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Stock Futures Trade Higher


5 October 2021

After yesterday’s massive tech sell-off, US and European futures are trying to bounce back today. Technology companies have taken a hit as markets believe interest rates will be raised soon, implying that inflation may not be as temporary as the Fed has suggested. Supply chain constraints, power shortages, and rising fuel prices are all likely to add to rising consumer prices. As a result, the Nasdaq fell nearly 311 points during yesterday’s session. Investors should keep in mind that the ECB’s Christine Lagarde and FOMC member Randal Quarles are both scheduled to speak today. Furthermore, the ISM Services PMI is scheduled to be released today.

In Monday’s session, the Dow Jones Industrial Average dropped 0.94%, and the S&P 500 index fell 1.30%. The Nasdaq, the tech-savvy index, slumped 2.14%, and the Russell 2000, the small-cap index, shed 1.08%.

Stock Market

Market sentiment toward high-growth technology companies fell in yesterday’s session as investors rushed to reduce their exposure to high-risk companies whose valuations are primarily driven by future cash flows. As a result, the stock prices of companies such as Facebook and Amazon have fallen. Technology companies are experiencing steeper declines as higher treasury yields and inflation make future cash flows and earnings less appealing. As long as consumer prices continue to rise, investors should anticipate a downward trend for these technology companies. Furthermore, the stock prices of various vaccine manufacturers fell in yesterday’s session after Merck announced the development of an effective coronavirus pill. Energy stocks, on the other hand, soared as oil prices rose.

The volatility index has risen nearly 8.56% to 22.96, indicating that investors are worried about an impending energy crisis, supply chain bottlenecks, a slowing recovery, and stagflationary speculation. These are the factors that are giving the bears a boost as investors prepare for tapering, which will most likely begin next month.

Concerns about inflation are being fuelled by the uncertainty surrounding a widespread energy crisis. Power outages will stymie production and worsen supply chains. Similarly, rising fuel prices will almost surely boost companies’ input costs, which will almost certainly be passed on to the final consumer in the form of higher product prices. Gas prices in Europe have risen by 400% since the beginning of 2021. Furthermore, oil prices have risen to their highest level in about 7 years after OPEC+ agreed to stick to its earlier plan for output increases.

Cryptocurrencies

Bitcoin, the benchmark of cryptocurrencies, is experiencing a price retracement and is currently trading above $49,000 as of 11:10 p.m. EST, poised to test the critical $50,000 mark. After El Salvador declared the infamous digital coin to be its legal tender, investors see this as the most important practical test of cryptocurrencies to determine their utility in everyday life. However, its initiation has been bumpy as the country’s digital wallet faced technical errors.

Crypto traders will be over the moon after hearing that even the Bank of America has started researching cryptocurrencies because of the ever-expanding interest by institutions and retail investors.

The number of companies mentioning digital coins in their financial statements has risen from 17 in 2020 to nearly 147 last quarter. Moving onwards, the blockchain sector is not limited to just cryptocurrencies, but it is coming out to be an entire new ecosystem providing opportunities for companies and individuals alike to innovate and drag the financial sector into a new era.

Oil

Oil prices shot up on Monday after OPEC+ announced that it would continue to enhance its oil supply by 400,000 barrels per day this month. The group was unmoved by pleas from the United States and India to ramp up production to meet rising demand and aid in a quick and sustainable global economic recovery. Furthermore, a rise in crude oil prices would aggravate the already-existing problem of high inflation. The cartel, however, countered that it fears a fourth corona wave and hence does not want to make any big leaps. Oil prices have nearly jumped 50% in 2021, with Brent crude, the global benchmark, rising 2.5% to $81.26 per barrel. Similarly, WTI crude rose 2.29% to $77.62 per barrel at the end of the day.

Gold

Gold prices fell on Monday as the US dollar strengthened against other major currencies. The dollar has risen in value as investors seek refuge from volatile stock markets and anticipate interest rates rising as early as 2022. Investors are also increasing their exposure to the US dollar, believing that the country has taken adequate precautions to protect itself from the global power crisis.

On the other hand, investors should understand that the Evergrande issue, rising fuel prices, and energy shortages may provide support for the precious metal, as these factors drive uncertainty and inflation higher, and gold is viewed as a hedge against such a scenario.

Asian Markets

Asian Pacific markets also declined following Wall Street’s major spelling spree on Monday. As of 11.46 p.m. EST, the Nikkei dropped 2.77%, and the Hang Seng index, in Hong Kong, rose 0.03%. The ASX 200 index dipped 0.63% and the Seoul Kospi dropped 1.64%. China’s exchanges are closed today.

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