Dow futures jump 300 points on betting market is oversold after blue-chip gauge falls into bear market

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

How to trade stock index futures
  • Futures on the Dow Jones Industrial Average YM00,
    +0.79%
    climbed 321 points, or 1.1%, to 29,664.

  • S&P 500 futures ES00,
    +1.04%
    rose 50 points or 1.4% to 3,720.

  • Nasdaq 100 futures NQ00,
    +1.32%
    jumped 185 points, or 1.6%, to 11,501.

Dow DJIA,
+1.02%
entered a bear market on Monday after falling 20.5% from its record close on Jan. 4, while the S&P 500 SPX,
+1.36%
hit its 2022 low from June 16 to close at the lowest since December 14, 2020 and the Nasdaq Composite COMP,
+3.06%
fell 0.6 per cent

What drives the markets

Sentiment across global markets was more mixed, prompting investors to tap into stocks, bonds and commodities on Tuesday.

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

Wall Street’s benchmark S&P 500 index fell 5.7% over the past five trading days as investor concerns about the economic impact of high inflation and rising interest rates resulted in signs of stress in bond and currency markets.

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

Chicago Fed President Charles Evans said Tuesday that interest rates may have to rise next year. Loretta Mester, president of the Cleveland Fed, reiterated on Monday that slowing the economy was necessary to curb inflation. St. Louis Fed President James Bullard is scheduled to deliver a speech on the economic outlook and monetary policy at 9:55 a.m. Eastern.

But relative calm returned to the British gilt market TMBMKGB-10Y,
4.348%
after its closure on Friday and Monday, caused by fears over the government’s fiscal strategy. This in turn has helped to stabilize the pound and halt the rally in the dollar DXY,
-0.17%
whose recent rise to 20-year highs caused concern about its impact on US corporate earnings.

See: A rising US dollar creates an ‘unsustainable situation’ for the stock market, warns Morgan Stanley’s Wilson

The less feverish 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 barometer of momentum, ended Monday around 25, with any point below 30 considered in oversold territory. CBOE Vix Index VIX,
-3.63%,
a measure of volatility known as Wall Street’s fear gauge remained above 30.

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

“Our selected position metrics include an eclectic mix of futures positions, hedge fund/mutual fund return betas and JPM client surveys,” he said in a note. “This indicator is a bad return and near its all-test low, suggesting that investor positioning is about as defensive as it gets.”

Source: JP Morgan

And in a possible example of wholesale bearishness signaling 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 it in, so we’re avoiding most stocks,” BlackRock said.

In U.S. economic data on Tuesday, orders for durable goods fell 0.2% in August, falling less than expected. Orders less transport rose 0.2%, while core orders for durable goods rose 1.3%.

Other data sets for release include the July S&P Case Shiller US Home Price Index at 9:00 a.m. ET; and Conference Board consumer confidence for September and new home sales for August at 10

Companies in focus
  • Shares of Nautilus Inc.
    NLS,
    +8.98%
    rose 10% in premarket trading after the fitness products company said late Monday that a potential sale of the business was under consideration, part of a broader review of strategic alternatives launched by its board.

  • Hertz Global Holdings Inc.
    HRT,
    +4.99%
    and BP PLC
    BP,
    +0.70%

    BP,
    +1.61%
    said Tuesday that they have signed a memorandum of understanding for the development of a network of charging stations for electric vehicles in North America. Shares in Hertz rose 2.9%, while BP’s US-listed shares rose 2.8%.

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