Dow futures rise 250 points as stocks are set to hit record levels

Pedestrians walk past the Wall Street subway station near the New York Stock Exchange in the snow.

Michael Nagle | Bloomberg | Getty Images

Futures contracts linked to the major US stock indices rose in extended trading on Monday evening after a strong close last week.

Dow futures rose 250 points, suggesting an implied open of roughly the same magnitude, while S&P 500 contracts added 27 points, or 0.7%. Nasdaq 100 futures gained 95 points, also up 0.7%.

The US stock market was closed for Presidents Day on Monday.

Strategists cited a decline in the Cboe Volatility Index, widely believed to be Wall Street’s top fear measure, for recent optimism in the markets.

Fundstrat founder Tom Lee said the VIX drop below 20 means investors are more comfortable in the short term.

“Fear is waning from the market,” wrote Lee, a CNBC employee, on Friday of the move. “The easing of fear is followed by systematic and quantitative means that increase leverage. In other words, this is preparation for a rally.”

Cboe Volatility Index

The main averages finished with decent gains last week, although the rally appeared to have cooled somewhat in February. The blue-chip Dow Jones industry average saw two days little changed, while the S&P 500 swung within 0.2% for three days in a row.

Still, the S&P 500 ended the week up 1.2% while the Dow added 1%. The tech-heavy Nasdaq Composite rose 1.7%. All three closed on Friday at a record level.

Fears on Wall Street are being allayed in large part thanks to the introduction of the Covid-19 vaccine, the economic reopening, and the expectation of further fiscal stimulus.

“Covid is far from defeated, but the path to economic normalization is clearer as more vaccines are approved, reducing hospital stays and eliminating deaths,” Dennis DeBusschere, strategist at Evercore ISI, said in an email.

“Finance Minister [Janet] Yellen’s strong case for additional incentives, followed by the Fed chairman [Jerome] Powell, who called maximum employment “our national goal,” helped raise bond yields, inflation expectations and oil prices last week, “he added.

The Dow gained 4.9% in February while the S&P 500 and Nasdaq gained 5.9% and 7.8%, respectively. The S&P 500 achieved ten record deals in 2021.

Pedestrians walk past a snow-covered bull sculpture during a late season in New York.

Lucas Jackson | Reuters

Still, DeBusschere warned that rising interest rates and uncertain political outlooks could prevent trading from getting too frothy in the short term, and advised investors to hold onto cyclical stocks, which could see the biggest upside as the US economy recovers.

The so-called cyclical sectors, most sensitive to economic recovery, led the rally in February. Energy is up more than 13% since the start of the month, with financials and materials also among the leading sectors.

Freezing weather in regions in the U.S. sparked another rally in energy futures on Monday, bringing West Texas Intermediate crude oil contracts above $ 60 a barrel for the first time since the beginning of the coronavirus pandemic.

In corporate news, CVS Health, Occidental Petroleum, Palantir and others will be reporting profits on Tuesday.

Executives from Robinhood, Melvin Capital and Citadel are due to testify to the House Financial Services Committee Thursday. Lawmakers are likely to grill the group over the wild trading in GameStop and other heavily trimmed stocks.

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