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U.S. Index Futures Reach Lower Limit as Volatility Grips Market

Claire Ballentine and Vildana Hajric
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U.S. Index Futures Reach Lower Limit as Volatility Grips Market

(Bloomberg) -- U.S. stock futures slid, hitting exchange-enforced bands that prevent further losses, as investors assess the Trump administration’s beefed up policy response to the coronavirus. S&P and Nasdaq ETFs both slumped in pre-market trading, suggesting another challenging day for U.S. equities.

Contracts on the S&P 500, Nasdaq 100 and Dow Jones Industrial Average all at some point reached the so-called limit down level established each day by the Chicago Mercantile Exchange. Futures on the S&P 500 lost as much as 3.7% to 2,403.5, while dropping 4.4% for the Nasdaq 100 and falling 3.9% for the Dow Jones Industrial Average. Treasury Secretary Steven Mnuchin warned the coronavirus could send U.S. unemployment up to 20% without government intervention. The underlying S&P 500 rose 6% Tuesday.

SPDR S&P 500 ETF Trust retreated 5.3% in Wednesday’s pre-market trading, while Invesco QQQ Trust fund, which tracks the Nasdaq 100 benchmark, slid 5.1%. In Europe, equities also resumed declines after Tuesday’s gains, but remained above this week’s lows.

Volatility continues to grip American equity markets, with the benchmark index moving an average 7.7% in the past seven sessions -- a bout of violence not seen since the Great Depression. Futures have consistently powered or tumbled to exchange-mandated limits that prevent further gains or losses.

Contracts initially opened in Asia with muted moves after stocks rebounded from the worst day on Wall Street since 1987. After weeks of wavering, the Trump administration on Tuesday presented concrete actions to help battle the effects of the viral outbreak, while the Federal Reserve implemented crisis-era policies aimed at mitigating damage to the economy.

“We’re clearly in a very murky environment right now where people don’t know how to factor in this virus,” said John Carey, portfolio manager at Pioneer Investment Management. “The market is just see-sawing from one day to the next. There’s a tussle between the bears and the bulls, it’s a very historic kind of dispute.”

Stocks reclaimed half of the epic rout they endured Monday as investors grew hopeful the latest policy measures will help stave off the financial effects of an unprecedented upheaval in social interactions that looks set to plunge the world into recession.

“Generally for market participants, the biggest question mark is the government’s ability to deliver,” said Mike Stritch, chief investment officer of BMO Wealth Management. “There will be more of that response. It’s how long is this going to last and how will the government help support those that need supporting?”

The administration has been discussing aid packages of up to $1.2 trillion, Bloomberg News reported, though details and timing remained unclear. Treasury Secretary Mnuchin pitched send up to $500 billion in checks to Americans to help stave off the financial impact. Trump is also considering allowing some Americans to delay mortgage payments.

“As we get more and more information about the proposed fiscal stimulus, that is what markets were looking for -- something more significant than what was worked on last week,” Liz Ann Sonders, chief investment strategist at Charles Schwab, said in an interview.

With the virus grinding the global economy toward a virtual standstill, central banks have dramatically stepped up efforts to stabilize capital markets and provide liquidity. The Fed has already cut rates twice this year and is now considering, along with other Wall Street regulators, changes to leverage limits and accounting rules. On Tuesday, the central bank also said it will restart a program to help U.S. companies borrow using commercial paper

“This is a little bit unlike anything else we’ve had before because of the unknown length and the unknown implications of it,” said JJ Kinahan, chief market strategist at TD Ameritrade in Chicago. “There’s no reason to think volatility won’t stay elevated for the next two to four weeks.”

(Adds moves for S&P and Nasdaq ETFs, European stocks in third paragraph.)

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