Traders May Take A Breather Following Yesterday’s Sell-Off

The major U.S. index futures are pointing to a mixed open on Thursday following the broad based sell-off seen in the previous session.

Traders may take a breather following the volatility seen in the previous session, which saw CBOE Market Volatility Index spike by 61.6 percent to its highest levels since before the elections.

Nonetheless, notable declines by Apple (AAPL) and Tesla (TSLA) may weigh on the tech-heavy Nasdaq, which is poised to pull back further off Monday’s record highs.

Shares of Apple are down by 1.9 percent in pre-market trading after the tech giant reported better than expected fiscal first quarter results but provided cautious guidance.

Electric car maker Tesla is slumping by 4.8 percent in pre-market trading after reporting fourth quarter earnings that missed analyst estimates.

On the other hand, shares of American Airlines (AAL) are soaring in pre-market trading after the airline reported a narrower than expected fourth quarter loss on revenues that exceeded expectations.

Smaller rivals JetBlue (JBLU) and Southwest Airlines (LUV) are also likely to see initial strength after reporting narrower than expected quarterly losses.

Early trading may also be impacted by reaction to a report from the Labor Department showing a bigger than expected decline in first-time claims for U.S. unemployment benefits in the week ended January 23rd.

The Commerce Department also released showing economic growth matched economist estimates in the fourth quarter of 2020.

Stocks moved sharply lower over the course of the trading day on Wednesday, adding to the modest losses posted on Tuesday. The major averages all posted steep losses, with the Nasdaq and the S&P 500 pulling back further off Monday’s record closing highs.

The major averages climbed off their worst levels going into the close but remained firmly negative. The Dow tumbled 633.87 points or 2.1 percent to 30,303.17, the Nasdaq plunged 355.47 points or 2.6 percent to 13,270.60 and the S&P 500 slumped 98.85 points or 2.6 percent to 3,750.77.

The sell-off on Wall Street came as traders finally seemed to be paying attention to concerns about the impact of new, more contagious coronavirus strains along with uncertainty about the prospects for a new relief package.

Traders were also worried about recent speculative trading by retail investors amid continued spikes by heavily shorted stocks like GameStop (GME) and AMC Entertainment (AMC).

GameStop and AMC skyrocketed on the day, leading to concerns hedge funds may need to sell other securities to offset their mounting losses.

Stocks saw further downside in late-day trading following the Federal Reserve’s first monetary policy announcement of the New Year.

The Fed left interest rates unchanged as widely expected and revealed it plans to maintain its asset purchase program at the current pace.

Trades may have been disappointed the central bank did not provide additional clarity about the outlook for its bond purchases.

The Fed’s statement reiterated the assertion first made last month, when the Fed said it will maintain asset purchases at the current rate until “substantial further progress” has been made toward its goals of maximum employment and price stability.

On the earnings front, shares of Boeing (BA) came under pressure after the aerospace giant reported a steep fourth quarter loss and further delayed its new 777x jet.

Coffee giant Starbucks (SBUX) also fell sharply after reporting mixed fiscal first quarter results and forecasting weaker than expected fiscal second quarter earnings. Starbucks also announced the departure of Chief Operating Officer Rosalind Brewer.

Meanwhile, shares of Microsoft (MSFT) closed slightly higher after the software giant reported fiscal second quarter results that beat expectations on both the top and bottom lines.

In U.S. economic news, a report released by the Commerce Department showed new orders for manufactured durable goods rose by much less than expected in the month of December.

The Commerce Department said durable goods orders edged up by 0.2 percent in December after surging by an upwardly revised 1.2 percent in November.

Economists had expected durable goods orders to increase by 0.9 percent compared to the 1.0 percent jump that had been reported for the previous month.

Excluding a pullback in orders for transportation equipment, durable goods orders climbed by 0.7 percent in December after advancing by 0.8 percent in November. Ex-transportation orders were expected to rise by 0.5 percent.

Semiconductor stocks turned in some of the market’s worst performances on the day, resulting in a 5.2 percent nosedive by the Philadelphia Semiconductor Index.

Chipmakers Advanced Micro Devices (AMD) and Texas Instruments (TXN) posted steep losses despite reporting better than expected quarterly results and providing upbeat guidance.

Substantial weakness was also visible among gold stocks, as reflected by the 4.4 percent slump by the NYSE Arca Gold Bugs Index. The index ended the session at its lowest closing level in seven months. The sell-off by gold stocks came amid a continued decrease by the price of the precious metal.

Financial stocks also saw significant weakness on the day, dragging the KBW Bank Index and the NYSE Arca Broker/Dealer Index down by 3.5 percent and 3.2 percent, respectively.

Healthcare, retail and transportation stocks also showed notable moves to the downside, while computer hardware and networking stocks were among the few groups to buck the downtrend.

Commodity, Currency Markets

Crude oil futures are climbing $0.36 to $53.21 a barrel after rising $0.24 to $52.85 a barrel on Wednesday. Meanwhile, after falling $6 to $1,844.90 an ounce in the previous session, gold futures are edging up $3.90 to $1,848.80 an ounce.

On the currency front, the U.S. dollar is trading at 104.29 yen versus the 104.11 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.2121 compared to yesterday’s $1.2111.

Asia

Asian stocks tumbled on Thursday as investors reacted to a worsening Covid-19 health crisis and a downbeat economic outlook from the Federal Reserve.

Amid rising virus cases and vaccine delays, Federal Reserve officials flagged a worrying slowdown in the pace of the economic recovery overnight.

China’s Shanghai Composite Index slumped 68.17 points, or 1.9 percent, to 3,505.18 amid lingering worries over policy tightening. Hong Kong’s Hang Seng Index plunged 746.76 points, or 2.6 percent to 28,550.77.

