U.S. stock futures pointed to solid gains early Wednesday, following a weak session that snapped a three-day winning streak for markets.
Fueling the volatility is uncertainty around a possible coronavirus treatment and vaccine, and how state and local economies will fare as they prepare to re-open.
Dow futures implied an opening gain of more than 325 points. The futures contracts for the S&P 500 and Nasdaq also pointed to a positive open.
On Tuesday, stocks traded most of the day around the flatline until a report raised concerns about previously publicized trial results for Moderna’s potential coronavirus vaccine. Banks and retailers weighed down the major averages. The Dow Jones Industrial Average lost 390 points. The S&P 500 also registered a loss, dropping 1.05%.
The Nasdaq Composite was the relative outperformer, registering a loss of 0.5%. The tech-heavy index is only 6% from its all-time record high thanks to the recent strength in the so-called FANG stocks.
“Underlying performance was odd,” said Jim Paulsen, chief investment strategist at the Leuthold Group. “We had the traditional give-backs from energy and financials. But all of the defensive sectors — utilities, consumer staples, real estate and health care — declined by 1.2% to 1.85%. Finally, Tech and Comms had another great day in a down market reinforcing their recent character of being a defensive stock market play.”
Federal Reserve chairman Jerome Powell and Treasury Secretary Steven Mnuchin testified to the Senate Banking Committee on Tuesday.
Treasury Secretary Steven Mnuchin said Tuesday the Treasury and the Federal Reserve are “fully prepared to take losses” on the remaining capital from the coronavirus bailouts. Mnuchin said before the Senate Banking Committee he is prepared to distribute the entire $500 billion appropriated to help struggling businesses impacted by the coronavirus pandemic. Powell also reiterated the central bank’s commitment to programs aimed at keeping markets functioning and getting money to those who need it during the coronavirus crisis.
Tuesday’s weakness comes off a stellar session for stocks on Monday where the Dow gained more than 900 points on hopes of a possible Covid-19 drug and economic recovery from reopenings. The Dow and S&P 500 both enjoy their biggest one-day gains since April 6.
“The overall stock market gave back only a small part of its monster gain from [Monday] which really was encouraging being bolstered most of the day by the prospect of a period ahead of ‘better news,’ added Paulsen. “With re-openings now the vogue about the country, it seems almost assured that fundamental economic and earnings reports are headed for a period of improvement. Coupled with a virus headed into its weak summer season and vaccine trials in full go, perhaps the stock market could be supported by something other than liquidity injections and fiscal juice.”
The Dow is down slightly more than 15% and the S&P 500 is about 9.5% in 2020. The Nasdaq is still hanging on to its positive 2.4% gain for the year.
Data compiled by Johns Hopkins University shows more than 4.9 million cases have been confirmed worldwide, with over 1.5 million of those infections in the U.S. alone.
On the earnings front, Target, Lowe’s and Royal Caribbean were set to report before the bell, while L Brands and Expedia were scheduled to post results after the close of trading.
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