Dow futures drop more than 300 points as stocks are going to reverse most of Wednesday’s relief rally

Equity futures fell on Thursday, putting major averages on track to return some of the strong gains seen in the previous session as bond yields resumed their upward march.

Futures contracts linked to the Dow Jones fell 324 points, or 1.09%. S&P 500 and Nasdaq 100 futures fell 1.32% and 1.63% respectively.

A stronger than expected jobless claims report did not help stock futures on Thursday morning, instead, futures extended losses on the numbers on the notion that the Federal Reserve will continue to make aggressive rate hikes to fight inflation without worrying that it will harm the labor market.

The 10-year US Treasury yield rebounded after falling the most since 2020 the previous day, despite briefly overshooting 4%. The yield last rose to 3.79%.

The moves followed a broad rally for stocks a day earlier, as the Bank of England said it would buy bonds in a bid to stabilize its financial markets and the falling pound sterling. Sterling stooped to record lows against the US dollar in the last days.

This marked a dramatic shift from the aggressive tightening campaign that many global central banks have undertaken to deal with soaring inflation.

The Dow Jones gained Wednesday or 1.9%, while the S&P 500 rose nearly 2% after hitting a new low in the bear market tuesday. Both indexes broke six-day losing streaks.

“We are skeptical that Wednesday’s calmer market mood marks an end to the recent period of elevated volatility or risk aversion sentiment. For a more sustained rally, investors will need to see compelling evidence that inflation is under control, allowing central banks to become less hawkish,” UBS’s Mark Haefele wrote in a Thursday note.

Wednesday’s rally put major averages on pace to make small gains for the week, but they are still on track to end their worst month since June. The Nasdaq Composite leads the monthly losses, down around 6.5%, while the Dow Jones and S&P are poised to close down 5.8% and 5.9% respectively.

On a quarterly basis, the Nasdaq is on track to break a two-quarter losing streak, while the Dow Jones is heading for its third consecutive quarterly loss for the first time since the third quarter of 2015. The S&P is on track for its third consecutive negative quarter for the first time since its six-quarter negative streak that ended in the first quarter of 2009.

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