Dow Futures Rally Falls Flat as Economic Woes Offset ‘QE Infinity’

Futures on the Dow and broader U.S. stock market fell flat in after-hours trading, as Jerome Powell’s dire economic warning continues to reverberate.
US economy, coronavirus
The United States is staring down a deep, prolonged recession that even the Fed is warning about. | Image: Spencer Platt/Getty Images/AFP
  • Dow Jones futures rally more than 100 points before paring gains later in the session.
  • The blue-chip index is coming off its third consecutive down session.
  • Jerome Powell is setting the stage for ‘QE infinity’ by warning of broad virus danger to the economy.

U.S. stock futures failed to sustain their rally in after-hours trading Wednesday, as investors eyed an uneven recovery in the shadow of the Covid-19 health crisis.

Dow, S&P 500, Nasdaq Futures Give Back Gains

Futures on all three major U.S. indexes gave back gains Wednesday night, reflecting a depressed environment for risk assets. Dow Jones mini futures rose by as much as 125 points before paring gains later in the session. The industrials benchmark is currently trading flat.

Dow Jones futures
Dow futures saw a short-lived rally Wednesday night. | Chart: Yahoo Finance

S&P 500 futures are also trading flat after rising by as much as 0.4%. Nasdaq 100 mini contracts followed a similar trajectory and were last up 0.1%.

The Dow has dropped roughly 1,000 points over the past two days on a combination of pandemic hysteria and bearish testimony from Washington’s top central banker.

Preparing for Endless QE

The Federal Reserve has made it abundantly clear it will use whatever means necessary to prop up a dying economy. Some argue that the central has “gone well past the point of ‘QE infinity'” by slashing interest rates down to zero and increasing the size of its balance sheet by roughly $1.5 trillion this year alone.

Fed balance sheet, 2020
The Fed’s balance sheet reached a post-crisis peak of around $4.5 trillion in 2015. After a modest tapering effort, the balance sheet has swelled to a new record high north of $6.7 trillion. | Source: Federal Reserve

Neel Kashkari, president of the Minneapolis Fed, told Bloomberg in March that the central bank has an “infinite amount of cash” it can deploy when needed.

Although ‘QE infinity’ is well underway, Chairman Jerome Powell has talked up the case for endless money printing. In a Wednesday morning speech, the Fed boss described the economic outlook as “highly uncertain and subject to significant downside risks.”

He added (as per The Wall Street Journal):

There is a growing sense that the recovery may come more slowly than we would like…and that may mean that it’s necessary for us to do more.

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Although Powell has denied the prospect of negative interest rates, futures markets suggest they’re coming next year. The tool has been used in Europe and elsewhere with limited success to fight off so-called deflation.

For now, stock markets are reacting negatively to the prospect of an ailing economy. The ‘V-shaped’ recovery many are hoping for appears highly unlikely as lockdown measures and social-distancing norms destroy small businesses. A more likely path is a ‘W-shaped’ recovery that entails a double-dip recession before the U.S. is out of the woods. That could take years to play out.

Josiah Wilmoth edited this article for CCN - Capital & Celeb News. If you see a breach of our Code of Ethics or find a factual, spelling, or grammar error, please contact us.

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