Futures Point to Sharply Lower Open Tuesday
U.S. stock index futures were sharply lower Monday, as fears of a U.S. recession gripped
investors, suggesting Wall Street will join a global equity markets plunge when they resume trading Tuesday.
Volume was active in spite of the U.S. stock market being closed for the Martin Luther King Jr. Day holiday.
The sell-off in futures tracked global equities losses, as the MSCI's main index of world stocks hit its lowest level in over a year.
If U.S. stocks open on Tuesday at the levels futures are indicating, it would push the market dangerously close to bear market territory -- or a 20 percent drop from their peak in October. That would mark the end of the bull market that began in early October 2002.
"We're going for some tough slugging here," said Paul J. Nolte, director of investments at Hinsdale Associates in Hinsdale Illinois.
"The breadth and the depth of subprime and housing market and its impact on the economy has everybody concerned. Most of the indications are we are in a recession."
S&P 500 futureswere down 52 points, far below fair value, a mathematical formula that evaluates pricing by taking into account interest rates, dividends and time to expiration
on the contract.
Dow Jones industrial average futures dropped 403 points, and Nasdaq 100 futures slid 63.75 points.
The Standard & Poor's 500 index closed on Friday down 15.33 percent from its peak close on Oct. 9.
One major stock index, the Russell 2000 index of small-cap stocks, fell into bear market territory last week.
Stocks closed lower Friday, ending another bad week and one of the worst starts ever to a new year.
Friday's selloff came despite encouraging blue-chip earnings reports and pledges from the federal government to resuscitate the flagging economy.
The Dow Jones Industrial Average plunged 4% for the week, leaving it down 8.8% for the year so far. The average is also down 15% from its most recent high.
The S&P 500 Index fell 5.4% for the week, leaving it down 9.8% for the year so far and 15% off its most recent high.
The Nasdaq Composite Index tumbled 4.1% for the week, leaving it down 12% for the year and 18% from its most recent high.
Stocks initially rallied on Friday, spurred by three factors, none of which generated enough optimism to give the rally legs: Strong earnings from General Electric and International Business Machines; heavy covering on short-sell positions; and charts showing the market at its most oversold in more than five years.
But President Bush's late-morning pledge to deliver a stimulus package under discussion between the White House and Congress only aggravated losses, and analysts talked of a possible need for capitulation in a market that has made repeated efforts at finding a bottom but has failed.
There was widespread sentiment that the stimulus, coupled with a Federal Reserve interest rate cut, would be a case of too little, too latefor the market.