Pullback By GameStop May Offset Worries About Retail Trading Frenzy

The major U.S. index futures are currently pointing to a higher open on Tuesday, with stocks likely to add to the strong gains posted in the previous session.

The upward momentum on Wall Street comes as stocks that recently benefited from the retail trading frenzy are giving back ground in pre-market trading.

Video game retailer GameStop (GME), which is seen as the poster child for the so-called “retail investor revolt,” is plummeting by more than 40 percent in pre-market trading after plunging by more than 30 percent on Monday.

Shares of AMC Entertainment (AMC) are also seeing considerable pre-market weakness after the movie theater chain ended the previous session modestly higher.

The markets may also benefit from a positive reaction to the latest earnings news, with Exxon Mobil (XOM) likely to see initial strength after reporting better than expected fourth quarter earnings.

Drug giant Pfizer (PFE) may also move to the upside after reporting fourth quarter earnings that missed estimates but raising its 2021 guidance due to the impact of its coronavirus vaccine.

Traders also remain optimistic about more fiscal stimulus after President Joe Biden met with a group of ten Republican Senators who have offered a counterproposal to his $1.9 trillion relief plan.

Senator Susan Collins, R-Maine, called the meeting “very productive” and said the two sides plan to continue negotiations.

A White House statement also described the meeting as “productive” but noted that Democrats could still use the reconciliation process to pass a relief bill without Republican support.

After showing a substantial move to the downside last week, stocks showed a significant rebound during trading on Monday. The major averages all climbed firmly into positive territory, with the tech-heavy Nasdaq showing a particularly strong advance.

The Nasdaq soared 332.70 points or 2.6 percent to 13,403.39 and the S&P 500 jumped 59.62 points or 1.6 percent to 3,773.86. The Dow underperformed its broader counterparts but still ended the day up 229.29 points or 0.8 percent at 30,211.91.

The rebound on Wall Street came as traders looked to pick up stocks at somewhat reduced levels after the markets saw their biggest weekly decline since October.

Last week, the Nasdaq sank by 3.5 percent, while the Dow and the S&P 500 both slumped by 3.3 percent. The Dow ended last Friday’s trading at its lowest closing level in well over a month.

Traders continued to keep an eye on heavily-shorted stocks like GameStop and AMC Entertainment, which have seen considerable volatility amid speculative trading by retail investors.

Share of GameStop plunged by 30.8 percent on the day, while shares of AMC edged up by 0.3 percent after seeing early strength.

The markets largely shrugged off a report from the Institute for Supply Management showing the pace of growth in U.S. manufacturing activity slowed more than expected in January.

The ISM said its manufacturing PMI declined to 58.7 in January from a downwardly revised 60.5 in December.

While a reading above 50 indicates continued growth in the manufacturing sector, economists had expected the index to show a more modest drop to 60.0.

Meanwhile, the Commerce Department released a separate report showing U.S. construction spending increased by slightly more than expected in the month of December.

Semiconductor stocks moved sharply higher over the course of the trading session, driving the Philadelphia Semiconductor Index up by 3.9 percent.

Substantial strength also emerged among brokerage stocks, as reflected by the 3.5 percent spike by the NYSE Arca Broker/Dealer Index.

Gold stocks also saw considerable strength on the day, resulting in a 3.3 percent jump by the NYSE Arca Gold Bugs Index. The rally by gold stocks came amid an increase by the price of the precious metal.

Networking, steel and software stocks also showed significant moves to the upside, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are jumping $1.27 to $54.82 a barrel after spiking $1.35 to $53.55 a barrel on Monday. Meanwhile, after climbing $13.60 to $1,863.90 an ounce in the previous session, gold futures are plunging $29.60 to $1,834.30 an ounce.

On the currency front, the U.S. dollar is trading at 105.01 yen compared to the 104.93 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.2039 compared to yesterday’s $1.2060.

Asia

Asian stocks ended mostly higher on Tuesday, as concerns about volatile retail trading receded and investors expressed hopes that declining coronavirus cases and vaccine rollouts will support the near-term economic recovery. Optimism about talks regarding U.S. stimulus also boosted sentiment.

Chinese shares ended notably higher and short-term money rates eased to two-week lows as signs of liquidity tension in the interbank money markets started to fade. The benchmark Shanghai Composite Index rose 28.40 points, or 0.8 percent, to 3,533.68, while Hong Kong’s Hang Seng Index ended up 355.84 points, or 1.2 percent, at 29,248.70.

Japanese shares extended gains from the previous session on optimism around U.S. stimulus plans and hopes for robust earnings. The Nikkei 225 Index ended up 271.12 points, or 1 percent, at 28,362.17 amid reports that the government will extend a state of emergency for Tokyo and surrounding cities for another month.

The broader Topix closed 0.9 percent higher at 1,847.02. Sony and Central Japan Railway Co. rose over 3 percent each, while Keyence Corp. and Hoya Corp. fell around 2 percent.

