Monday May 11th

11-05-2020

Dow futures drop 200 points, following gains last week, on jitters about reopening the economy

U.S. stock index futures fell on Monday amid jitters about reopening the economy too soon. A jump in infections in South Korea and other countries that appeared passed the worst of the coronavirus stoked some jitters here. Stocks that would benefit most from reopening led the losses in premarket trading including airlines, retailers, cruise lines and casinos. Dow Jones Industrial Average futures lost 242 points, or 1.1%. S&P 500 futures declined 1%. Nasdaq 100 futures were off by 0.7%. The S&P 500 gained more than 1% on Thursday and Friday, leading to the broader-market average’s first weekly advance in three weeks. On Friday, investors shrugged off the biggest one-month job losses on record as expectations of an economic reopening outweighed the negative data. “The world very much remains on the path to reopening, a process that will accelerate over the coming weeks,” said Adam Crisafulli, founder of Vital Knowledge, in a note. He added, however, the S&P 500 is still overbought at current levels even as expectations of a gradual resumption of economic activity continue to increase. “There will be a reckoning around the reopening and linearity narratives (i.e. both are too sanguine right now),” Crisafulli wrote. The S&P 500 has rallied more than 33% since hitting an intraday low on March 23. That surge has been led largely by mega-cap tech stocks such as Facebook, Amazon, Apple, Netflix, Google-parent Alphabet and Microsoft. Those stocks have all soared more than 20% since late March. Stocks that would benefit from the economy reopening are also up sharply since then. MGM Resorts has soared more than 70% while Disney is up 27.3% in that time. But those stocks were down in premarket trading Monday. Disney lost 0.8%. MGM fell 2.5%. United Airlines lost 2.4%. Despite the market’s strong performance at the index level, Dan Russo of Chaikin Analytics thinks that under the surface, “the real story has been unfolding.” “Over the past three months, which roughly lines up with the top in the S&P 500, it is the economically sensitive cyclical sectors of the market that have lagged,” the firm’s chief market strategist said in a post, highlighting the performance of energy, financials and industrials over that time period. All three of those sectors are down more than 24% over the past three months. Apple said Friday it will start to reopen U.S. stores this week. The stores, Apple said, will have temperature checks and will limit the number of customers inside the store at once. Apple shares lost 0.4% in premarket trading Monday. Stocks in Asia traded higher on Monday afternoon as hopes rise on economies reopening, even as U.S. reported record job losses in April. Hong Kong’s Hang Seng index led gains among the region’s major markets as it surged 1.72%. In Japan, the Nikkei 225 jumped 1.41% in afternoon trade while the Topix index gained 1.64%. Mainland Chinese shares, on the other hand, were mixed by the afternoon. The Shanghai composite rose 0.13% while the Shenzhen composite dipped fractionally. South Korea’s Kospi also dipped 0.27%. Oil prices jumped to their highs of the day after Saudi Arabia said it will cut production further in an effort to support global oil markets. Beginning on June 1 the Kingdom will cut output by an additional 1 million bpd, which combined with the cuts agreed to by OPEC and its oil-producing allies, brings Saudi Arabia’s total cut to roughly 4.8 million bpd below its April record production level. Production for June will now be 7.492 million bpd. After initially bouncing on the announcement, oil prices were little changed. West Texas Intermediate, the U.S. benchmark, traded 5 cents lower at $24.69. Earlier in the session it traded as high as $25.28, and as low as $23.67. International benchmark Brent crude fell 21 cents to trade at $30.73 per barrel. Saudi Arabia also said that it would scale back May production “in consent with its customers.” Gold held steady on Monday as pressure from a firmer dollar and an uptick in risk appetite after many countries eased lockdowns was offset by concerns over a pick-up in new coronavirus cases, which kept some investors on edge. Spot gold was little changed at $1,702.64 per ounce, having lost about 1% on Friday. U.S. gold futures fell 0.4% to $1,707.30 per ounce.