U.S. Stocks May Lack Direction Following Yesterday’s Downturn

The major U.S. index futures are currently pointing to a roughly flat open on Wednesday, with stocks likely to show a lack of direction following the notable pullback seen over the course of the previous session.

Uncertainty about the near-term outlook for the markets may keep some traders on the sidelines on the heels of yesterday’s pullback.

The downturn on Tuesday, which was led by tech stocks after Dutch chipmaker ASML (ASML) warned of “customer cautiousness,” came after the Dow and the S&P 500 reached new record closing highs on Monday.

Traders may also be reluctant to make significant moves ahead of the release of several key economic reports on Thursday.

Reports on weekly jobless claims, retail sales and industrial production are likely to be in focus as traders look for additional clues about the outlook for the economy and interest rates.

Among individual stocks, shares of Morgan Stanley (MS) are seeing notable pre-market strength after the financial giant reported third quarter results that exceeded analyst estimates.

J.B. Hunt Transport Services (JBHT) is also likely to see an initial jump after reporting better than expected third quarter results.

After moving to the upside early in the session, stocks came under considerable selling pressure over the course of the trading day on Tuesday. The major averages all moved notably lower following the strong gains posted during Monday’s session.

The major averages fell to new lows late in the trading day before regaining some ground going into the close. The tech-heavy Nasdaq slumped 187.10 points or 1.0 percent to 18,315.59, the Dow slid 324.80 points or 0.8 percent to 42,740.42 and the S&P 500 fell 44.59 points or 0.8 percent to 5,815.26.

The pullback on Wall Street may partly have reflected profit taking, as some traders looked to cash in on recent strength in the markets.

The Dow and the S&P 500 reached record closing highs on Monday, with the Dow closing above 43,000 for the first time. The Nasdaq is also closing in on the record highs set in July.

A steep drop by shares of UnitedHealth (UNH) weighed on the Dow, as the health insurance giant plunged by 8.1 percent.

The nosedive by UnitedHealth came after the company reported third quarter results that beat expectations but lowered the top end of its full-year earnings guidance.

Financial giant Citigroup (C) also showed notable move to the downside despite reporting better than expected third quarter results.

Meanwhile, shares of Walgreens Boots Alliance (WBA) skyrocketed by 15.8 percent after the drugstore chain reported fiscal fourth quarter results that exceeded estimates and announced plans to close roughly 1,200 stores over the next three years.

On the U.S. economic front, the Federal Reserve Bank of New York released a report showing regional manufacturing activity has returned to contraction in the month of October.

The New York Fed said its general business conditions index tumbled to a negative 11.9 in October from a positive 11.5 in September, with a negative reading indicating contraction. Economists had expected the index to decrease to a positive 2.3.

Despite the downturn in October, the New York Fed said optimism about the six-month outlook grew strongly, with the index for future business activity jumping to a multi-year high of 38.7 in October from 30.6 in September.

Semiconductor stocks moved sharply lower over the course of the session, dragging the Philadelphia Semiconductor Index down by 5.3 percent.

The sell-off by semiconductor stocks came as ASML CEO Christophe Fouquet said market segments other than AI are recovering more gradually than previously expected, leading to customer cautiousness.

A steep drop by the price of crude oil also contributed to substantial weakness among energy stocks, with the Philadelphia Oil Service Index and the NYSE Arca Oil Index both plunging by 3.8 percent.

Steel, healthcare and natural gas stocks also saw considerable weakness, while telecom stocks showed a strong move to the upside, resulting in a 1.8 percent jump by the NYSE Arca North American Telecom Index.

Commodity, Currency Markets

Crude oil futures are inching up $0.10 to $70.68 a barrel after plunging $3.25 to $70.58 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $2,696.10, up $17.20 compared to the previous session’s close of $2,678.90. On Tuesday, gold climbed $13.30.

On the currency front, the U.S. dollar is trading at 149.38 yen compared to the 149.20 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0888 compared to yesterday’s $1.0893.

Asia

Asian stocks fell broadly on Wednesday due to lingering Middle East tensions, shifting U.S. rate cut expectations and reports suggesting that the U.S. is mulling a cap on export licenses for AI chips to specific countries.

French luxury giant LVMH suffered its first quarterly sales drop since the pandemic, fueling concerns about slowing demand in China and elsewhere.

Chipmaker shares led regional losses after Europe’s biggest tech firm ASML, whose customers include TSMC, Samsung and SK Hynix, warned of weak semiconductor demand.

The dollar hovered near two-month peaks versus major peers, driven by rising bets for a second Donald Trump presidency and expectations the Federal Reserve will proceed with modest interest rate cuts.

