Semiconductor and IT hardware stocks were hit hard on Thursday as analysts expressed doubts about the future of the PC market. AMD stock dropped more than 8% after Barclays analysts cut the stock from overweight to equal weight. Meanwhile, HP Inc. and Dell Inc. fell 6.5 percent and 7.6 percent, respectively, after Morgan Stanley cut them to equal weight from overweight.
Walgreens Boots Alliance’s stock plummeted 5%, putting pressure on the Dow. The pharmacy chain outperformed expectations in its fiscal second quarter, owing in part to increased demand for pandemic-related products.
As the yield curve tightened, bank stocks were another area of weakness, with JPMorgan Chase falling 3% and Goldman Sachs down 1.6 percent.
Core PCE prices, a key inflation metric closely followed by the Fed, increased by 5.4 percent year over year in February. This was little lower than the 5.5 percent forecast.
As President Joe Biden’s administration revealed a proposal to release 1 million barrels of oil per day from the strategic petroleum reserve for around six months, oil prices tumbled. West Texas Intermediate futures declined more than 6% to around $100 per barrel.
According to UK intelligence experts, Russian forces in Ukraine continued to retain their positions around Kyiv and shell the capital city. According to Reuters, Russian President Vladimir Putin warned that payments for Russian natural gas will have to be done in rubles, aggravating Europe’s energy supply concerns even more.
“Unfortunately, we’ll be bouncing around between good news and terrible news,” said George Mateyo, chief investment officer at Key Private Bank. “That’s going to cause some turbulence.”
In other news, weekly unemployment claims totaled 202,000. Dow Jones polled economists, who predicted a total of 196,000. Personal income increased by 0.5 percent, which was in line with predictions, while consumer expenditure increased less than predicted.
The data was released before of the Labor Department’s regularly watched monthly jobs report. On Friday, before the opening bell, the March report will be revealed.
Why are futures prices falling?
Only at expiration must the index futures price equal the underlying index value. The futures contract has a fair value in relation to the index known as the basis at all other times. The basis takes into account predicted dividends foregone as well as financing cost differences between index futures and stock components. Because the dividend adjustment surpasses the financing cost when interest rates are low, the fair value of index futures is often lower than the index value.
What does a drop in futures mean?
The daily ups and downs in the stock market have been televised much before the official open of trading in New York at 9:30 a.m. in recent weeks. That’s thanks to data from the futures market’s overnight trading.
Traders can purchase and sell futures contracts for the major US stock indexes, thereby betting on the future value of those benchmarks. If S&P 500 futures are down, traders believe the index will fall as well.
Is the stock market predicted by futures?
Stock futures are more of a bet than a prediction. A stock futures contract is an agreement to buy or sell a stock at a specific price at a future date, independent of its current value. Futures contract prices are determined by where investors believe the market is headed.
In 2022, how much will stock prices fall?
- The Russell 2000 small-cap index fell 1% to 2,070. The index gained 2.1 percent for the month, bringing its first-quarter loss to 6.9 percent.
- Gold futures increased 0.8 percent to $1,954 an ounce, increasing their year-to-date gain to 6.9%.
- Today’s selling didn’t spare Bitcoin, which fell 3.2 percent to $45,616.75. (Bitcoin is traded 24 hours a day; values are as of 4 p.m. ET.)
- The worst Dow Jones stock today was Walgreens Boots Alliance (WBA), which fell 5.7 percent after earnings. The drugstore company posted adjusted earnings of $1.59 per share on $33.8 billion in revenue in its fiscal second quarter, topping analysts’ expectations. While the firm maintained its full-year estimate, it cautioned that demand for COVID-19 testing and vaccines is decreasing, and that efforts made to become more healthcare-oriented, such as opening hundreds of doctor’s offices, will take time to pay off.
- After Barclays analyst Blayne Curtis downgraded Advanced Micro Devices (AMD) from Overweight to Equalweight, the semiconductor stock fell 8.3%. (the equivalents of Hold and Buy, respectively). Intel, according to Curtis, is becoming more competitive (INTC). The analyst also questioned AMD’s “growth trajectory coming out of this potential correction,” and said he is waiting for “greater information as to the degree of these corrections and what the competitive landscape will look like as Intel catches up and ARM gains more share.”
Is futures trading more volatile than stock trading?
So, why do so many people believe futures are riskier than stocks? Because of the futures markets’ use of leverage. Securities demand a 50% margin deposit, whereas futures contracts normally only require a 510% margin deposit. Furthermore, the broker pays the 50% of the securities transaction that is not paid by the customer, with interest levied to the consumer on the borrowed monies. The margin is an earnest money deposit in the futures markets, with no funds borrowed from the broker. In other words, the consumer is responsible for the full amount of the contract.
Futures markets have more leverage than securities markets due to lower margin requirements for futures.
In other words, the effect of existing price volatility is amplified by the narrower margin/higher leverage.
A contract for $15,000 might be purchased with $1,000 in futures margin.
If the contract value increases to $15,500, the contract value increases by 3.33 percent, but the margin increases by 50%.
A modest change in the total contract value translates into a significant increase in the margin deposited.
To summarize, futures prices are less volatile than stock prices; but, the leverage created by reduced margin requirements increases whatever volatility that exists.
Convinced?
Why is the futures price lower than the actual price?
If the striking price of a futures contract is lower than the current spot price, it indicates that the present price is too high and that the predicted spot price will fall in the future. Backwardation is the term for this condition.
Do futures prices influence spot prices?
The spot price of a commodity is typically used to establish the price of a futures contractat least as a starting point. Until the futures contract matures and the transaction actually occurs, futures prices also reflect predicted changes in supply and demand, the risk-free rate of return for the commodity holder, and the expenses of storage and shipping (if the underlying asset is a commodity).
What’s the difference between the S&P 500 and its futures?
Index futures track the prices of stocks in the underlying index, similar to how futures contracts track the price of the underlying asset. In other words, the S&P 500 index measures the stock prices of the 500 largest corporations in the United States.
How trustworthy are futures?
Futures, as previously indicated, are high-risk and volatile, however they do tend to become more steady as the expiration date approaches. Investors must assess whether futures are appropriate for their portfolio. One important factor to evaluate is how much risk they can take.
Some investors use futures to predict the direction in which a stock index will move when the market opens on a certain day. Futures trade and follow stock prices around the clock, whereas stocks only trade and track prices during the hours when the exchange they trade on is open for business.
Futures, on the other hand, aren’t always a good predictor of how equities will perform in the future. They are more of a bet on a stock or index moving in a specific way. Traders will occasionally correctly estimate the direction, but not always.