- US stock futures indicated a strong start to the week.
- The three major indexes slumped into a correction last week.
- The decline was preceded by a rapid rise to new highs. It coincided with concerns about inflation, and was worsened by the wrecking of trades that had bet on low volatility.
US stock futures extended gains from late-Friday, putting the market on track for a strong start to the new week.
Trading in Dow Jones industrial average futures indicated that the index of 30 large companies was set to open up 300 points, or 1.24%, at 8:03 a.m. ET. S&P 500 futures were up 30 points (1.2%), while Nasdaq futures were up 71 points (1.1%).
All three indexes plummeted into correction last week – a 10% drop from recent peaks – after a long and unusually stable period in which they catapulted to record highs. The 5.2% weekly decline for the S&P 500 was the worst in two years.
Last week’s correction was worsened by a scramble out of exchange-traded notes that were designed to profit from calmer market activity. After the Cboe volatility index (VIX) had a record intraday rise on Monday, the VelocityShares Daily Inverse VIX Short-Term ETN (XIV) and the ProShares Short VIX Short-Term Futures ETF erased an estimated $US3 billion within minutes.
The sell-off coincided with a renewed concern among investors about how the Federal Reserve would use higher interest rates to deal with inflation; the January jobs report released Feb. 2 showed the fastest year-over-year wage growth since 2008.
The release on Wednesday of the Consumer Price Index for January will provide some more clarity on inflation.
Treasurys sold off on Monday, with the yield on the 10-year note rising 5 basis points to 2.88%. It earlier touched a new four-year high above 2.9%.