Stock Market Today: Dow futures bounce as global markets rally following sell-off

One of the factors cited in recent days for causing the latest stock market sell-off is a fear that the U.S. was sliding into an economic downturn.

Andrea Cicione, head of strategy for TS Lombard, says the Fed has the right tools to stave off a recession – “it just needs to use them, and use them aggressively.”

But he warns that even if there is no recession, volatility in markets can last for a while. His analysis of past volatility bouts – when the VIX index spiked – shows that equities take 4-5 weeks, on average, before a sustained recovery begins.

“Markets tend to rebound on oversold conditions such as the current ones, but investors often sell into that strength, which can lead to a relapse. This is what happened, for instance, in 2018, an episode that bears strong similarities to the current one,” says Cicione in a note released late Monday.

Active investors can probably take advantage of these market patterns over the next few weeks, according to Cicione. “Asset allocators, however, should probably wait for more clarity before switching to an exceedingly defensive stance.”

Things aren’t looking quite as chipper as they did when the European session got underway a couple of hours ago.

The S&P 500 futures have turned a 1.2% gain into a rise of just 0.5%, Dow futures were up 0.8% and are now up 0.3%, while Nasdaq 100 futures have shrunk a 1.5% advance to just 0.6%.

European bourses have turned initial gains into losses, with the Euro Stoxx 600 index now off 0.2%.

There does not appear to be any particular news catalyst behind the less positive tone, rather it’s a sign of the underlying nervousness after recent sharp moves.

The VIX index, the gauge of S&P 500 volatility, is also moving off session lows.

Stocks making notable moves in Tuesday’s premarket action:

Market positioning in the U.S. is still stretched after Monday’s stock-market turmoil, say strategists at Citi led by Bata Manthey.

Its Levkovich sentiment index — based on factors including the percentage of short interest, margin debt, put/call ratios and gasoline prices — is still in “euphoria” mode, the strategists add.

“Taken together, the positioning and sentiment backdrop had suggested scope for near-term unwind. Data could shift meaningfully day-by-day; but with positioning still looking stretched for the Nasdaq, and many long positions in loss, risks of further unwind likely remain in place for now,” they say.

Here are some of the companies presenting earnings on Tuesday:

Before the opening bell.

After the close.

The CBOE VIX index, a gauge of expected stock market volatility known as Wall Street’s fear index, is continuing to move lower early Tuesday.

Similarly, there are signs that investors are moving out of the perceived haven of U.S. Treasurys, pushing yields higher from Monday’s close.

The 2-year Treasury yield at one point on Monday fell to its lowest in more than a year as traders fled into U.S. paper, before moving back up after a services sector survey countered fears about a U.S. recession.

How are stock-index futures trading:

On Monday, the Dow Jones Industrial Average fell 1034 points, or 2.6%, to 38,703, the S&P 500 declined 160 points, or 3%, to 5,186, and the Nasdaq Composite dropped 576 points, or 3.43%, to 16,200.

Global markets are on a firmer footing, with U.S. stock futures higher, helped by a sharp rally in Japanese stocks after a savage start to the week.

Japan’s Nikkei 225 equity index is recovering more than 10% after plunging 12.4% on Monday as the yen soared, triggering a wave of selling that hit bourses worldwide.

The yen is 1% weaker on Tuesday and trading around 145.5 per dollar, a sign that the unwinding of ‘carry trades’ may have run its course for now.

European stock markets are joining the rebound, with the Euro Stoxx 50 up 0.5%, after falling 1.5% on Monday.

“We’ve caught a brief respite as some falling knives finally hit the floor. A dash of soothing words from Fed officials…has begun to calm the market’s frayed nerves,” says Stephen Innes, managing partner at SPI Asset Management.

“However, all eyes remain glued to Tokyo, the epicenter of the carry trade unwind drama, where the effects have been particularly pronounced, stirring up significant turbulence for traders and investors,” Innes adds.