U.S. stock futures pointed to a fourth day of declines on Monday as worries about Fed rate rises persisted.
How are stock-index futures trading
-
S&P 500 futures
ES00,
-0.14%
dipped 14 points, or 0.4%, to 3639 -
Dow Jones Industrial Average futures
YM00,
-0.03%
fell 74 points, ,or 0.3%, to 29279 -
Nasdaq 100 futures
NQ00,
-0.20%
eased 0.6%, or 62 points, to 11040
On Friday, the Dow Jones Industrial Average
DJIA,
fell 630 points, or 2.11%, to 29297, the S&P 500
SPX,
declined 105 points, or 2.8%, to 3640, and the Nasdaq Composite
COMP,
dropped 421 points, or 3.8%, to 10652. The Nasdaq Composite was down 31.9% for the year to date.
What’s driving markets
U.S. stocks were in line for a fourth consecutive session of losses as concerns about additional interest rate rises by the Federal Reserve continued to dampen sentiment.
Trading was expected to be somewhat thinned by the Columbus and Indigenous People’s Day holiday, which closed the Treasury market.
Soft data a week ago raised hopes that the Fed would soon pause its monetary tightening cycle in its battle to suppress multi-decade high inflation, and the market subsequently rebounded off its near two-year lows. But a strong jobs report on Friday crushed that Fed “pivot” narrative and stocks plunged again.
The 5-day round trip saw an average move for the S&P 500 of 1.9%. Little surprise then that the CBOE Vix index
VIX,
a gauge of expected S&P 500 volatility, sat on Monday at 31.4, more than 50% above its long term average of 20.
“The market response to Friday’s U.S. jobs report was characteristic of a bear market in equities. U.S. indices reversed sharply in the absence of the bad economic news required to shake the Fed’s hawkish determination,” said Ian Williams, strategist at Peel Hunt.
Jonathan Krinsky, chief market technician at BTIG, was pessimistic about the market’s prospects, noting that despite many traders expressing bearishness, the AAII stock allocation survey suggests they remained relatively heavily invested.
“The total stock allocation is still 63.4%. The spread between the stock allocation and % bulls is ~36%. This compares to -7% at the 2002 lows and ~3% at the 2009 lows,” Krinsky wrote in a note to clients.
He added that those hoping the S&P 500 could enjoy a V-shaped bounce off its 200-week moving average, like it did in 2018, will be disappointed. “While it may have felt that way after the Monday-Tuesday rally, our sense is we break lower this week and head towards the 3,400 level later this month”.
Now traders will look toward more data due later in the week for further guidance on Fed thinking and equity valuations.
The U.S. producer price numbers will be released on Wednesday and the consumer prices report on Thursday, the last of their kind before the Fed’s rate-setting meeting on November 2nd.
Then on Friday, third-quarter corporate earnings season really kicks into gear when big banks like JPMorgan
JPM,
and Citigroup
C,
present their numbers.
“The estimated earnings growth rate for the S&P 500 is 2.4%. If 2.4% is the actual
growth rate for the quarter, it will mark the lowest earnings growth rate reported by the index since Q3 2020 (-5.7%),” said John Butters, senior earnings analyst at Factset.
Further hurting risk appetite on Monday was additional gains for the dollar, whose strength is considered a drag on the earnings of U.S. multinationals. The dollar index
DXY,
rose 0.3% to 113.15 as the euro broke back below $0.97 after Russia sent missiles into cities across Ukraine.
