Dow Futures Rally Struggles to Stay Alive After Key Sectors Plunge Into Correction

With a generational crisis on our hands, stock markets can only ignore fundamentals for so long. | Image: Spencer Platt/Getty Images/AFP

• Futures on the Dow Jones Industrial Average rose by as much as 115 points Thursday night before giving up most gains.
• The Dow is off more than 4% from its Apr. 29 peak.
• Financial, utilities, and real estate sectors are back in correction territory.

Futures on the Dow and broader U.S. stock market rallied in overnight trading Thursday, though gains were limited by ongoing fears of a devastating recession post-coronavirus.

Dow, S&P 500, Nasdaq Futures Rally

Futures on all three major U.S. indexes moved higher in after-hours trading. The Dow Jones Industrial Average futures contract rallied by as much as 115 points before paring gains. The June contract is currently holding gains of 51 points or 0.2%.

S&P 500 futures rose 0.2%, while Nasdaq 100 mini futures added 0.3%.

The Dow is coming off an impressive 377-point rally in New York, snapping a three-day skid in the process. Still, the blue-chip index is down more than 4% from its Apr. 29 peak.

Stock Market Recovery Losing Steam

Equities have rebounded sharply from their March lows, but activity over the past two weeks suggests the rally is losing steam. Financials, real estate, and utilities have swung back into correction territory this month.

In market-speak, a correction is a decline of 10% or more from a recent high. A full-blown bear market is when assets fall 20% or more from their most recent peak.

The market’s relief rally is looking more like a bear trap now that investors are getting a sense of just how bad the economy is faring amid coronavirus.

Consumer confidence–generally seen as a lagging indicator for the stock market–plunged to a six-year low last week, according to Bloomberg. Confidence hasn’t crashed this hard since the lead-up to the financial crisis and, before that, the Dot Com bubble.

The latest government data continue to show an economy that’s reeling from government lockdown orders. Jobless claims rose by nearly 3 million for the week ended May 9, pushing the eight-week total to 36.5 million.

To get a sense of just how stark those numbers are, consider that the worst week of the 2008 financial crisis produced 665,000 new claims.

Adding to the downbeat sentiment is Jerome Powell, the Federal Reserve Chairman who warned this week that the economic recovery would take longer to play out.

The Fed is so dovish right now that futures traders expect interest rates to go negative in 2020. While negative rates may appease President Trump, they’ve been tried elsewhere with minimal success (to put it mildly).

Peter Schiff of Euro Pacific Capital provided Trump with some level-headed reasoning on why negative rates can be disastrous:

Negative rates “are a transfer of wealth from savers to earners,” Schiff said, adding that “the inflation created to make negative rates possible will hurt wage earners too…”