Wall Street Prepares for a Lousy Open
The Happy New Year Is Over as Wall Street Preps for a Lousy Open
(Bloomberg) -- It’s only the second trading session of the year, but the fragile optimism that spurred U.S. equities to a record on Thursday is already under threat.
Wall Street is bracing for a big drop at the New York open after risk aversion swept markets worldwide on Friday, part of the fallout from an American air strike that has killed one of Iran’s top generals.
Bets for volatility across U.S. equities are spiking, futures on the benchmark stock gauge are trading in high volumes and wagers on crude are booming as oil prices surge in the aftermath of the attack.
“Stock markets have been rattled,” David Madden, an analyst at CMC Markets UK, wrote in a note. “The Iranian issue has provided dealers with a good excuse to trim their exposure to stocks.”
S&P 500 futures traded in volumes well above the usual levels as the contracts dropped 1.1% as of 7:45 a.m. in New York. The Stoxx Europe 600 set the mood through the European morning, with all but three of its industry sectors in the red.
The Cboe Volatility Index, a gauge known as the VIX that measures expected price swings in the equity market, jumped to the highest since early December. It had been in retreat earlier this week on the prospect of a phase-one trade deal between the U.S. and China.
Meanwhile, exchange-traded funds tied to the volatility gauge were among the most active in pre-market trading. One product based on VIX contracts -- ticker VXX -- jumped 6.4%, while a leveraged version -- ticker TVIX -- surged 11.8%.
Traders are also rushing to line up their energy positioning as oil prices rally. The most active ETF in early trading was the United States Oil Fund LP -- ticker USO -- which predictably surged.
Both that and a product betting against crude -- ticker DWT -- posted higher volumes than the world’s largest ETF, which tracks the S&P 500.
To contact the reporter on this story: Justina Lee in London at jlee1489@bloomberg.net
To contact the editors responsible for this story: Sam Potter at spotter33@bloomberg.net, Yakob Peterseil
©2020 Bloomberg L.P.