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S&P 500 Futures Rise After Biggest Weekly Decline Since March

December contracts on the S&P 500 fell in Asia trading, extending a loss that reached more than 5% over the previous five sessions

S&P 500 Futures Rise After Biggest Weekly Decline Since March
Monitors display S&P 500 market information in New York, U.S. (Photographer: Michael Nagle/Bloomberg)

Futures on the S&P 500 indicated pointed to a rebound in the U.S. market from last week’s 5.6% slump, with any moves likely to be limited before the U.S. presidential election on Tuesday and a Federal Reserve interest rate decision on Thursday.

A four-day slump in crude oil and developments over the weekend kept investors on edge. Polls show Democrat Joe Biden maintaining a lead, though battleground states remain tight. The U.S. reported a slight slowdown in virus cases, but several states continued to notch record numbers of infections. The U.K.’s prime minister ordered England into a four-week partial lockdown, all but shuttering the economy, while other European countries prepared to increase restrictions.

S&P 500 Futures Rise After Biggest Weekly Decline Since March

December contracts on the S&P 500 rose 0.2% at 8:28 a.m. in London, erasing a loss of as much as 0.7%. Nasdaq 100 futures added 0.3%. The broader index is coming off its biggest weekly drop since March, led by shares of megacap tech companies that reported solid quarterly results just days earlier. In the U.K., the FTSE 100 fell as much as 0.4%. The MSCI Europe Index fell 0.3%, extending a decline of 5.5% last week.

“Investors will remain in a cautious mood ahead of the election so the rebound will likely not be sustained,” said Margaret Yang, a strategist at DailyFX. “The fall in oil also reflects deteriorating energy demand and fundamentals as virus cases are surging in some of the world’s biggest economies.”

Some dip buyers emerged as Biden’s steady lead over President Donald Trump kept open the possibility for a Democratic sweep of Congress that investors expect will lead to a flood of spending bills to jumpstart the economy that rising virus cases threaten to stymie. While Biden is also expected to raise taxes on high earners and increase regulation, his agenda also includes higher spending on infrastructure projects.

“Many investors fear that a Blue Wave on Election Day could happen, giving the Democrats’ unfettered power to implement their expansive and expensive agenda. Wall Street strategists, including yours truly, countered that the bearish impact of higher taxes and more regulations should be offset by more spending in the Blue Wave scenario,” Edward Yardeni, founder of Yardeni Research Inc., wrote in a note to investors Sunday.

There still exist worries that a Biden administration would be more open to throttling the economy in order to slow the spread of the virus, though it would also likely deliver a massive aid package to offset the financial pain. And investors may have to deal with a delayed or even contested result as millions of ballots were cast by mail and may not be counted by the end of Tuesday.

“There is a chance that we will wake up on Wednesday morning to a world with certainty and clarity, but we should probably be prepared to wake up to a world where at least we have some known unknowns,” Peter Tchir of Academy Securities wrote in a note Sunday.

While the Nasdaq 100 remains more than 25% higher this year, the buy-at-all-costs spirit that drove the rally is starting to fizzle as investors question sky-high valuations. With fears of further economic pain growing, pressure is rising on tech companies to deliver the profit growth needed to justify their lofty price-tags. Outlooks from Apple, Amazon and Facebook last week led sparked a sharp selloff in tech shares.

The virus continues to rage in parts of the U.S., threatening to overwhelm local health-care systems. The situation isn’t any less dire in Europe, where the U.K. on Sunday reported more than 20,000 cases for a seventh straight day. Austria, Greece and Portugal followed the example of Germany and France on Saturday with expanded shutdowns for November.

“The next few weeks are critical in terms of how much the economy suffers due to the current COVID wave,” Evercore ISI strategist Dennis DeBusschere wrote in a report. “Increasing hospital utilization and deaths would encourage self-quarantining, reducing economic activity and potentially derailing gains seen over the past two quarters.”

©2020 Bloomberg L.P.