Profit Taking May Contribute To Initial Pullback On Wall Street

The major U.S. index futures are currently pointing to a lower open on Thursday, with stocks likely to give back ground following the rally seen late in the previous session.

Traders may cash in on the strong gains posted on Wednesday, which came after the Federal Reserve raised interest rates by 50 basis points but Fed Chair Powell was less hawkish than some had feared.

“A 75 basis point increase is not something that committee is actively considering,” Powell said during his post-meeting press conference. “I think expectations are that we’ll start to see inflation, you know, flattening out.”

Lingering concerns about inflation, the economic outlook and the ongoing war in Ukraine may contribute to a pullback on Wall Street.

However, traders may be reluctant to make significant moves ahead of the release of the Labor Department’s closely watched monthly jobs report on Friday.

With the monthly jobs report looming, the Labor Department released a report this morning showing a modest increase in first-time claims for U.S. unemployment benefits in the week ended April 30th.

After showing a lack of direction for much of the session, stocks moved sharply higher going into the close of trading on Wednesday. The major averages all showed substantial moves to the upside, adding to the gains posted early in the week.

The major averages finished the session just off their best levels of the day. The Dow jumped 932.27 points or 2.8 percent to 34,061.06, the Nasdaq surged 401.10 points or 3.2 percent to 12,964.86 and the S&P 500 spiked 124.69 points or 3 percent at 4,300.17.

The late-day rally on Wall Street came after Powell indicated the central bank does not plan to raise interest rates as aggressively as some had feared.

The comments from Powell came after the Fed announced its widely expected decision to raise interest rates by half a percentage point in an effort to return elevated inflation to its 2 percent objective.

The Fed announced that it has decided to raise the target range for the federal funds rate by 50 basis points to 0.75 to 1.0 percent and said it anticipates that ongoing increases in the target range will be appropriate.

In addition, the Fed decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1.

The widely expected decision to raise interest rates came even though the Fed acknowledged that overall U.S. economy activity edged down in the first quarter.

The central bank noted that household spending and business fixed investment have remained strong, while job gains have been robust.

The Fed said inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.

On the U.S. economic front, a report from the Institute for Supply Management showed an unexpected slowdown in the pace of growth in U.S. service sector activity.

The ISM said its Services PMI fell to 57.1 in April from 58.3 in March, although a reading above 50 still indicates growth in the sector. The decrease surprised economists, who had expected the index to inch up to 58.5.

Anthony Nieves, Chair of the ISM Services Business Survey Committee, said the pullback by the index was mostly due to the restricted labor pool and the slowing of new orders growth.

A separate report released by payroll processor ADP showed U.S. private sector job growth slowed by more than expected in the month of April.

ADP said private sector employment increased by 247,000 jobs in April after jumping by an upwardly revised 479,000 jobs in March.

Economists had expected private sector employment to surge by 395,000 jobs compared to the addition of 455,000 jobs originally reported for the previous month.

The Commerce Department also released a report showing the U.S. trade deficit widened to a new record in the month of March.

The report showed the trade deficit widened to $109.8 billion in March from a revised $89.8 billion in February. Economists had expected the deficit to widen to $107.0 billion from the $89.2 billion originally reported for the previous month.

Energy stocks moved sharply higher on the day, benefiting from a spike by the price of crude oil. Crude for June delivery soared $5.40 to $107.81 a barrel amid news of a proposed European ban on Russian oil.

Reflecting the strength in the energy sector, the Philadelphia Oil Service Index skyrocketed by 5.1 percent and the NYSE Arca Oil Index surged by 4 percent.

Substantial strength also emerged among housing stocks, reflected by the 4 percent jump by the Philadelphia Housing Sector Index.

Semiconductor stocks also turned in a strong performance on the day, driving the Philadelphia Semiconductor Index up by 3.9 percent.

Advanced Micro Devices (AMD) posted a standout gain after the chipmaker reported better than expected first quarter results and provided an upbeat forecast.

Chemical, financial and transportation stocks also saw considerable strength, moving notably higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are jumping $1.36 to $109.17 a barrel after spiking $5.40 to $107.81 a barrel on Wednesday. Meanwhile, after edging down $1.80 to $1,868.80 an ounce in the previous session, gold futures are surging $36.20 to $1,905 an ounce.

On the currency front, the U.S. dollar is trading at 129.87 yen versus the 129.09 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.0552 compared to yesterday’s $1.0622.

Asia

Asian stocks rose broadly on Thursday after the U.S. Federal Reserve raised interest rates by 50 basis points, as widely expected, but struck a less hawkish tone than some had feared, saying inflation will “flatten out” over the coming months.

