U.S. Stock Futures Slide Following Three-Day Hiatus: What’s Next?

American futures for stock indices decreased on Tuesday following a three-day pause, as Chinese equities showed weakness due to dissatisfaction with the monetary stimulation measures taken in the second-largest economy globally.

What’s happening

  • The futures for the Dow Jones Industrial Average index, with the code YM00 and a negative percentage change of 0.32%, dropped by 109 points. This represents a decline of 0.3%, bringing its value to 34,495 points.
  • S&P 500 futures, with the ticker symbol ES00 and a negative change of 0.34%, fell by 11 points or 0.2% to reach 4,442.
  • The futures for Nasdaq 100, known as NQ00, went down by 28 points or 0.1%, and settled at 15,239.

The stock market experienced a decline on Friday, with the Dow Jones Industrial Average dropping 109 points or 0.32% to 34299, the S&P 500 declining 16 points or 0.37% to 4410, and the Nasdaq Composite dropping 93 points or 0.68% to 13690.

What’s driving markets

Investors showed caution after the U.S. Juneteenth holiday, despite the S&P 500’s fifth consecutive week of gains and the Nasdaq Composite’s eight-week winning streak. Morgan Stanley’s chief U.S. equity strategist, Mike Wilson, noted that retail and institutional investor sentiment is at its highest levels in over two years, but he thinks that the fundamental view on growth makes it difficult to embrace the current bullish narrative fully. One factor that investors need to consider is the resumption of student loan payments in the fall, which could affect consumers’ disposable income. Student loan payments have been paused since the beginning of the pandemic in March 2020.

China reduced its lending rates for 1-year and 5-year terms by 10 basis points. Investors believed this was not enough, especially since the state council meeting on Friday did not produce any other significant steps. Societe Generale had predicted a cut of 15 basis points for the 5-year rate, which is used as a gauge for mortgage rates.

In Hong Kong, there was a 1.5% drop in the Hang Seng HSI index.

The Chinese internet giant, Alibaba (BABA), has received attention as it confirmed that its CEO and chairman would be stepping down in order to concentrate on the cloud division. This news also included the appointment of the Brooklyn Nets owner, Joseph Tsai, as the new chairman.

On Tuesday, there were reports on the economy that included information about the number of new housing projects that started, which increased by 21.7% in May after a decrease of 2.9% in April (which was later revised). Additionally, there was an increase of 5.2% in the number of building permits issued in May.

On Tuesday, there will be a discussion with John Williams, the president of the Federal Reserve Bank of New York, and Michael Barr, the Vice Chair for Supervision at the Fed. The following day, Jerome Powell, the Chair of the Fed, is scheduled to give a testimony to Congress twice a year.

Companies in focus

  • Alibaba Group Holding Ltd’s stocks, marked as BABA, experienced a decline of 2.1% during premarket trading following an announcement by the Chinese e-commerce company that Daniel Zhang would be resigning as chairman and chief executive officer. Zhang will continue to oversee the cloud business, which is set to be separated from the company.
  • NIO Inc., the Chinese electric vehicle manufacturer, experienced a decrease of over 2% due to the recent decline in China’s stock market. This fall in US-listed stocks occurred after Goldman Sachs lowered their growth forecasts for China and the People’s Bank of China announced lending rate cuts that were lower than expected, causing some disappointment.
  • According to a document filed with the Securities and Exchange Commission on Friday, WeWork Inc. (WE, -8.17%) saw a 5% decrease in its stock price after shareholders voted decisively in favor of a reverse stock split.
  • Virgin Galactic Holdings Inc.’s SPCE shares have increased by over 1.5% in the pre-market, sustaining a rise from the previous week. The company, which focuses on space travel, is getting ready for its inaugural commercial trip towards the end of this month.

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