U.S. Stock Index Futures Drop on Global Growth Concerns

(Bloomberg) -- U.S. stock-index futures fell amid a sell-off in Asian and European equity markets as investor pessimism grew on global growth concerns. U.S. negotiators head to Beijing for more talks later this week. Apple is set to unveil streaming video and news subscriptions.

Futures contracts on the S&P 500 Index were down 0.3 percent at 04:40 a.m. in New York, after the underlying gauge slumped 1.9 percent on Friday, a casualty of a flattening yield curve and concerns that the global economy was slowing down. Contracts on the Dow Jones Industrial Average and Nasdaq 100 were down 0.2 percent and 0.4 percent respectively. The Stoxx Europe 600 Index fell 0.7 percent in early trade in a broad-based retreat.

Investor sentiment was already hit heading into the last week of the quarter after the slump on Wall Street. A closely watched gauge of U.S. Treasuries inverted for the first time since 2007, underscoring the return to low long-term rates.

“It’s pretty clear we’ve seen a shift in momentum,” said Michael McCarthy, chief market strategist at CMC Markets Asia Pacific Pty. “What changed Friday was that there was a strong response the weakness in growth.”

While the decision to forgo an obstruction case against President Donald Trump meant deescalation in a drama that has been capable of breeding volatility in equities, investors with a lot on their minds, brushed past the news and focused on concerns surrounding the slowdown of global economic growth.

Earlier Monday, futures showed almost no reaction to the news with S&P 500 contracts little changed after the Mueller report. That quickly turned as Japan’s stock market plunged when trading started, sending futures lower.

“Investor pessimism is growing as are recessionary indicators from the bond markets,” said Nick Twidale, chief operating officer at Rakuten Securities’ Australian unit.

Attorney General William Barr said in a letter to Congress Sunday that Special Counsel Robert Mueller found no evidence of collusion with Russia in the 2016 presidential campaign. While Mueller failed to exonerate Trump on obstruction of justice, Barr said he didn’t find enough evidence to pursue that charge.

Trump’s legal entanglements have been a lesser entry in the list of market irritants that have periodically arisen to torpedo a U.S. bull market that entered its 11th year in early March. Others remain, including the president’s trade war with China, anxiety about Federal Reserve policy and signs growth is slowing globally.

Investors were divided on whether the latest news would fuel lasting gains.

“This removes one big impediment,” Tim Ghriskey, chief investment strategist at Inverness Counsel LLC, said by phone. “It means that there is the possibility of an infrastructure bill, a functioning government, further easing on regulation of financial institutions. It theoretically removes this distraction.”

Kristina Hooper, chief global market strategist at Invesco, said: “I don’t think the Mueller report ever really mattered to markets. If anything, it is a slight positive as it illuminates one contributor to economic policy uncertainty -- but, to be clear, that is just one of many contributors to uncertainty.”

Kevin Smith, founder and CEO of Denver, Colorado-based Crescat Capital, said: “I could see a significant initial positive move but believe it will be fleeting. For example, Trump’s hyping of the China deal failed to boost the market on Friday where that had worked repeatedly in the past. So, maybe the market is ready to be less driven by Trump news and more by economic reality.”

Art Hogan, the chief market strategist at National Holdings Corp., said: “The Mueller report has been a potential headwind for this market for two years. The report has lived in the bizarre world of always being right around the corner. The potential for the findings of the report to be disruptive to markets have always been a given.”

Stocks have had an explosive run since Trump’s election in November 2016, returning 37 percent with dividends for an annualized rate that is roughly double the historical average. The president’s overhaul of corporate taxes contributed to one of the best years for earnings since the bull market began, with profits for S&P 500 companies rising more than 22 percent in 2018.

Trump celebrated Sunday’s news. “It’s a shame that our country had to go through this,” Trump told reporters before he departed Palm Beach, Florida, to return to the White House. He called Mueller’s probe an “illegal take-down that failed.”

At the same time, the equity benchmark plunged 14 percent in its last full calendar quarter, the worst since 2011, and price turbulence as measured by the Cboe Volatility Index currently sits about 10 percent above its five-year average. Of particular concern to stock bulls was last week’s reception to more dovish emanations from the Federal Reserve. The S&P 500 ended down for the week and had its biggest drop in three months on Friday.

“The markets are focused on the slowing global economy right now,” said Michael O’Rourke, JonesTrading’s chief market strategist. “It is still too early and too few details are out for the market to meaningfully react. Regardless, Washington is mired in a state of political gridlock which won’t be resolved until the next presidential election.”

Democratic lawmakers have demanded Mueller’s full report as well as the underlying evidence so they can pursue their own investigations. Representative Jerrold Nadler, chairman of the House Judiciary Committee, emphasized in a tweet that Mueller didn’t exonerate Trump and pledged to call Barr to testify.

--With assistance from Sarah Ponczek.

To contact the reporters on this story: Elena Popina in New York at epopina@bloomberg.net;Vildana Hajric in New York at vhajric1@bloomberg.net;Matthew Burgess in Sydney at mburgess46@bloomberg.net;Gabriella Lovas in Budapest at glovas2@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Blaise Robinson

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