By Barbara Kollmeyer, MarketWatch

Strategist says selloff could lead to a 10% drop for equities

U.S. stock futures pointed to sharp losses at the open on Monday, as investors reassessed President Donald Trump's ambitious pro-growth agenda after his failure to push through a health-care bill last week.

Dow Jones Industrial Average futures slid 142 points, or 0.7%, to 20,433, while S&P 500 futures dropped 20.55 points, or 0.9%, to 2,324.50. Nasdaq-100 futures fell 46 points, or 0.9%, to 5,332.75.

"Indeed, financial markets seem increasingly skeptical that Trump will be able to deliver on the many promises that fueled the S&P [to] a peak of close to 2,400 in early March. This will place the emphasis on the economic data, at least until the next debate in Washington is more advanced," said Michala Marcussen, global head of economics at Société Générale, in a note to clients.

Major indexes closed mostly weaker on Friday (http://www.marketwatch.com/story/us-stock-futures-set-course-for-worst-week-since-november-as-trump-doubts-niggle-2017-03-24), posting the biggest weekly losses in months after Trump and Republican leaders pulled their health-care plan from a vote (http://www.marketwatch.com/story/gop-health-bill-goes-down-but-trump-can-still-unleash-hhs-to-bedevil-obamacare-2017-03-24). That withdrawal triggered doubts about the rest of the administration's policy push.

A postelection equity rally -- the so-called-reflation trade -- has been driven by hopes that Trump will follow through on his promised tax and spending changes, seen as likely to stimulate the U.S. economy.

Read: Stock market faces crucial test as Trump suffers setback (http://www.marketwatch.com/story/stock-investors-will-be-asking-wheres-the-beef-as-trump-suffers-a-setback-2017-03-25)

On Friday, the S&P 500 index fell 1.4% for the week, the biggest stumble since November, while the Dow industrials dropped 1.5%, the largest fall since September. The Nasdaq Composite eked out a small gain , but logged its biggest weekly loss since December, falling 1.2%.

Another warning signal for investors may have been seen in the CBOE Volatility Index , also referred to Wall Street's fear gauge, which shot above 14 for the first time this year on Friday, Hussein Sayed, FXTM's chief market strategist noted to clients. The VIX is still below its historical average of 20, but higher readings can be a sign of elevated anxiety that could lead to market pullbacks (http://www.marketwatch.com/story/stock-markets-old-friend-volatility-threatening-to-make-a-glorious-return-2017-03-24).

Sayed said investors who have been completely ignoring valuations may need to reconsider those metrics as most are indicating "overstretched prices."

In a "momentum trade, driven by very optimistic expectations, very few care about current valuations. But if you believe that Trump's honeymoon is over and last week's experience is just a guide on what to expect next, I believe markets will sell off sharply, probably up to 10% correction," said the strategist.

Read:Wall Street fear threatens a dramatic comeback in the stock market (http://www.marketwatch.com/story/stock-markets-old-friend-volatility-threatening-to-make-a-glorious-return-2017-03-24)

Economic docket: There are no economic updates on tap for Monday, but a few Federal Reserve speakers will be on tap. Chicago Fed President Charles Evans is due to give a speech on the economy in Madrid, Spain at 1:15 p.m. Eastern Time, while Dallas Fed President Rob Kaplan is scheduled to discuss economic conditions and role of monetary policy at Texas A&M University at 6:30 p.m. Eastern.

Stocks to watch:United Airlines(UAL) could garner attention on Monday after social media reacted to a gate agent for the airline stopping two girls wearing leggings from boarding a flight. (http://www.marketwatch.com/story/united-airlines-stopped-girls-in-yoga-leggings-from-boarding-flight-2017-03-26)

(http://www.marketwatch.com/story/united-airlines-stopped-girls-in-yoga-leggings-from-boarding-flight-2017-03-26)Apple Inc.(AAPL) may draw attention after a Chinese court overturned a ruling against the company over iPhone patents, a win for the tech giant in one of its toughest markets (http://www.marketwatch.com/story/apple-scores-victory-in-iphone-patent-case-in-china-2017-03-26).

Other markets: Uncertainty over Trump's agenda surrounded a slide in Asian stocks (http://www.marketwatch.com/story/asian-markets-fall-as-hazy-outlook-descends-on-trump-agenda-2017-03-26), particularly for the Nikkei 225 index . The Japanese index lost 1.5% as the Japanese yen, which tends to attract buyers in times of economic and political uncertainty, surged against rivals. The dollar hit its lowest level against the yen during Asian trade (http://www.marketwatch.com/story/dollar-hits-lowest-level-against-yen-since-late-november-2017-03-27) since the November election.

Meanwhile, gold , another haven asset, rose $9.50, or 0.7%, to $1,257.90 an ounce. WTI oil futures fell 45 cents, or 0.9%, to $47.53 a barrel.

 

(END) Dow Jones Newswires

March 27, 2017 05:19 ET (09:19 GMT)

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