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Dow Futures Wobble as Shaky Investors Opt for King Dollar

Last Updated September 23, 2020 1:54 PM
Sam Bourgi
Last Updated September 23, 2020 1:54 PM
  • Dow Jones futures drifted between narrow gains and losses Wednesday evening.
  • The U.S. dollar strengthened the most for three weeks, underscoring investors’ anxiety about the economy.
  • Corporate earnings continue to trend lower, with FactSet forecasting the worst quarter since 2009.

U.S. stock futures fumbled around the break-even point Wednesday night, as dismal corporate earnings and economic data put a cap on the so-called coronavirus rally .

In the background, investors continued to move into cash–specifically, the U.S. dollar–for its perceived safety during times of economic and financial uncertainty. That ‘safety net’ might not last long as the Federal Reserve’s enduring stimulus regime ramps up to unimaginable extremes (i.e., QE infinity ).

Dow Jones Futures Reverse Losses; S&P 500, Nasdaq Follow

Contracts on all three major U.S. indexes traded higher Wednesday evening, reversing modest declines earlier. The Dow Jones Industrial Average futures  price rose 44 points or 0.2%. S&P 500 futures gained 0.2% and the Nasdaq 100 mini contract added 0.3%.

Dow Jones futures
Dow futures are up modestly in overnight trading. | Chart: Yahoo Finance

At their lowest point Wednesday, Dow futures were off 85 points. S&P 500 futures were off by as much as 0.4%.

Markets Run Out of Good News

The U.S. stock market pulled back in New York trading after investors ran out of good news to sustain the coronavirus relief rally. A private payrolls report from ADP Inc.  showed more than 20.2 million job losses for April, by far the worst on record.

Companies of all sizes were battered by government lockdown orders to prevent the further spread of coronavirus:

private payrolls, April
Whether small, medium, or large, businesses furloughed millions of workers last month. | Source: ADP Inc. 

On an industry level, services shed more than 16 million jobs, while goods producers let go of nearly 4.3 million workers.

The U.S. Department of Labor will release weekly jobless claims numbers Thursday morning followed by the official nonfarm payroll figures Friday.

On the earnings front, U.S. corporations are heading for their worst quarter of profit declines since 2009 . As of Friday, the blended earnings decline for S&P 500 companies was 13.7% based on 55% of companies to have reported.

Dollar Strengthens

Cash is proving to be the real haven amid the coronavirus pandemic. On Wednesday, the U.S. dollar strengthened by the most in three weeks against a basket of world currencies.

The U.S. dollar index (DXY) is now 100.23, having gained 1.2% since the start of May.

DXY US Dollar Index
The U.S. dollar index is fast-approaching multi-year highs. | Chart: Yahoo Finance 

Greenbacks are proving its worth in the short term, as risk-averse investors park their assets in cash to ride out the coronavirus shock. Long-term, the tsunami of inflation coming from the Federal Reserve could make the dollar a far less attractive place to store wealth.

Already, the Treasury is increasing the amount of debt it will issue to boost government funding amid the pandemic. Quarterly refunding auctions are expected to hit $96 billion, a new all-time high.

Still, an environment of fear is expected to keep the dollar elevated for the foreseeable future. Analysts foresee a “very low-risk environment from the point of view of investors,”  which makes capital preservation key.