Snow covers the Charging Bull sculpture in the Financial District of Manhattan, New York, December 17, 2020.
Jeenah Moon | Reuters
Futures contracts tied to the major U.S. stock indexes rose early Tuesday after a key volatility gauge Wall Street watches declined, which could unleash more buying from quant funds.
Dow Jones Industrial Average futures climbed 200 points, while S&P 500 futures rose 0.6% and Nasdaq 100 futures gained 0.5%. The U.S. stock market was closed on Monday for President’s Day.
The Cboe Volatility Index, widely viewed as Wall Street’s best fear gauge, broke below 20 to settle at 19.97 on Friday, marking the first significant breach of the threshold since the pandemic-induced sell-off began in February 2020.
The crack of the 20 level is viewed by some on Wall Street as a big “risk on” signal, which could trigger buying from algorithmic traders and other big players. The gauge last traded up about one point to 21 on Tuesday morning.
“Fear is receding from the market,” Tom Lee, FundStrat’s co-founder and head of research, said in a note on Friday. “And receding fear is followed by systematic and quant funds adding ‘leverage’ — in other words, this is a set-up to see a rally.”
The major averages finished last week at record levels even as February’s rally appeared to cool off somewhat. The Dow has gained 4.9% in February, while the S&P 500 and the Nasdaq have rallied 5.9% and 7.8%, respectively. The S&P 500 has raked in ten record closes in 2021.
Easing fears across Wall Street are likely in large part thanks to the rollout of the Covid-19 vaccine, economic reopening and expectations for more fiscal stimulus.
“Covid is far from defeated, but the path toward economic normalization is clearer as more vaccines that reduce hospitalizations and eliminate fatalities are approved,” Dennis DeBusschere, strategist at Evercore ISI, said in an email.
Freezing weather in regions across the U.S. sparked another rally in energy futures on Monday and put West Texas Intermediate crude contracts above $60 a barrel for the first time since the early days of the coronavirus pandemic.
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