Futures trading suggests the record-setting U.S. equity rally may be running on empty.
E-mini contracts on the S&P 500 Index are falling for a fifth day after a two-session pullback in the underlying gauge. That’s the longest run of declines in the futures since just before the presidential election, when Donald Trump’s victory unleashed a stock-buying spree that drove U.S. markets to all-time highs. Volumes are also picking up, with the most e-mini contracts changing hands this year on March 1.
The retreat, which marks a drop of 1.7 percent from the futures’ 2017 peak, comes as investors brace for a daunting run of potential catalysts, with Thursday’s European Central Bank meeting, U.S. payrolls a day later and then the Federal Reserve’s policy review. China also provides an update on price growth this Thursday.
While fundamentals don’t support a concerted correction, traders may use the Fed’s anticipated rate hike this month as an excuse to cash in profits, said Arthur Kwong, head of Asia-Pacific equities at BNP Paribas Investment Partners Asia Ltd.
“In the last rate-hike cycle 11 years ago, the market corrected for a couple of weeks, but it was not a downturn of the economy or the entire market,” he said.
Despite the consistency of the futures pullback, analysts are wary of calling time on a stock rally that has underpinned gains globally.
The S&P 500 is still within two percentage points of its record set March 1, and the gauge’s price-to-earnings ratio is wedged close to a more than seven-year high. E-mini futures declined 0.2 percent as of 12:22 p.m. Hong Kong time, while those on the Dow Jones Industrial Average slipped by the same — they’re also poised for a five-day slide.
“This is probably only a correction, rather than the beginning of the end,” said Michael McCarthy, chief markets strategist in Sydney at CMC Markets. “The global drivers are still there with the signs of strength in the U.S. economy and China’s economy as well.”
— With assistance by Emma O’Brien
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