Stock futures gained upward momentum in the early morning hours of Tuesday, as investors evaluated the Federal Reserve’s aggressive monetary policy to tame the sizzling inflation, and its possible outcomes.
Futures contracts tied to the Dow Jones Industrial Average (DJIA) gained 1.71%, while those on the S&P 500 (SPX) climbed 1.91%, as of 5:47 a.m. EST, Tuesday. Meanwhile, the Nasdaq 100 (NDX) futures advanced 2.01%.
The major indexes had mixed endings at the closing bell on Friday, June 17, with the Dow losing 0.13% and the S&P 500 and Nasdaq 100 gaining 0.22% and 1.24% each. The markets were closed on Monday to observe Juneteenth.
Notably, two of the three major averages are now deeply in bear market territory, with the blue-chip-laden Dow just at the brink.
Recession Knocking on the Door?
The noise of a possible recession is getting louder as various economic data gets released. Investors are awaiting existing home sales data later on Tuesday, to get a little more insight into how the economy is handling the bear market. Preliminary data for June’s consumer sentiment index, released last week, signaled low consumer confidence. Moreover, retail spending is also showing trends of falling.
Importantly, the Wall Street Journal surveyed several economists, who collectively raised the probability of a recession in the next 12 months to 44%. Incidentally, the survey had apportioned 28% probability in April, so raising the number to 44% is quite a jump.
This is significant because historically, right before a recession, the probability has been much lower than this. For instance, just before the economy fell into a recession around December 2007 (lasting through 2009), this consensus probability had been at 38%. Again, in February 2020, right before the COVID-19-induced recession, a 26% probability had been assigned.
This indicates that either the economy is already in the early stages of a recession, or a recession is inevitable in just a matter of a few weeks.
Nonetheless, a little hope was provided by the Federal Reserve Bank of St. Louis president, James Bullard. “U.S. labor markets remain robust, and output is expected to continue to expand through 2022,” said Bullard. However, he did acknowledge significant risks due to the “uncertainty around the Russia-Ukraine war and the possibility of a sharp slowdown in China.”
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