Tech stocks surged, with Advantest climbing 4.3 percent and Tokyo Electron rising 2.1 percent. Japan Airlines rallied 2.2 percent despite the airline reporting a loss for the nine-month period and forecasting a wider loss for the full year.

Australian markets rallied as the country’s central bank left its key interest rate unchanged and increased the size of its asset purchase program.

The benchmark S&P/ASX 200 Index jumped 99.60 points, or 1.5 percent, to 6,762.60, while the broader All Ordinaries Index ended up 104.70 points, or 1.5 percent, at 7,027.50.

The big four banks rose 1-2 percent after the Reserve Bank of Australia said it does not expect to raise interest rates until 2024. Miners jumped 2-3 percent despite a drop in iron ore prices.

Tech stocks also rose broadly, with Afterpay surging 7.9 percent and Appen climbing 4.5 percent. Woodside Petroleum and Santos gained over 2 percent after crude oil prices rose overnight.

Healthcare stocks came under selling pressure, with biotech firm CSL giving up 1.3 percent. Silver miners succumbed to selling pressure as futures contracts for silver fell 2 percent in Asian trading after touching an eight-year high overnight. Investigator Resources lost 20.9 percent and Argent Minerals slumped 26.4 percent.

Seoul stocks rose for the second straight session, joining a global rally helped by easing concerns about tight liquidity conditions in China.

The benchmark Kospi surged up 40.28 points, or 1.3 percent, to 3,096.81. Tech heavyweights paced the gainers, with Samsung Electronics rising 1.7 percent and SK Hynix climbing 4 percent.

Consumer prices in South Korea were up 0.6 percent year-on-year in January, Statistics Korea said. That beat forecasts for a gain of 0.3 percent and was up from 0.5 percent in the previous month.

On a monthly basis, consumer prices jumped 0.8 percent – again exceeding expectations for 0.5 percent and up from 0.2 percent in the previous month.

Europe

European stocks have risen on Tuesday, with easing concerns about tight liquidity conditions in China, reports indicating progress in U.S. stimulus negotiations and signs of expanding vaccination programs boosting sentiment.

While the French CAC 40 Index has jumped by 1.6 percent, the German DAX Index is up by 1 percent and the U.K.’s FTSE 100 Index is up by 0.6 percent.

Airline EasyJet and Ryanair Holding have shown strong moves to the upside amid signs of the vaccination rollout picking up pace.

IT consulting group Atos has also moved higher. The French company has decided to walk away from a potential deal to buy U.S. rival DXC Technology Co. after its earlier bid was rejected.

“The board of directors of Atos has unanimously determined not to pursue a potential transaction with DXC Technology,” the company said in a statement.

German chemicals company Wacker Chemie has also shown a notable advance after it swung to profit in 2020.

Meanwhile, Sweden’s Electrolux has edged lower despite the home alliance company posting higher than forecast fourth-quarter profit.

British oil major BP Plc has shown a significant move to the downside after its fourth quarter profit missed the consensus view.

Online food delivery company Just Eat Takeaway.com has also dropped after it placed 1.1 billion euros of convertible bonds, consisting of two tranches.

Fresenius Medical Care has also slumped after the world’s No.1 kidney dialysis firm warned that profit will shrink this year.

Fresenius SE, the company that owns a third of Fresenius Medical, has also come under pressure despite achieving its sales and net income guidance for 2020.

In economic news, French consumer prices climbed 0.6 percent year-on-year in January after staying flat in December, provisional data from the statistical office Insee revealed.

This was the fastest increase since July, when prices grew 0.8 percent and also bigger than the economists’ forecast of 0.4 percent.

U.K. house prices climbed 6.4 percent on a yearly basis in January, weaker than the 7.3 percent increase logged in December, data from the Nationwide Building Society showed. Economists had forecast annual growth of 6.9 percent.

U.S. Economic Reports

Dallas Federal Reserve President Robert Kaplan is scheduled to participate in a virtual moderated question-and-answer session hosted by the Association for Corporate Growth at 1 pm ET.

At 2 pm ET, New York Federal Reserve President John Williams is due to moderate a virtual conversation organized by the Economic Club of New York.

Cleveland Federal Reserve President Loretta Mester is scheduled to give remarks before a virtual “Uneven Outcomes in the Labor Market: Understanding Trends and Identifying Solutions” event at 3 pm ET.

Stocks In Focus

Shares of UPS (UPS) are moving sharply higher in pre-market trading after the delivery giant reported fourth quarter results that exceeded analyst estimates on both the top and bottom lines.

Manufacturing conglomerate Emerson Electric (EMR) may also see initial strength after reporting better than expected fiscal first quarter results and forecasting a slow-but-steady improvement in industrial demand over the course of 2021.

On the other hand, shares of Harley-Davidson (HOG) are likely to come under pressure after the motorcycle maker reported an unexpected fourth quarter loss on revenues that missed analyst estimates.