Profit Taking, Stimulus Uncertainty May Weigh On Wall Street

The major U.S. index futures are currently pointing to a lower open on Friday, with stocks likely to give back ground following recent strength.

Profit taking may contribute to initial weakness on Wall Street, as some traders look to cash in on the recent run to new record highs.

Uncertainty about President Joe Biden’s proposed $1.9 trillion coronavirus relief package may also generate selling pressure after Republican Senators Mitt Romney and Lisa Murkowski both expressed skepticism about more stimulus.

Romney and Murkowski both pointed to the recently approved $900 billion stimulus and raised questions about whether more relief is needed.

Democrats could attempt to pass a new stimulus bill without Republican support by the so-called reconciliation process, which only requires a majority.

However, Democratic Senator Joe Manchin has also expressed concerns about the cost of increasing the size of direct payments to individuals to $2,000 from $600.

A steep drop by shares of IBM Corp. (IBM) may also weigh on Wall Street after the tech giant reported better than expected fourth quarter earnings but on revenues that missed analyst estimates.

Semiconductor giant Intel (INTC) is also seeing notable pre-market weakness after jumping late in the previous session after reporting better than expected fourth quarter results just before the close of trading.

Intel released its quarterly results ahead of schedule following reports that a graphic in its earnings statement had been the object of unauthorized access.

Stocks turned in a relatively lackluster performance during trading on Thursday, although the tech-heavy Nasdaq still climbed to a near record closing high. The Dow and the S&P 500 bounced back and forth across the unchanged line before closing nearly flat.

While the Nasdaq climbed 73.67 points or 0.6 percent to 13,530.92, the S&P 500 inched up 1.22 points or less than a tenth of a percent to 3,853.07 and the Dow edged down 12.37 points or less than a tenth of a percent to 31,176.01.

The choppy trading on Wall Street came as traders expressed some uncertainty about the near-term outlook for the markets following the run to record highs.

Some analysts have expressed concerns about the markets becoming overbought, but traders seem wary of missing out on further upside.

Optimism about ramped up efforts to combat the coronavirus under new President Joe Biden have also helped to prop up the markets.

Biden has revealed new details of his plan to tackle the pandemic, which includes providing more state and local funding to accelerate the vaccine rollout and using the Defense Production Act to increase production of personal protective equipment.

Traders also remain optimistic about more fiscal stimulus under Biden, who has called for a new $1.9 trillion relief package.

In U.S. economic news, the Labor Department released a report showing a pullback in initial jobless claims in the week ended January 16th.

The report said initial jobless claims fell to 900,000, a decrease of 26,000 from the previous week’s revised level of 926,000.

Economists had expected jobless claims to drop to 910,000 from the 965,000 originally reported for the previous week.

Even with the downward revision, the number of claims in the previous week represented the most since reaching 1.011 million in the week ended August 22nd.

The Commerce Department also released a report showing new residential construction in the U.S. jumped by much more than expected in the month of December.

The reports paint a more positive picture of the economy, but traders may be wary that the data could ease the pressure on lawmakers to approve additional stimulus.

Energy stocks saw substantial weakness on the day amid a modest decrease by the price of crude oil. Reflecting the weakness in the sector, the Philadelphia Oil Service Index plunged by 4.6 percent and the NYSE Arca Oil Index tumbled by 3 percent.

Significant weakness was also visible among airline stocks, as reflected by the 2.2 percent slump by the NYSE Arca Airline Index.

Chemical, transportation and steel stocks also moved notably lower over the course of the session despite the lackluster performance by the broader markets.

On the other hand, computer hardware and semiconductor stocks showed strong moves to the upside, contributing to the advance by the tech-heavy Nasdaq.

Commodity, Currency Markets

Crude oil futures are plunging $1.63 to $51.50 a barrel after slipping $0.18 to $53.13 a barrel on Thursday. Meanwhile, after edging down $0.60 to $1,865.90 an ounce in the previous session, gold futures are plummeting $28.40 to $1,837.50 an ounce.

On the currency front, the U.S. dollar is trading at 103.84 yen versus the 103.50 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.2162 compared to yesterday’s $1.2164.

Asia

Asian stocks fell broadly on Friday due to profit taking at record highs. Optimism about ramped up efforts to combat the coronavirus and expectations for more stimulus under the new Biden administration have helped to prop up the markets in recent days.

China’s Shanghai Composite Index slid 14.51 points, or 0.4 percent, to 3,606.75 amid concerns over a resurgence of coronavirus infections in the country. Hong Kong’s Hang Seng Index tumbled 479.91 points, or 1.6 percent, to 29,447.85.

Japanese shares slipped from a 30-year high as the dollar nursed a weekly loss and a survey showed the manufacturing sector in the country slipped into contraction in December, with a PMI score of 49.7.

Another report showed that overall consumer prices in Japan were down 1.2 percent year-on-year in December.

