Pedestrians walk in the snow in front of the Wall Street subway station, near the New York Stock Exchange.
Michael Nagle | Bloomberg | Getty Images
Futures contracts linked to major U.S. stock indices rose in extended trading Monday night after finishing solid last week.
Dow futures rose 250 points, suggesting an implied open of about the same magnitude, while S&P 500 contracts added 27 points, or 0.7%. Nasdaq 100 futures gained 95 points, also a gain of 0.7%.
The US stock market was closed Monday for Presidents Day.
Strategists cited a drop in the Cboe volatility index, widely regarded as Wall Street’s best fear indicator, to recent market optimism.
Fundstrat founder Tom Lee said the VIX’s drop below 20 means investors have become more comfortable in the short term.
“Fear is moving away from the market,” wrote Lee, a CNBC contributor on Friday. “And the receding fear is followed by systematic, quantitative funds adding a ‘leverage’ – in other words, this is a setup to witness a rally.”
Cboe volatility index
Major averages ended last week with decent gains even as the February rally appeared to have cooled off somewhat. The blue-chip Dow Jones Industrial Average posted two little change days, while the S&P 500 moved below 0.2% for three straight days.
Still, the S&P 500 ended the week with a gain of 1.2%, while the Dow added 1%. The highly technological Nasdaq Composite rose 1.7%. All three closed at record highs on Friday.
Allaying fears on Wall Street is likely in large part thanks to the deployment of the Covid-19 vaccine, the economic reopening and expectations of a new fiscal stimulus.
“Covid is far from over, but the path to economic normalization is clearer as more vaccines that reduce hospitalizations and eliminate deaths are approved,” said Dennis DeBusschere, strategist at Evercore ISI, in an email.
“Secretary of the Treasury [Janet] Yellen’s convincing arguments for further stimulus followed by Fed chairman [Jerome] Powell describing maximum employment as “our national target” helped raise bond yields, inflation expectations and oil prices last week, “he added.
The Dow Jones gained 4.9% in February, while the S&P 500 and the Nasdaq rose 5.9% and 7.8% respectively. The S&P 500 set ten records in 2021.
Pedestrians walk past a snow covered bull sculpture during a late nor’easter season in New York.
Lucas Jackson | Reuters
Nonetheless, DeBusschere warned that rising interest rates and an uncertain political outlook could prevent trading from getting too foamy in the near term, and advised investors to stick to cyclical stocks which could see the most benefit. as the US economy recovers.
These so-called cyclical sectors, the most sensitive to an economic rebound, led the rally in February. Energy is up more than 13% since the month, with finance and materials also among the main sectors.
Frigid weather in parts of the United States sparked yet another rally in energy futures on Monday and put West Texas Intermediate crude contracts above $ 60 a barrel for the first time in early days of the coronavirus pandemic.
In business news, CVS Health, Occidental Petroleum, Palantir and others will release their results on Tuesday.
Executives from Robinhood, Melvin Capital and Citadel are scheduled to testify before the House Financial Services Committee on Thursday. Lawmakers are expected to grill the group on wild trading of GameStop and other heavily sold stocks.
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