Markets currently see a 95 percent chance of a 25 basis point rate cut from the Fed next month after an aggressive 50 basis point cut in September.

Atlanta Fed’s Raphael Bostic on Tuesday said he penciled in just one more interest rate reduction of 25 basis points this year, while San Francisco Fed’s Mary Daly said “one or two” cuts in 2024 would be “reasonable”.

Gold edged higher for a second straight session to hover near a three-week high, while oil recovered some ground after falling more than 4 percent on Tuesday.

China’s Shanghai Composite Index finished marginally higher after a choppy session as investors awaited concrete details on stimulus plans.

A press briefing by China’s housing minister on Thursday is expected to provide more details of measures to promote the “steady and healthy” development of the property sector.

Hong Kong’s Hang Seng Index edged down 0.2 percent to 20,286.85 after a volatile session.

Japanese markets tumbled after Bank of Japan (BoJ) board member Seiji Adachi stated that monetary policy normalization is underway but premature hikes should be avoided due to uncertainties in the global economic outlook and domestic wage growth.

Investors also reacted to data showing machinery orders in Japan fell more than expected in August.

The Nikkei 225 Index slumped 1.8 percent to 39,180.30, while the broader Topix Index settled 1.2 percent lower at 2,690.66. Chip-related stocks such as Tokyo Electron, Screen Holdings and Lasertec Corp fell 9-13 percent.

Seoul stocks fell notably, with the Kospi sliding 0.9 percent to 2,610.36. Samsung Electronics fell 2.5 percent and SK Hynix dropped 2.2 percent.

Australian markets closed lower as mining stocks took a hit due to prevailing growth concerns. Gold stocks surged, with Evolution Mining rallying 6.8 percent after releasing its production figures.

The benchmark S&P/ASX 200 Index slipped 0.4 percent to 8,284.70, while the broader All Ordinaries Index ended down 0.5 percent at 8,556.60.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index dove 1.6 percent to 12,641.32 despite data showing inflation in the country declined sharply in the third quarter – opening a path to more supersized interest rate cuts in the coming months.

Europe

European stocks are broadly lower on Wednesday, as investors digest a slew of disappointing earnings updates and awaited a European Central Bank policy meeting on Thursday for directional cues.

Markets currently eye two more rate cuts from the euro area’s central bank this year amid a weak growth outlook and lower inflation.

The pan-European STOXX 600 Index is down by 0.2 percent at 519.66 after falling 0.8 percent on Tuesday.

The German DAX Index is also down by 0.2 percent and the French CAC 40 Index is down by 0.5 percent, although the U.K.’s FTSE 100 Index has bucked the downtrend and climbed by 0.8 percent.

The British pound slumped below the $1.30 mark after official data showed U.K. inflation fell below the 2 percent target and also hit the lowest in more than three years in September, piling pressure on the Bank of England to ease policy at the November meeting.

LVMH has moved sharply lower in Paris after sales of fashion and leather goods unexpectedly fell at its biggest unit for the first time since 2020.

Rexel SA has also tumbled. The distributor of electrical supplies cut its 2024 outlook due to negative trading environment in Europe.

Stellantis NV has also moved to the downside after the automaker reported a 20 percent decrease in third-quarter consolidated shipments.

ASML Holding has also slumped after the semiconductor equipment maker announced deep cuts to its 2025 sales forecast.

Food delivery firm Just Eat Takeaway.com has also plunged as it reported a decline in orders for the third quarter.

German sportswear giant Adidas has also tumbled despite raising its full-year sales and profit guidance.

Dragerwerk has also dove. The breathing equipment maker for industries and hospitals registered a decline in preliminary earnings before interest and taxes for the third quarter, reflecting a drop in sales.

On the other hand, property developer Hammerson has rallied after launching a £140 million share buyback program.

Primary Health Properties has also surged. The British healthcare facilities investor reported an additional £2.7 million in rental income in a third quarter update.

Antofagasta has also moved sharply higher. The Chilean miner reported a 15 percent increase in third-quarter copper output.

U.S. Economic News

Reflecting a sharp drop by prices for fuel imports, the Labor Department released a report on Wednesday showing a continued decrease by prices for U.S. imports in the month of September.

The Labor Department said import prices fell by 0.4 percent in September after slipping by a revised 0.2 percent in August. The decline matched economist estimates.

Compared to the same month a year ago, import prices edged down by 0.1 percent, marking the first year-over-year decrease since February.

The report also said export prices slid by 0.7 percent in September after slumping by a revised 0.9 percent in August. Economists had expected export prices to fall by 0.4 percent.

Export prices in September were down by 2.1 percent compared to the same month a year ago, reflecting the largest year-over-year decrease since January.