U.S. Stock Futures Advance as Investors Weigh Stimulus Talks

(Bloomberg) -- U.S. index futures rose and pointed toward a rebound from Tuesday’s selloff as investors assessed the progress of a stimulus plan and a House panel proposal for far-reaching antitrust reforms to curb the power of American technology giants.

Fresh comments from U.S. President Donald Trump calling for support for airlines and the Paycheck Protection Program helped reverse earlier losses. December contracts on the S&P 500 Index added 0.7% as of 8:25 a.m. in London, rebounding from a 0.6% loss. Futures on the Nasdaq 100 Index also advanced 0.7%, erasing a drop of as much as 0.6%.

“So there is still some stimulus perhaps coming before the election,” said Ben Emons, head of global macro strategy at Medley Global Advisors. “That is removing the angst from the Trump tweet earlier that no further negotiations about the stimulus package would take place.”

In Europe, the Stoxx Europe 600 advanced as much as 0.3%, with food and beverage stocks climbing the most among sectors, while banks led declines.

Losses that began with Trump’s suspension of stimulus talks had worsened in technology stocks after the House panel proposed reforms targeting megacap companies like Amazon.com Inc. and Alphabet Inc. The Nasdaq 100 Index fell 1.9% in Tuesday’s cash session, the second big interruption in three days to a recent rally.

A 449-page report from the House antitrust subcommittee recommended Congress consider legislation that would either prevent tech companies from owning different lines of businesses, which could lead to breakups, or impose certain organizational structures. Scrutiny of the companies has intensified this year as their market values ballooned, including Apple crossing the $2 trillion threshold in August.

“They had been looking richly valued, but now with increasing regulatory scrutiny on them, they’re going to be -- if nothing else -- not 100% focused on their business,” said Kim Forrest, chief investment officer of Bokeh Capital Partners. “This is showing intent, it’s not just idle chatter.”

In after-hours trading, Apple slipped as much as 0.7% after dropping 2.9% as of the 4 p.m. New York close. Amazon fell as much as 0.6%, following a decline of 3.1%. Facebook Inc. slid as much as 1.2% in the late session after falling 2.3% in the regular session.

Internet and software stocks are vulnerable to event risk because they’ve rallied so hard. A run in which the Nasdaq 100 came close to doubling in about 20 months pushed its price-earnings ratio above 40 at the start of September, a valuation whose only recent precedent is the dot-com bubble.

Even with the gauge’s 9% tumble since then, the multiple sits at about 36.5, higher than any time in the last decade and a half.

The House report landed about an hour after the broader market buckled on Trump’s curtailment of stimulus talks until after the November election. Megacap tech shares bore the brunt of that shock as well, with gauges of computer, software, communications and consumer nonessential shares falling between 1.5% and 2.1% in the regular session.

Trump made the move hours after Federal Reserve Chair Jerome Powell appealed for greater spending to avoid damaging the economic recovery. Democrats had most recently pushed a $2.2 trillion package that failed to garner Republican support in the House, while the White House had endorsed $1.6 trillion.

“Stimulus talks were crucial for stocks this week, but today’s shocker completely changed the short-term picture on the Street,” said Ken Berman, a strategist with Gorilla Trades. “We have to wait and see to decide if today’s plunge was only a ‘one-day wonder’ or the start of a more durable shift.”

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