Stock futures pared earlier gains to trade lower early Tuesday morning, following the market’s rebound from its deep rout triggered by the coronavirus pandemic.
Futures on the Dow Jones Industrial Average were 96 points lower, pointing to an implied opening dip of around 121 points at Tuesday’s open. S&P 500 futures and Nasdaq-100 futures also pointed to Tuesday opening losses for the two indexes.
The overnight action followed a strong session on Wall Street, with the Dow jumping nearly 700 points led by an 8% pop in Johnson & Johnson after it announced a vaccine candidate for the coronavirus. The S&P 500 rallied 3.4%.
Investors embraced a more realistic government approach to contain the pandemic. President Donald Trump extended the timeline for social distancing guidelines to April 30, which many believe will reduce economic damage in the long run.
“I think the market has established some type of bottom,” Tom Lee, head of research at Fundstrat Global Advisors, said on CNBC’s Markets in Turmoil Special on Monday. “I don’t know if this is October ’08 here; We still have some wood to chop.”
Stocks have managed to rally on concerning economic data including last week’s record number of jobless claims and Monday’s worse-than-expected manufacturing reading from the Dallas Fed, Lee noted.
“If we are rallying on bad news, I think that’s a sign that we are probably at a bottom,” Lee said.
The market also built on last week’s historic rally, where the Dow and S&P 500 posted their best three-day win streaks since the 1930s. With Monday’s gains, the Dow is now up 20% from its coronavirus sell-off low reached on March 23 while the S&P 500 has risen more than 17% from those levels.
Still, the consensus on Wall Street calls for more selling before the market can hit a bottom. Historically, Bear markets are often punctuated by sharp bounces on their way down to a trough.
“Last week’s double-digit gain for markets was a welcome relief rally, though market bottoms are rarely as clean as this one has been,” said Mark Hackett, Nationwide’s chief of investment research. “Markets will need to reflect more traditional interactions before confidence in a bottom can be reached.”
Investors continued to grapple with the worsening outbreak in the U.S. as the confirmed cases rose to more than 153,200, according to data from Johns Hopkins University. The U.S. has also officially become the country most affected. Trump said Sunday he hopes the country will “be well on our way to recovery” by June 1.
“We anticipate that market volatility will resist until liquidity, credit, and health risks have demonstrably passed,” said Lauren Goodwin, economist and portfolio strategist at New York Life Investments. “With major policy stimulus now in place in the U.S., we expect grim health and social news to dominate the next couple of weeks.”
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