4 in June. Economists had expected the index to tick up to 65.5.

With the much bigger than expected surge, the consumer sentiment index reached its highest level since hitting 72.8 in September 2021.

Networking and telecom stocks saw substantial weakness following warnings from Nokia (NOK) and Ericsson (ERIC), dragging the NYSE Arca Networking Index and the NYSE Arca North American Telecom Index down by 3.9 percent and 3.0 percent, respectively.

Significant weakness was also visible among networking stocks, as reflected by the 2.8 percent nosedive by the NYSE Arca Airline Index.

Energy stocks also saw considerable weakness amid a pullback by the price of crude oil, moving notably lower along with banking and semiconductor stocks.

On the other hand, healthcare stocks showed a strong move to the upside on the day, driving the Dow Jones U.S. Health Care Index up by 1.4 percent.

Housing stocks also extended their recent rally, with the Philadelphia Housing Sector Index climbing 1.2 percent to a record closing high.

Commodity, Currency Markets

Crude oil futures are slumping $1.02 to $74.40 a barrel after tumbling $1.47 to $75.42 a barrel last Friday. Meanwhile, after inching up $0.60 to $1,964.40 an ounce in the previous session, gold futures are falling $7.40 to $1,957 an ounce.

On the currency front, the U.S. dollar is trading at 138.88 yen versus the 138.80 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.1223 compared to last Friday’s $1.1228.

Asia

Asian stocks ended lower on Monday as China published mixed data, adding to concerns about the economic recovery in the world’s second-largest economy. Japanese markets were closed for Marine Day.

China’s GDP logged annual growth of 6.3 percent in the second quarter, faster than the 4.5 percent expansion in the first quarter, data from the National Bureau of Statistics revealed. However, this was weaker than economists’ forecast of 7.3 percent.

On a quarterly basis, GDP was up 0.8 percent, weaker than the 2.2 percent growth in the first quarter.

Industrial production posted an increase of 4.4 percent from a year ago in June, better than the expected 2.7 percent growth. At the same time, retail sales advanced 3.1 percent, slightly weaker than the forecast of 3.2 percent.

In the first half of the year, fixed asset investment grew 3.8 percent compared to expectations of 3.5 percent.

China’s Shanghai Composite Index dropped 0.9 percent to 3,209.63 on concerns about weakening GDP growth. Hong Kong markets remained shut all day due to a warning issued for Typhoon Talim.

Seoul stocks ended modestly lower, with the Kospi finishing 0.4 percent lower at 2,619, snapping a four-day winning streak after U.S. Federal Reserve officials said it was too early to declare victory on inflation.

Investors also awaited June trade figures for direction. LG Chem, Hyundai Motor and Kia fell 1-2 percent.

Australian markets finished marginally lower as investors looked ahead to the release of unemployment figures due later in the week for clues to the Reserve Bank of Australia’s rate decisions.

Shares of Endeavour Group, spun off from grocer Woolworths in 2021, slumped 10 percent after the Victorian state government unveiled new reforms to reduce gambling harm at venues with electronic gaming machines.

Europe

European stocks are trading lower on Monday after data showed the Chinese economy grew just 0.8 percent in the June quarter, down from 2.2 percent in the first three months of 2023.

Other reports on Chinese industrial output, retail sales, fixed asset investment and unemployment proved to be a mixed bag, raising concerns about an uneven economic recovery in the country.

Elsewhere, data out of U.K. showed the average price of property coming to market fell by £905 to £371,907 this month due to rising mortgage costs, property listing platform Rightmove said.

While the French CAC 40 Index has plunged by 1.3 percent, the German DAX Index is down by 0.6 percent and the U.K.’s FTSE 100 Index is down by 0.2 percent.

Miners Anglo American, Antofagasta and Glencore have fallen in London on China recovery concerns, while homebuilders Barratt, Persimmon and Taylor Wimpey have also edged lower.

China-related luxury-goods makers such as Kering, Hermes and LVMH have also shown notable moves to the downside in Paris.

Luxury Swiss retailer Richemont has also plummeted after its sales figures showed a slowdown in U.S. demand.

Beer company Carlsberg has also tumbled after the Russian state took control of its stake in a local brewer.

Ladbrokes-owner Entain has also declined after it agreed to acquire U.S.-based Angstrom Sports for 122 million pounds ($159.5 million).

Meanwhile, Costain Group shares have jumped. The engineering and construction company announced that United Utilities Group PLC, a water service provider in U.K., has extended a contract for a further two years from May 2024 to May 2026.

U.S. Economic Reports

After reporting a significant turnaround in New York manufacturing activity in the previous month, the Federal Reserve Bank of New York released a report on Monday showing a pullback in the pace of growth in the month of July.

The New York Fed said its general business conditions index fell to 1.1 in July after surging to 6.6 in June, although a positive reading still indicates growth. Economists had expected the index to drop to zero.

Looking ahead, the New York Fed said firms expect conditions to improve but noted optimism remains muted.