U.S. Stock Futures Stay Volatile After Worst Rout Since 1987

(Bloomberg) -- U.S. stock futures rallied, hitting exchange-enforced bands that prevent further gains, after a choppy opening following the biggest rout in American equities since 1987.

Contracts on the S&P 500, Nasdaq 100 and Dow Jones Industrial Average all reached the so-called limit up level established each day by the Chicago Mercantile Exchange. Shortly after the opening bell in Europe, contracts trimmed gains, with S&P 500 futures up 3.3% at 09:30 a.m. CET. Exchange-traded funds tracking the S&P 500 and the Nasdaq 100 rose more than 6% in pre-market trading, before trimming gains.

Futures continued a wild ride for investors who’ve now seen three straight moves of at least 9% in the S&P 500 -- a feat of ignominy last notched during the Great Depression.

Investors grappled with assessing how much damage will be caused by cancellations of school and sporting events and closures of restaurants, bars and other non-essential businesses. Emergency stimulus from the Federal Reserve failed to calm nerves Monday, and President Donald Trump said the virus disruption may extend into the summer, with a recession possible.

“There have been a lot of steps taken to provide liquidity to the system. If we start to get some sense we are turning the corner on this, that would be well-received,” said Kevin Caron, portfolio manager for Washington Crossing. “Markets are very forward looking and to the extent they begin to see around the corner, that’s going to be what we’re looking for.”

In Europe, the Stoxx Europe 600 index rose as much as 3.7% on Tuesday, but quickly pared gains, and was up 1.2% at 09:30 a.m. A gauge for the travel and leisure sector dropped again, down 7.4%. The sector index has now lost more than half of its value since the start of the market meltdown last month.

Sharp swings on S&P 500 contracts have triggered limits stipulated by the Chicago Mercantile Exchange on multiple occasions in the past seven sessions, including during Sunday trading.

Investors started getting their first glimpse into the toll the outbreak is having on the U.S. economy. A gauge of manufacturing in New York State plunged in March by the most on record. Data also showed China suffered an even deeper slump than most analysts had feared at the start of the year as the virus shuttered factories, shops and restaurants across the nation.

States surrounding New York City, including New York, New Jersey and Connecticut, acted together to suppress large gatherings by banning crowds of more than 50. And the airline industry is seeking grants and loans totaling as much as $58 billion from the U.S. government as well as temporary relief from various taxes, Bloomberg News reported.

“Global supply chains have already been disrupted since January and are likely to still be broken for at least another month or two,” said Seema Shah, chief strategist at Principal Global Investors. “There will be some companies that struggle to make out on the other side, and their corporate earnings numbers will be a major negative surprise.”

After spending weeks minimizing the impact from the outbreak, Trump on Monday said Americans should avoid group gatherings of more than 10 people and should steer clear from eating at restaurants, among other things. His suggestion that the U.S. could be fighting the outbreak until August -- or longer -- pinpointed just how much danger the longest expansion in history is in.

The Federal Reserve, in its second emergency interest rate cut in two weeks, slashed its benchmark to essentially zero on Sunday and announced a massive bond-buying program. That prompted calls from some investors, including Ray Dalio of Bridgewater Associates, to say it leaves the central bank with little firepower going forward.

--With assistance from Sarah Ponczek, Matt Turner and Filipe Pacheco.

To contact the reporters on this story: Vildana Hajric in New York at vhajric1@bloomberg.net;Claire Ballentine in New York at cballentine@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Lianting Tu, Naoto Hosoda

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