Fed Chair Jerome Powell’s less-hawkish comments sent the dollar and yields lower, while crude prices soared after the European Union unveiled new punitive actions against Russia, including a phased-in embargo on Russian oil imports.

Japanese and South Korean markets were closed for public holidays. China’s Shanghai Composite Index rose 0.7 percent to 3,067.76 as mainland markets resumed trading following a three-day holiday.

Investors ignored data showing that China’s services sector activity contracted at the second-steepest rate on record in April.

Hong Kong’s Hang Seng Index ended 0.4 percent lower at 20,793.40 amid concerns around China’s tech crackdown and the Covid lockdown in Shanghai.

In Australia, the benchmark S&P/ASX 200 Index climbed 0.8 percent to 7,364.70, with tech and commodity-related stocks leading the surge.

Qantas Airways fell as much as 2 percent before recouping much of its loss after the airline agreed to buy the rest of Australia’s Alliance Aviation Services Ltd. in a deal valuing the company at A$763 million.

Europe

European stocks have moved sharply higher on Thursday after the U.S. Federal Reserve raised interest rates by 50 basis points, as widely expected, but struck a less hawkish tone than some had feared, saying inflation will “flatten out” over the coming months.

While the French CAC 40 Index has shot up by 1.8 percent, the U.K.’s FTSE 100 Index is up by 1.6 percent and the German DAX Index is up by 1.5 percent.

Steel giant ArcelorMittal has shown a significant move to the upside after its first quarter net income jumped over 80 percent.

Shell Plc shares have also advanced after the energy giant said its net profit jumped 26 percent in the first quarter.

Barratt Developments has also risen. The homebuilder said it expects to deliver full-year results in line with the Board’s expectations.

Next Plc has also moved higher. The clothing, footwear and home products retailer maintained its full-year profit guidance.

Air France KLM has also gained after the Franco-Dutch carrier narrowed its first quarter net loss and said it expects to report break-even operating income in the second quarter.

Peer Societe Generale has also advanced after reporting improved first quarter earnings rose, helped by all its businesses lines.

German biopharmaceutical firm MorphoSys AG has also surged despite posting a first quarter loss. Automaker BMW has also rallied after backing its full-year outlook.

On the other hand, wind turbine maker Siemens Gamesa has moved to the downside after widening its quarterly loss.

BAE Systems has also fallen. The defense-and-aerospace company said that its performance in the first quarter was in line with expectations.

Lender Crédit Agricole Group has also moved notably lower after reporting a sharp decrease in first quarter profits.

U.S. Economic Reports

With the more closely watched monthly jobs report looming, the Labor Department released a report on Thursday showing a modest increase in first-time claims for U.S. unemployment benefits in the week ended April 30th.

The report showed initial jobless claims rose to 200,000, an increase of 19,000 from the previous week’s revised level of 181,000.

Economists had expected jobless claims to inch up to 182,000 from the 180,000 originally reported for the previous week.

The Labor Department said the less volatile four-week moving average also edged up to 188,000, an increase of 8,000 from the previous week’s revised average of 180,000.

A separate report from the Labor Department showed a substantial pullback in labor productivity in the first quarter of 2022.

The Labor Department said labor productivity plunged by 7.5 percent in the first quarter, reflecting the largest decline since the third quarter of 1947.

The steep drop in the first quarter came after labor productivity surged by a revised 6.3 percent in the fourth quarter of 2021.

Economists had expected productivity to tumble by 5.4 percent in the first quarter compared to the 6.6 percent spike that had been reported for the previous quarter.

Meanwhile, the report showed unit labor costs soared by 11.6 percent in the first quarter after climbing by a revised 1.0 percent in the fourth quarter.

Unit labor costs were expected to jump by 9.9 percent compared to the 0.9 percent increase that had been reported for the previous quarter.

The Labor Department said unit labor costs surged 7.2 percent over the last four quarters, reflecting the biggest increase in this measure since the third quarter of 1982.

Stocks In Focus

Shares of Shopify (SHOP) are moving sharply lower in pre-market trading after the e-commerce platform reported weaker than expected first quarter earnings and announced an agreement to acquire fulfillment technology provider Deliverr for $2.1 billion in cash and stock.

Online marketplace operator Etsy (ETSY) may also come under pressure after reporting first quarter results that exceeded analyst estimates but providing disappointing guidance.

Shares of eBay (EBAY) are also likely to see initial weakness after the e-commerce giant reported first quarter results that beat expectations but offered a weaker than expected forecast for the current quarter.

Meanwhile, shares of Booking Holdings (BKNG) are seeing significant pre-market strength after the online travel agency reported first quarter results that exceeded analyst estimates on both the top and bottom lines.

Cloud communications company Twilio (TWLO) may also move to the upside after reporting a breakeven first quarter compared to expectations for a loss.