Stock futures fell slightly on Tuesday a day after a big reversal in markets gave some traders hope the April sell-off was nearing an end.
Futures tied to the tech focused Nasdaq index fell 0.2%. Dow Jones Industrial Average futures dipped 0.3% and S&P 500 futures were down about 0.2%.
On Monday, the Dow advanced more than 200 points, after cutting a near 500-point loss from earlier in the day. The dramatic market reversal pushed the Nasdaq Composite higher by 1.3% and the S&P 500 up by 0.6%.
The bounce was welcomed by investors after stocks ended the previous week on a sour note, with the Dow falling to its fourth down week in a row and the S&P and Nasdaq hitting three-week losing streaks Friday. The tech-heavy Nasdaq fell into bear market territory last week, but after Monday’s comeback sits 19.8% from its record. For April, the S&P 500 is off by 5% and the Nasdaq is down more than 8%.
“Quite an impressive reversal, unfortunately we don’t believe that [Monday’s] low is the end of the market’s drawdown,” wrote Rob Ginsberg, technical analyst with Wolfe Research. “The sell-off still feels a bit too orderly to us.”
Monday’s reversal was led by names like Microsoft, Alphabet and Meta Platforms, which rallied in the afternoon amid falling interest rates and ahead of an intense week of earnings for mega cap tech stocks. Twitter also jumped after its board accepted Tesla CEO Elon Musk’s offer to take it private.
Alphabet and Microsoft were slightly higher in premarket trading before their quarterly reports Tuesday after the bell. Meta, Amazon and Apple will report later in the week.
UPS and 3M results are due out Tuesday morning.
Edward Moya, senior market analyst at Oanda, told CNBC there’s still a lot of optimism about the U.S. economy and said he anticipates a relief rally from here.
“A third of the S&P is reporting [earnings] this week, and you’re probably going to see much of the same: lots of top and bottom line beats. Companies are going to talk about margin pressures and passing on price increases to the consumer, but they’re still going to highlight there’s still overall optimism about the economy.”
Markets were initially under pressure Monday morning on concern that Covid spreading in China could lead to more lockdowns and a slowdown in economic growth. The fear sent Treasury yields and oil lower. On Tuesday, the 10-year Treasury yield was continuing its decline, lower by 3 basis points to 2.79% (1 basis point equals 0.01%).
Between the continuation of earnings beats and a quiet period from the Federal Reserve, there will likely be a relief rally in the market, Moya added.
“We’re not going to be getting more nervousness about Fed tightening, because we won’t be hearing much more about it until the May meeting,” he said.
Market bull Tom Lee, head of research at Fundstrat Global Advisors, said even though he’d expected a “treacherous” first half to the year, the market has been worse than even he expected, with inflation worsening relative to market expectations. Nevertheless, he remains optimistic.
“When the bond market is screaming for Fed to be a bit tighter, it’s tough for stocks to hold up and I think that’s what we’re kind of going through now, but, I don’t think that means that we should be selling equities here either,” he said on CNBC’s “Closing Bell: Overtime” Monday.
“Markets just want to have some sense of when this could end,” he added. “If inflation doesn’t reach some sort of apex that’s concerning for markets, but I also don’t think it’s set in stone that inflation is going to continue to be a problem even in the second half.”
In economic data, investors are expecting fresh numbers for new home sales and consumer confidence on Tuesday morning.