Dow Futures Rise 480 Pts; Positive Sentiment Despite Recession Fears

© Reuters Dow Futures Rise 480 Pts; Positive Sentiment Despite Recession Fears

By Peter Nurse — U.S. stocks are seen opening firmly higher Tuesday, rebounding after last week’s extensive losses although concerns about a potential recession remain with the Federal Reserve committed to a series of interest rate hikes.

At 07:00 a.m. ET (1100 GMT), the Dow Futures contract was up 480 points, or 1.6%, S&P 500 Futures traded 65 points, or 1.8% higher, and Nasdaq 100 Futures climbed 210 points, or 1.9%.

The major indices on Wall Street suffered their 10th losing week in 11 last week after the U.S. Federal Reserve announced an aggressive monetary policy tightening of 75 basis points.

The blue-chip Dow Jones Industrial Average fell 4.8% last week, the broad-based S&P 500 dropped 5.8%, its biggest loss since March 2020, and  the tech-heavy Nasdaq Composite also slipped 4.8%.

Investors are starting the new working week–Monday was a holiday on Wall Street–on a positive note, seeking bargains at these heavily-discounted levels, with the S&P 500 now more than 23% off its record high from early January, in a bear market.

However, this doesn’t necessarily mean the end of the selling as the stock market has yet to fully price in the risk of a recession, according to analysts at Morgan Stanley, with the S&P 500 needing to drop another 15%-20% for the market to fully reflect the scale of economic contraction.

Additionally, Goldman Sachs raised its estimate of the likelihood of a recession over the next year to 30% from 15%, while Tesla (NASDAQ:TSLA) CEO Elon Musk said a recession is ‘more likely than not’ in the near term, with the slowdown likely to result in a 10% cut in the number of salaried employees at the electric car manufacturer.

The economic data slate centers around existing home sales for May, at 10:00 a.m. ET (1400 GMT), amid signs of a cooling housing market, ahead of Fed Chair Jerome Powell’s testimony before Congress on Wednesday and Thursday this week.

Oil prices rose Tuesday, regaining some of last week’s hefty losses amid expectations that U.S. President Joe Biden will announce a suspension of the federal tax on gasoline to cushion the impact of high prices on U.S. drivers.

By 07:00 a.m. ET, U.S. crude futures traded 2.2% higher at $110.34 a barrel, while the Brent contract rose 1.5% to $115.80.

Both benchmarks posted their first weekly decline since April last week on concerns that aggressive monetary tightening could result in a global recession and fuel demand destruction.

The WTI contract dropped over 9% last week, and didn’t trade on Monday as it was a U.S. public holiday, while Brent fell over 7% last week, and only clawed back 0.9% in the previous session.

Additionally, gold futures fell 0.2% to $1,837.60/oz, while EUR/USD traded 0.4% higher at 1.0553.