Stock Futures Wobble After Monday's Sharp Slide
By Mischa Frankl-Duval
U.S. stock futures wobbled Tuesday, following the S&P 500's
deepest fall in over a month, as investors assessed the likely
economic fallout of the rise in coronavirus infections and the pace
of recovery for blue-chip American businesses.
Futures tied to the S&P 500 were largely flat after the
benchmark retreated 1.9% at the start to the week. Contracts tied
to the Dow Jones Industrial Average edged up 0.2%. The Dow dropped
650 points Monday, its steepest one-day point since Sept. 3.
Rising Covid-19 infection levels are compounding worries about
the U.S. economic outlook as hopes of a new stimulus deal before
next week's presidential election fade. The seven-day average of
new cases in the U.S. reached an all-time high of 68,767 on Monday,
another indication that the country is experiencing a fresh surge
of infections as the weather turns cooler.
Investors are watching for cues on how authorities in the U.S.
and Europe respond to the elevated coronavirus case numbers.
Heightened restrictions on business and social activity could
threaten to further undermine the halting global recovery.
"The key thing that we're watching at the moment is going to be
the Covid numbers. More importantly, how countries are responding
to them," said Seema Shah, chief strategist at Principal Global
Investors. "The way that governments have stopped reprioritizing
opening, and gone back to lockdowns: that's what's freaking out
A number of countries in Europe, including Italy, Spain and
Russia, have tightened restrictions related to the pandemic. More
nations including Germany and France are weighing authorizing fresh
limits to prevent hospitals from becoming overburdened as the
Northern Hemisphere heads into the winter months.
"There are concerns that what Europe is doing is likely to be
followed by the U.S., because they'll have no other choice," Ms.
Shah said. "To have any kind of regional lockdown [in the U.S.]
would be, I think, a major hit to market confidence."
Investors have also long been betting on a Covid-19 vaccine or
treatment that would help end the pandemic and allow economic
activity to fully resume. But federal health researchers halted
testing of a combination of Eli Lilly's antibody drug and
remdesivir in hospitalized patients, after an independent committee
found a lack of a benefit. Lilly shares edged down over 1% in
Also weighing on market sentiment, a large English study showed
the number of people with Covid-19 antibodies declined
significantly over the summer, suggesting that getting the virus
might not confer long-lasting immunity from future infection.
Despite warnings about the potential severity of the pandemic
over the winter months, some investors are betting that authorities
will avoid the stringent lockdown measures put in place in the
spring, which brought the global economy to a jarring halt.
"At the moment, the market is discounting for further lockdowns
and for the economy to suffer dramatically again, and I just don't
see that," said Patrick Spencer, managing director at U.S.
investment firm Baird. "We're in a V-shaped recovery."
Strong corporate earnings are also likely to bolster markets,
Mr. Spencer said.
Three U.S. pharmaceutical giants -- Eli Lilly, Pfizer and Merck
-- are among a string of companies set to report quarterly earnings
starting at 6 a.m. ET. Machinery giant Caterpillar, manufacturer 3M
and aerospace company Raytheon Technologies are also scheduled to
report before the opening bell.
Results from Microsoft, due at about 4 p.m., may give investors
additional cues on the strength of the largest U.S. technology
firms. Those companies have been responsible for much of the stock
market's strength this year.
"For a lot of companies, mainly big tech, where the expectations
are pretty high, we need to see them meet those expectations," Ms.
Shah said. Investors are going to be particularly focused on
forward-looking projections, and any sense that companies
anticipate further pain in 2021 could damage sentiment, she said.
"The greatest concern is going to be the guidance, because it's
[the fourth quarter] that's been the real concern."
In commodity markets, U.S. crude-oil futures climbed almost 1%.
Gold prices edged down 0.3%.
Overseas, the Stoxx Europe 600 declined 0.6%.
In Asia, most major equity benchmarks posted tepid declines by
the close of trading. Hong Kong's Hang Seng Index retreated 0.5%,
Japan's Nikkei 225 was largely flat, while the Shanghai Composite
Index ticked up 0.1%.
Write to Mischa Frankl-Duval at Mischa.Frankl-Duval@wsj.com
(END) Dow Jones Newswires
October 27, 2020 06:24 ET (10:24 GMT)
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