After The Best First Quarter Since 1938, U.S. Stock Futures Fall

The Dow DJIA, +2.80%, increased by 825 points on Tuesday. The rise translates into a 2.8% gain. S&P 500 SPX, +3.06% had a 3.1% gain. A 3.3% increase was seen in the Nasdaq Composite COMP, +7.79%.

Just What Is It That’s Propelling Markets Forward?

Futures on stock indices have experienced some selling. A significant increase over the preceding two trading days came after it. It signifies that Wednesday’s pullback on Wall Street would be relatively minor.

The Dow Jones Market gave some figures. It demonstrates that the S&P 500 just saw its most significant two-day percentage increase since April 2020. Additionally, it indicates that the S&P 500 has had the strongest first quarter since 1938.

After three straight quarters of decreases, there was a comeback. The drops were the worst stretch of this kind since 2008. The S&P 500 dropped 24.8%, reaching a low almost two years ago. Investors started to fear that the economy might suffer due to the Federal Reserve’s interest rate increases to combat inflation.

Some traders have reduced bets on the Fed raising interest rates quickly due to recent disappointing U.S. data. Manufacturing and job opportunities are both included in the data. This is because the statistics show that manufacturing and job vacancies are slowing down.

Before last week, market investors had expected the Federal Reserve’s benchmark interest rate to increase. By April 2023, the expectation had reached around 4.8%. However, the current estimate has been reduced to 4.5%.

Commentary From Citi’s Top Economist for The Asia Region

Johanna Chua, Citi’s senior economist for Asia, offered some remarks. He said that any indications that interest rates would soon hit their highest point might cause the market to be caught off guard. Even though American economic growth remained more robust than other nations, this occurred.

According to Chua, even though the broad fundamental setting has not altered, a fast reversal has been triggered by the trimming of bearish risk/bearish rates/bullish USD bets.

Fundstrat’s chief of research, Tom Lee, supported an idea. The opinion said that the most recent gain was caused mainly by oversold circumstances and excessive negative sentiment. He was adamant that this viewpoint was correct. This was despite his acceptance of the idea that the latest past had chastened bulls.

Lee remarked in a letter to clients. He said that it makes sense that investors are seeing the gains achieved over the last two days. He added that it was just another “poor market rise.” In Lee’s opinion, many shifting factors hint at the possibility of the excellent run continuing. Given the historically poor win ratio for rallies in 2022, his beliefs are supported.

These included a loss in Fed fund futures, a drop of 5% in the dollar index DXY, and a dip of 0.97%. The VIX volatility index VIX, which had a 1.27% drop below 30, and VIX futures returning to contango, is included.

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