US stock futures rise as summer rally resumes

US stock futures rose on Monday as investors continued to dismiss prospects of faster Fed tightening on hopes a strong job market signals the US economy remains healthy.

How are stock index futures performing?
  • S&P 500 Futures ES00,
    rose 11 points, or 0.3%, to 4,158

  • Dow Jones Industrial Average Futures YM00,
    added 60 points or 0.2% to 32,811

  • Nasdaq 100 Futures NQ00,
    rose 51 points, or 0.4%, to 13,280

On Friday, the Dow Jones Industrial Average DJIA,
up 77 points, or 0.23%, to 32803, the S&P 500 SPX,
down 7 points or 0.16% to 4145 and the Nasdaq Composite COMP,
down 63 points or 0.5% to 12658. The S&P 500 is up for three straight weeks but is down 13% year to date.

What moves the markets

Firmer stock index futures suggest Wall Street is challenging its highest levels in more than two months. Since hitting its 2022 low in mid-June, the S&P 500 is up 13% after investors bet that pessimism about the company’s outlook was overdone amid rising inflation and tightening central bank monetary policy.

Shares initially sold off on Friday after a much stronger-than-expected US jobs report for July, as investors feared the data gave the Federal Reserve more leeway to accelerate the pace of interest rate hikes in a bid to dampen inflation.

But risk appetite has returned, with traders hoping a resilient job market will challenge recent signs of a slowing US economy and a generally well-received Q2 corporate earnings season draws to a close. Investors are also taking in the news that the US Senate approved the Democrats’ big health, climate and tax package over the weekend.

“While it was all too easy for some to scoff at efforts to downplay the first-half ‘recession,’ Friday’s payrolls turned the shoe on the other foot,” Jefferies analysts said in a weekend note.

“At the end of July, the US workforce is officially larger than it was February 20. With negative GDP, calling the current economy the strongest ever just got a little less absurd. In this context, the fact that the SPX bounced off Friday’s low not to fully end the stormy run we’ve been witnessing since mid-July makes sense,” added Jefferies analysts.

The market rally now faces some technical challenges, some observers argue. The recent surge in the S&P 500 has kept its 14-day relative strength index, a closely watched momentum gauge, at 71.6 and in the “overbought” territory.

And the benchmark index is also now seeing resistance at the 4,200 level and if that breaks then the 200 day moving average emerges.

Source: Evercore ISI

“Economic and political uncertainty, reflected in continued S&P 500 trading below 4,200 and 4,340, leaves open the possibility of lower lows,” analysts at Evercore ISI said.

Market sentiment is supported by a calmer tone in Treasuries, with US 10-year Treasury yield TMUBMUSD10Y,
which jumped Friday after the payrolls data and fell 3 basis points to 2.802%.

A sustained fall in energy costs, which should help ease inflation in the coming months, also helped underpin the market’s risk appetite on Monday. The WTI Crude Oil Future CL.1,
fell 0.2% to $89.40 a barrel, almost the lowest since Russia’s invasion of Ukraine in February.

How are other assets doing?
  • The ICE Dollar Index DXY,
    down 0.2% to 106.42, which helped stimulate gains for Gold GC00,
    which rose nearly 0.1% to $1,793 an ounce.

  • bitcoin BTCUSD,
    rose 2.6% to $23,866.

  • Asian markets were mixed after another COVID-19 lockdown in part of China hit sentiment. Hong Kong’s Hang Seng HSI,
    fell 0.8% and Japan’s Nikkei 225 NIK,
    increased by 0.3%. In Europe the Stoxx 600 SXXP,
    increased by 0.5%. US stock futures rise as summer rally resumes

Brian Lowry

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