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U.S. Stock Futures Dip After Three-Day Rally as Virus Cases Grow

Vildana Hajric and Claire Ballentine
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U.S. Stock Futures Dip After Three-Day Rally as Virus Cases Grow

(Bloomberg) -- American stock futures declined, cooling off after the first three-day rally since February, as the U.S. overtook China for the most coronavirus cases worldwide.

Contracts on the S&P 500 were down 2% as of 9:17 a.m. in London. The underlying gauge surged almost 18% over Tuesday-Thursday in its biggest rally since 1933, while the Dow Jones Industrial Average climbed 20% above its recent low, meeting the technical definition of a bull market.

U.S. virus cases topped 82,000, surpassing the total in China, amid at least 6,448 new cases in New York state. Meanwhile, the market’s recent gains show investors are betting that a $2 trillion stimulus package and fresh assurances from the Federal Reserve may be enough to rescue the economy from a deep recession.

“If history holds true, the market crash playbook suggests that this week’s significant rally will eventually be faded,” Ed Moya, a markets analyst at Oanda Corp. in New York, wrote in a note. “Unfortunately, the virus spread will intensify into developing nations and the massive fiscal stimulus will fall short in preventing permanent damage to the economy. It is hard to go against Fed and friends, but this economic downturn could be much worse than what many initially were hoping for.”

In Europe, the Stoxx 600 Index was down 2.4%, ending its best ever three-day winning streak.

The S&P 500 rose 6.2% Thursday in another one of the dramatic moves that have made trading on equity markets not for the faint of heart. Volatility remains elevated, with Cboe’s fear gauge closing above 60 for a record ninth straight day. If the furious moves persist in the futures market, exchange-mandated trading bands will prevent gains or losses from exceeding 5%. Those are set at 2,746 on the upper limit and 2,483 on the lower.

Markets looked past jobless claims data showing a surge to a record 3.28 million Americans as businesses shut down to help prevent the spread of the virus. While the reading exceeded estimates, aid from the U.S. government may help offset the damage to workers and businesses. The House votes on the massive spending package Friday. Fed Chairman Jerome Powell also sought to assure the public that the central bank wouldn’t run out of crisis-fighting ammunition.

“This is global economic paralysis that the markets are trying to price in,” said Philip Lawlor, FTSE Russell’s managing director of global markets research. “That means the economic data is going to be eye-poppingly bad. What we’re all trying to wrap our heads around is just how long this is going to last.”

Read more: A Bull Market in Banks and Other Weird Facts of the Stock Bounce

The S&P 500’s surge since Monday is the best since the Great Depression. While weird, bounces of similar velocity happen from time to time in fast-moving markets and aren’t taken seriously by market historians until they start to show staying power.

“The overall positive tone in markets this week -- better market functioning thanks to liquidity injections from central banks and now the stimulus bill in the U.S. to complement the ones we’re seeing in Europe -- I think overall, there’s still a positive tone here,” said Brian Nick, chief investment strategist at Nuveen. But, he said, there’s an “understanding that we have huge economic challenges ahead of us.”

(Updates with futures move in second paragraph, European shares in fifth.)

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