The Nikkei 225 Index dropped 125.41 points, or 0.4 percent, to 28,631.45 as focus shifted to the corporate earnings season. The broader Topix closed 0.2 percent lower at 1,856.64.

Ad agency Dentsu Group lost 2.2 percent after reports suggesting the cancellation of the Tokyo Olympics due to the coronavirus pandemic, although the government refuted those reports.

Cosmetics firm Shiseido soared 4.4 percent on news it was in talks to sell its shampoo and skincare business to private equity CVC Capital Partners.

Australian markets finished modestly lower, with energy and tech stocks taking a beating. The benchmark S&P/ASX 200 Index slipped 23.30 points, or 0.3 percent, to 6,800.40 as investors reacted to mixed retail sales and manufacturing data. The broader All Ordinaries Index ended down 28.20 points, or 0.4 percent, at 7,078.90.

Retail sales declined 4.2 percent last month, while a gauge of manufacturing activity expanded at a faster rate in January, separate reports showed.

Tech stocks snapped six sessions of gains, with Afterpay falling as much as 5.2 percent. Energy stocks such as Santos, Oil Search and Origin Energy fell over 2 percent after crude oil prices declined overnight.

Healthcare stocks bucked the weak trend, with heavyweight CSL climbing 2.2 percent on a brokerage upgrade.

Medical device maker Fisher & Paykel Healthcare surged 5.9 percent after reporting a sharp rise in nine-month revenue.

Lynas Rare Earths soared 13.7 percent after it signed a contract with the U.S. government to build a commercial light rare earths separation plant.

Seoul stocks fell on profit taking after three sessions of gains. The benchmark Kospi ended a choppy session down 20.21 points, or 0.6 percent, at 3,140.63 after having hit a record closing high the previous day.

Hyundai Motor lost 2.8 percent and its affiliate Kia Motors tumbled 3.6 percent. Tech shares followed their U.S. peers higher, with portal giant Naver surging 6.5 percent and messenger app operator Kakao gaining 2 percent.

Europe

European stocks have fallen on Friday as rising Covid-19 cases as well as disappointing regional data doused hopes for a quicker economic recovery from the pandemic.

A new strain of the coronavirus has led to fresh lockdowns in many parts of the world, including countries in Asia. EU leaders are mulling internal border closures due to rising infection and death rates. China reported 103 new infections, the country’s 11th day with more than 100 confirmed cases.

While the French CAC 40 Index has slumped by 1.1 percent, the U.K.’s FTSE 100 Index is down by 0.8 percent and the German DAX Index is down b 0.7 percent.

On the data front, Eurozone private sector activity contracted at an accelerated pace in January amid the ongoing pandemic and related restrictions, flash data from IHS Markit showed.

The composite output index declined to 47.5 in January from 49.1 in December, signaling the third successive contraction and the steepest deterioration since November.

U.K. retail sales recovered in December but the pace of growth was much slower than expected, data released by the Office for National Statistics showed.

Another report showed that the U.K. budget deficit widened to the third highest level on record in December.

Travel-related stocks were losing ground, with airlines Lufthansa and Air France KLM posting notable losses after the European Union proposed to label hotspots of Covid-19 infections as “dark red” zones. Holiday group TUI has moved sharply lower.

Energy stocks such as Total SE, BP Plc and Royal Dutch Shell have also moved lower as oil prices slip from the 11-month highs reached last week amid worries over the resurgence of coronavirus infections in the world’s second-largest oil consumer, China.

Healthcare group Mediclinic has also moved to the downside after the company noted continued pressure on profits in the past quarter.

Salzgitter has also come under pressure after the steel producer reported a pre-tax result of negative 200 million euros in financial year 2020.

On the other hand, ProSiebenSat.1 has surged higher after its preliminary full-year revenues and adjusted EBITDA exceeded expectations.

Siemens has also jumped. The automation company said that the preliminary operating results for the first quarter of fiscal 2021 have exceeded market expectation.

U.S. Economic Reports

The National Association of Realtors is scheduled to release its report on existing home sales in the month of December at 10 am ET. Existing home sales are expected to slump by 1.4 percent in December.

At 11 am ET, the Energy Information Administration is due to release its report on oil inventories in the week ended January 15th. Crude oil inventories are expected to dip by 0.3 million barrels after falling by 3.2 million barrels in the previous week.

Stocks In Focus

Shares of Seagate Technology (STX) are seeing notable pre-market weakness after the hard drive maker reported better than expected fiscal second quarter results but provided disappointing guidance.

Huntington Bancshares (HBAN) may also move to the downside after reporting fourth quarter earnings that came in below analyst estimates.

On the other hand, shares of Sierra Wireless (SWIR) are likely to see initial strength after the IoT solutions company announced the planned retirement of president and CEO Kent Thexton.