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Post: Market Snapshot: Dow futures rally 200 points as bulls bet market is oversold

U.S. stock index futures on Tuesday pointed to Wall Street bouncing off a 21-month low and snapping a five-day losing streak as recent volatility in global bond and currency markets subsided.

How are stock-index futures trading
  • S&P 500 futures
    ES00,
    +1.44%

    rose 35 points, or 1%, to 3705

  • Dow Jones Industrial Average futures
    YM00,
    +1.17%

    climbed 201 points, or 0.7%, to 29547

  • Nasdaq 100 futures
    NQ00,
    +1.69%

    increased 130 points, or 1.1% to 11446

On Monday, the Dow Jones Industrial Average
DJIA,
-1.11%

fell 330 points, or 1.11%, to 29261, the S&P 500
SPX,
-1.03%

declined 38 points, or 1.03%, to 3655, and the Nasdaq Composite
COMP,
-2.55%

dropped 65 points, or 0.6%, to 10803. The Dow Jones Industrial Average entered a bear market on Monday, having fallen 20.5% from its record close on January 4th.

What’s driving markets

The mood across global markets was more composed, encouraging investors to nibble at stocks, bonds and commodities on Tuesday.

“We are seeing some recovery in the risk sentiment today after a very weak start to the week yesterday,” said strategists at Citi in a morning note.

Wall Street’s benchmark S&P 500 index closed Monday at its lowest level since December 2020, down 5.7% over the last five trading days, as investors’ concerns about the economic impact of high inflation and rising interest rates resulted in signs of stress in the bond and currency markets.

“Heightened volatility in the currency markets has exacerbated what was already a [difficult] time in most asset classes, with equities reeling from the prospect of a global recession as central banks continue their aggressive monetary policies,” said Richard Hunter, head of markets at Interactive Investors.

Indeed, Federal Reserve officials again stressed their hawkish stance. Loretta Mester, president of the Cleveland Fed on Monday reiterated it was necessary to slow the economy to damp inflation. St Louis Fed president James Bullard is due to give a speech on the economic outlook and monetary policy at 9:55 a.m. Eastern.

However, relative calm returned to the U.K. gilt market
TMBMKGB-10Y,
4.137%

after its rout, caused by fears about the government’s fiscal strategy. This in turn has helped steady the pound and halted the rally in the dollar
DXY,
-0.48%

whose recent surge to 20-year highs caused fretting about its impact on U.S. company earnings.

The less febrile tone comes amid evidence that parts of the market are exhibiting extreme bearishness.

The S&P 500’s 14-day relative strength index, a closely-watched momentum barometer, finished Monday around 25, where any point below 30 is considered in oversold territory. The CBOE Vix index
VIX,
-3.97%
,
a measure of volatility known as Wall Street’s fear gauge, remained elevated above 30.

Meanwhile, Marko Kolanovic, market strategist at JPMorgan, notes that investor positioning is notably pessimistic.

“Our chosen positioning metrics comprise an eclectic mix of futures positions, hedge fund/mutual fund return betas and JPM client surveys,” he said in a note. “This indicator is mean reverting and close to its all-sample lows suggesting that that investors’ positioning is almost as defensive as it can get.”


Source: JP Morgan

And in a possible example of wholesale bearishness signalling a market bottom, BlackRock analysts said they were concerned that investors were not properly discounting the risks that central banks will deliver recessions in developed markets.

“Markets haven’t priced that so we shun most stocks,” said BlackRock.

U.S. economic updates set for release on Tuesday include August durable goods orders at 8:30 a.m.; the July S&P Case Shiller U.S. home price index at 9 a.m.; and the Conference Board consumer confidence for September and new home sales for August, at 10 a.m. All times Eastern.

Fed Chair Jerome Powell is speaking a 7:30 am ET, but it’s about digital finance.

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