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12 May 2021
3 min read

Dow Tumbles 470 Points, Nasdaq Erases a 2% Loss, Futures Lower

Dow Tumbles 470 Points, Nasdaq Erases a 2% Loss, Futures Lower

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Key Takeaways

  • Equities in the Dow slipped on Tuesday as investors reversed trades
  • Futures on Wednesday remain under pressure

US stock futures traded lower in early pre-market hours on Wednesday. Futures contracts tied to the Dow Jones at one point slipped more than 250 points before regular trading, while S&P500 futures declined 30 points and Nasdaq futures slipped a little over 1% at its lowest before the opening. As regular hours approached, however, futures moved closer to positive territory but remained in the red.

The steep decline in futures trading came after Tuesday’s wild gyrations in stocks. Investors retreated from technology stocks yesterday, causing the Nasdaq Composite to drop over 2% at one point, dragged by depreciation in Amazon, Apple, Facebook, and other big tech names that lost around 2% each during the session. While the tech-heavy index was going through a downward motion, the Dow Jones was steadily trading near flat levels.

Later, however, market participants rotated and the Nasdaq Composite recovered the losses while selling in the broader market accelerated. Investors pulled back their bets on real-economy sectors which resulted in a drop in many financials, industrials, and energy stocks that are particularly preferred in a reopening and recovering economy.

The Fed Remains Committed to Looser Monetary Policies

On Tuesday, the Dow Jones Industrial Average lost 473.66 points, or 1.36%, sliding from its record high and closing at 34,369.16. The 30-stock index was dragged down by declines in Home Depot, Chevron, and Goldman Sachs, each down by more than 2%. Yesterday was the steepest single-day drop for the blue-chip index.

The S&P500 slipped 36.33 points, or 0.87%, to finish the session at 4,152.10, while the Nasdaq Composite closed 12.43 points, or 0.09%, to the downside after sliding more than 2% earlier in the day.

Concerns about rising inflation due to the increased fiscal and monetary stimulus have loomed over the market again, causing investors to reposition their portfolios accordingly. As the US economy has heated up, the Federal Reserve and the Treasury are pouring financial stimulus into the economy and driving up debt.

The Fed has tried to assuage investors’ fear of inflation multiple times by saying that moderately higher inflation is tolerable. In addition, the central bank has iterated it will not tighten its monetary policy until its inflation and employment goals are met.

Economists say that Joe Biden’s ambitious economic plan risks devaluing the US dollar and significantly raises inflation expectations. Another potential issue with injecting too much money into the economy is that by the massive amounts of stimulus flowing, there may not be enough demand from bond buyers to purchase new debt from the government. This could force the Federal Reserve to maintain its expansionary policy further than necessary.

The current monetary policy of the US central bank is to keep interest rates near zero while continuing the purchase of bonds at a rate of $120bn a month, of which $80bn are Treasury securities and $40bn are agency mortgage-backed securities.

Tuesday market swings were prompted by a reverse in trades as investors flocked from cyclical shares to growth stock, including those in the tech sector. Tesla, the EV maker, was down more than 7.5% at the opening but later erased most of the losses and closed the day down 1.88%. Netflix climbed more than 3% from its intraday bottom yesterday and ended the session higher by 1.79%.

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