Futures point to Wall Street recovery after worst day for S&P 500 in four months

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MARKET SNAPSHOT

U.S. stock futures pointed to a recovery on Tuesday after the worst single day for the S&P 500 in more than four months.

  • Futures on the Dow Jones Industrial Average jumped 385 points, or 1.1%, to 34,224
  • Futures on the S&P 500 rose 1%, or 45 points, to 4,393
  • Futures on the Nasdaq 100 gained 1%, or 145 points, to 15,154

On Monday, the Dow Jones Industrial Average fell 614 points, or 1.8%, to 33970, the S&P 500 declined 75 points, or 1.7%, to 4358, and the Nasdaq Composite dropped 330 points, or 2.2%, to 14714.

What’s driving markets

The unfolding saga of China Evergrande a property developer that is expected to miss making two key interest payments this week, set the tone on Monday for the pounding in markets. It came on a day when many key Asian markets were closed for a holiday.

“The market sell-off that escalated overnight we believe is primarily driven by technical selling flows (CTAs and option hedgers) in an environment of poor liquidity, and overreaction of discretionary traders to perceived risks,” said Marko Kolanovic, chief global markets strategist at JPMorgan.

Kolanovic anticipates a recovery as the delta wave of coronavirus fades, and expects companies to beat expectations on third-quarter earnings.

Wall Street analysts were at pains to say that Evergrande is not China’s Lehman moment.

“A true ‘Lehman moment’ is a crisis of a very different magnitude. One would need to see a lenders’ strike across large parts of the financial system, a sharp increase in credit distress away from the real-estate sector, and banks being unwilling to face each other in the interbank funding market. And with all that, we would also need to see massive policy mistakes on the part of Chinese authorities,” said strategists at Barclays led by Ajay Rajadhyaksha.

The worries over Evergrande came at a critical junction, with several firms having warned, correctly, that September would be bumpy for U.S. equities after a smooth summer.

The Federal Reserve on Tuesday starts the first of a two-day meeting that could lead to a more hawkish interest-rate forecast, with Congress so far unwilling to increase the debt ceiling as it struggles to agree on a package of infrastructure spending.

Even after Monday’s fireworks and losses in nine of the last 11 sessions, the S&P 500 is only 4% below its record high.

How are other assets trading

  • The Hang Seng managed a slight advance after Monday’s rout, while the Nikkei 225 slumped in Tokyo after a holiday
  • Markets in Europe also saw gains, with the Stoxx Europe 600 up 1.1% in early trade.
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