Dow Futures Leap and This Simple Chart Explains Why

The stock market is perfectly tracking the rise of global liquidity. In other words, central bank stimulus is still driving this rally higher.
Dow, Dow Jones, Dow Futures
It's Memorial Day Monday and a spike in liqudiity amid a global money supply bump is having the desired effect. | Source: AP Photo/Richard Drew, File
  • Dow Jones Industrial Average (DJIA) futures push higher while stock markets are shuttered for Memorial Day.
  • The stock market appears to rise in perfect harmony with global money supply, suggesting that central bank stimulus is the single biggest driver right now.
  • Trump begins re-election fight with a promise of 2021 economic boom.

Stocks might be closed for Memorial Day, but traders can still flex their muscles on the futures market. And right now, Dow Jones Industrial Average futures are giving us an optimistic sign, up 250 points on Monday.

What’s behind this bump? Well, there’s one simple reason according to German journalist Holger Zschäpitz: central bank liquidity.

Markets continue to be driven mainly by liquidity. The S&P 500 runs in tandem with the global money supply.

stock market global liquidity
Welt journalist Holger Zschäpitz highlights the simple reason stocks are rising. Source: Twitter

Just look at this chart. The bounce in stocks since the March low perfectly tracks the global money supply. Much of that liquidity has been injected by central banks around the world since the crisis began.

Dow futures bounce 250 points

Dow futures contracts ripped higher on Monday morning amid thin trading volume on Memorial Day. At 6.42 am ET, futures were up 250 points (1.02%).

Dow Jones DJIA stock market futures chart
Dow Jones Industrial Average (DJIA) powered higher on Memorial Day. Source: Yahoo Finance

S&P 500 futures and Nasdaq Composite futures were up 0.93% and 0.95% respectively.

Note: U.S. stock markets are closed for Memorial Day today. U.K. stock markets are closed for bank holiday. European markets on the continent remain open.

7 trillion reasons why the stock market is rising

The U.S. Federal Reserve has pumped almost $3 trillion liquidity into the financial markets over the last two months. Co-head of Swiss and global equities at Union Bancaire Privee, Eleanor Taylor Jolidon says this is the over-riding reason behind the recent market rally.

The important subject is that we are seeing governments and central banks wishing to continue to support the economy and ‘do what it takes’, to quote a famous central banker.

Chairman Powell has been aggressively buying treasuries, bonds, and mortgage-backed securities to prevent the markets from seizing up. In total, the Federal Reserve balance sheet has ballooned to more than $7 trillion, as of last week.

Federal Reserve balance sheet $7 trillion
The Federal Reserve’s balance sheet ballooned to more than $7 trillion over the last two months. Source: St. Louis Fed

Powell’s compatriots at the European Central Bank, Bank of Japan, and China central bank have also kept the monetary taps running. This astonishing wave of liquidity has buoyed the stock markets. And it isn’t going to disappear. As Kathy Bostjancic, chief U.S. financial economist at Oxford Economics put it:

Powell’s mantra is do whatever it takes for as long as it takes

Dow Jones running into technical battle

Despite the flood of liquidity, U.S. stock markets are racing head first into a brick wall of technical resistance. Both the S&P 500 and the Dow Jones are stuck below their 200-day moving average – a technical indicator used by traders to identify the long-term trend.

S&P 500 200-day moving average
Whenever the S&P 500 traded between these two indicators for more than 20 days, it historically breaks down. Source: Market Watch

The S&P 500 is also plagued by the big, round, psychological number of 3,000. In other words, a battle is setting up at these levels and it will take strong momentum to push past them. Kevin Dempter at Renaissance Macro Research called it a ‘dogfight’:

A breakout is not likely to come easily and we expect a dogfight here around the 200-day.

Whenever the S&P 500 has been trapped between the 200-day moving average and the 50-day moving average for 20 days, as it has now, there’s a 72% chance it breaks down.

Trump promises a ‘transition to greatness’ in 2021

There’s also a slight return to risk-on appetite as Donald Trump begins his re-election campaign. The president has promised a “transition to greatness” in 2021, in what will likely become a repeat campaign slogan.

Trump tweet
Trump kicks off his re-election campaign with a new economic slogan. Source: Twitter

The economy is vital to Trump’s re-election. And while the numbers are currently disastrous, he is expected to focus on the future recovery:

We built the greatest economy in the world. I’ll do it a second time.

The president’s grip on the economy is fading, however. In the latest polls, only 49% of the country approve of Trump’s handling of the economy, down from 56% last month.

Samburaj Das edited this article for CCN.com. 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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