Japanese shares ended sharply lower as tech stocks succumbed to heavy selling pressure after recent strong gains. The Nikkei 225 Index fell 437.79 points, or 1.5 percent, to 28,197.42, while the broader Topix closed 1.1 percent lower at 1,838.85.

Chip-related shares were among the worst hit, with Renesas Electronics losing 5.9 percent and Advantest falling 4.3 percent. Media and internet advertising company CyberAgent plunged 9.2 percent.

Fanuc shed 1 percent despite the robotics company raising its operating profit forecast for a second time. Heavyweight SoftBank Group ended 3.6 percent lower.

Nissan Motor gained 1.8 percent after the automaker said all of its new vehicles in key markets such as Japan, China, the U.S. and Europe will be partly or fully electrified by the early 2030s.

In economic news, a government report showed the value of retail sales in Japan fell an annual 0.3 percent in December. That beat expectations for a decline of 0.4 percent following the downwardly revised 0.6 percent increase in November.

Australian markets ended deep in the red after the Federal Reserve flagged a potential slowdown in the economic recovery.

The S&P/ASX 200 Index index fell as much as 2.4 percent in its worst session since September 9th before recouping some of its loss to end the session down 130.90 points, or 1.9 percent, at 6,649.70. The broader All Ordinaries Index plummeted 142.60 points, or 2 percent, to 6,917.60.

Iron ore miner Fortescue Metals Group slumped 4 percent after filing its December 2020 quarterly production report. Heavyweights BHP and Rio Tinto fell 1.7 percent and 2.9 percent, respectively.

Gold miner Newcrest Mining shed 2.8 percent as it reported a drop in gold production from the same quarter last year due to lower output from its Cadia and Lihir mines.

The big four banks fell between 0.9 percent and 1.7 percent. Tech stocks fell heavily, with Afterpay giving up 6.2 percent. In the energy sector, Woodside Petroleum and Santos declined around 2 percent, while Oil Search plummeted 3.9 percent.

Seoul stocks fell sharply amid massive selling by foreign investors. The benchmark Kospi dropped 53.51 points, or 1.7 percent, to 3,069.05 after the Fed didn’t announce new measures to quicken the economic recovery.

Samsung Electronics lost 2.2 percent despite the company forecasting solid demand for its chips in the current quarter. No. 2 chipmaker SK Hynix slumped 4.3 percent.

In economic news, business sentiment in South Korea ticked higher in January, the latest survey from the Bank of Korea said, with an index score of 85.0 – up from 82.0 in December.

Europe

European stocks are extending losses on Thursday to fall near one-month lows amid worries that new variants of the coronavirus will prolong the global economic recovery. Risk sentiment has also been dented by deepening concerns about stretched valuations in equity markets.

The German DAX Index is down by 0.5 percent and the U.K.’s FTSE 100 Index is down by 0.9 percent, although the French CAC 40 Index has bucked the downtrend and risen by 0.3 percent.

Swiss watchmaker Swatch Group has shown a notable move to the downside after reporting its first annual loss in nearly 40 years.

Gambling company Rank Group has also come under pressure after it swung to a loss for the first half of fiscal 2021.

EasyJet has also moved lower. The budget airline said it was hoping for surge in passenger numbers later this year if Covid restrictions ease.

BMW AG shares have also fallen. The automaker said that preliminary automotive free cash flow for the fourth quarter and the full year 2020 was above market expectations.

Meanwhile, Diageo has rallied after the world’s largest spirits maker reported a surprise rise in underlying net sales growth in the first half of the year and said it expects to see improvement in sales and profit in the second half of its fiscal year.

U.S. Economic Reports

A report released by the Labor Department on Thursday showed a continued pullback in first-time claims for U.S. unemployment benefits in the week ended January 23rd.

The Labor Department said initial jobless claims fell to 847,000, a decrease of 67,000 from the previous week’s revised level of 914,000.

Economists had expected jobless claims to drop to 875,000 from the 900,000 originally reported for the previous week.

Jobless claims declined for the second consecutive week after reaching a more than four-month high of 927,000 in the week ended January 9th.

The Commerce Department also released showing economic growth matched economist estimates in the fourth quarter of 2020.

The Commerce Department said real gross domestic product jumped by 4.0 percent in the fourth quarter after skyrocketing by 33.4 percent in the third quarter.

Despite the rebound in the second half of the year, GDP for 2020 contracted by 3.5 percent following the 2.2 percent growth seen in 2019.

At 10 am ET, the Commerce Department is scheduled to release its report on new home sales in the month of December.

New home sales are expected to jump by 2.9 percent to an annual rate of 865,000 in December after plunging by 11.0 percent to a rate of 841,000 in November.

The Conference Board is also due to release its report on leading economic indicators in the month of December at 10 am ET. The leading economic index is expected to rise by 0.3 percent.

At 1 pm ET, the Treasury Department is scheduled to announce the results of its auction of $62 billion worth of seven-year notes.

Stocks In Focus

Shares of Extreme Networks (EXTR) are moving sharply higher in pre-market trading after the networking company forecast fiscal second quarter results toward the high end of analyst estimates.

Telecom conglomerate Comcast (CMCSA) is also likely to see initial strength after reporting fourth quarter results that exceeded analyst estimates on both the top and bottom lines.

On the other hand, shares of Levi Strauss (LEVI) may come under pressure after the jeans maker reported better than expected fourth quarter results but provided disappointing guidance.

Testing equipment maker Teradyne (TER) is also seeing pre-market weakness despite reporting fourth quarter results that beat expectations.