Profit Taking May Contribute To Early Weakness on Wall Street

By Investors Hub

The major U.S. index futures are pointing to a lower opening on Thursday, with stocks likely to move back to the downside after ending the previous session modestly higher.

Profit taking may contribute to initial weakness on Wall Street following the upward trend seen over the past several sessions.

A negative reaction to earnings news from several big-name companies may also weigh on the markets early in the trading day.

Stocks moved modestly higher over the course of the trading session on Wednesday after initially showing a lack of direction. The Dow reached its best closing level in a month, while the S&P 500 rose to a more than five-month closing high.

While the Dow and the S&P 500 closed in positive territory, the Nasdaq edged down 0.67 points or less than a tenth of a percent to 7,854.44. The Dow rose 79.40 points or 0.3 percent to 25,199.29 and the S&P 500 ticked up 6.07 points or 0.2 percent to 2,815.62.

The modest strength on Wall Street was partly due to a positive reaction to earnings news from companies such as United Continental (UAL) and Morgan Stanley (MS).

United surged up by 8.8 percent after reporting better than expected second quarter results and raising its full-year guidance, while Morgan Stanley jumped by 2.8 percent after reporting second quarter results that beat analyst estimates.

Late in the trading day, the Federal Reserve released its Beige Book, which said economic activity continued to expand across the U.S.

Ten of the twelve Fed districts reported moderate or modest growth, while the Dallas district reported strong growth due to strength in the energy sector and the St. Louis district described growth as slight.

The Fed noted manufacturers across the country expressed concern about tariffs, with many districts citing new trade policies for higher prices and supply disruptions.

Overall, prices increased at a modest to moderate pace on average, with several districts reporting upticks in inflation.

The Beige Book noted employment continued to rise at a modest to moderate pace in most districts. All districts reported that labor markets were tight and many said that the inability to find workers constrained growth, the Fed added.

The Fed is scheduled to hold a two-day meeting policy meeting on July 31st and August 1st, with the central bank widely expected to leave interest rates unchanged.

After raising rates twice this year to the current range of 1.75 to 2 percent, the Fed has signaled two more rate hikes before the end of the year.

Earlier in the day, the Commerce Department released a report showing a sharp pullback in new residential construction in the U.S. in the month of June.

The Commerce Department said housing starts plunged by 12.3 percent to an annual rate of 1.173 million in June after jumping by 4.8 percent to a revised rate of 1.337 million in May.

Economists had expected housing starts to drop by 2.2 percent to a rate of 1.320 million from the 1.350 million originally reported for the previous month.

With the much bigger than expected decrease, housing starts fell to their lowest annual rate since hitting 1.158 million last September.

Building permits, an indicator of future housing demand, also fell by 2.2 percent to an annual rate of 1.273 million in June after tumbling by 4.6 percent to a rate of 1.301 million in May.

The continued decrease came as a surprise to economists, who had expected building permits to climb to an annual rate of 1.330 million.

Transportation stocks showed a significant move to the upside over the course of the session, driving the Dow Jones Transportation Average up by 2.3 percent. With the gain, the average reached its best closing level in almost a month.

United Continental and CSX Corp. (CSX) helped to lead the transportation sector higher after reporting better than expected second quarterly results.

Considerable strength also emerged among financial stocks, with the NYSE Arca Broker/Dealer Index and the KBW Bank Index climbing by 1.7 percent and 1.2 percent, respectively.

Steel stocks also turned in a strong performance on the day, while most of the other major sectors ended the session showing only modest moves.