Stock Index Futures Weather The Storms In 2011
By David Pappas, Archer Financial Services
Stock index futures started 2011 with a great deal of optimism. The S&P 500 futures price at the beginning of last year was at the 1250 level. Stronger than anticipated economic news propelled the market to a high of 1373.50 in May. However, a late summer and early fall setback took stock index futures to near the critical support of 1068 in October. Due to a resurgence of better economic data, futures recovered to finish the year near the 1300 level.
S&P 500 FUTURES - WEEKLY CONTINUATION
Chart provided by APEX
The year started off with employment showing some improvement, which was one of the main fundamental reasons that caused stock futures to make highs in the first half of 2011. From that mid year high point the stock index futures market collapsed, as the financial problems in Europe came to the forefront, making their way to the U.S. markets.
Last year we saw a tendency for European equity futures markets to underperform U.S. equity futures markets. For example, the German DAX was down over 5% at one point. The FTSE was down 2.2% and shares of European banks hit 29-month lows.
The lows for S&P 500 futures in the fall break took place on news that Greek credit default swap prices surged by 240 basis points to a record 3,045 basis points. This indicated there was a 91% probability that Greece would default on their sovereign debt.
Although the overall trend for employment in the U.S. showed signs of improvement, there was some negative news on the employment front. For example, the U.S. Bureau of Labor Statistics reported July nonfarm payrolls showed a zero increase, which compared to an estimate of a 68,000 advance. This was the weakest report since September 2010. Much of the weakness in this nonfarm payroll report was attributed to the strike by approximately 45,000 Verizon Communications employees. Private payrolls increased by only 17,000, when a 95,000 increase was anticipated. The unemployment portion of the report was 9.1%, as expected. Keep in mind that the unemployment rate is calculated from a separate survey of households.
Last year appeared to be on track to be a big up year until Europe’s fiscal insolvency worries hit the market in the summer. As we moved to the end of 2011, there was a rebound of optimism concerning the U.S. economy, including improving employment data. U.S. equity markets finished on a positive note.
As we start 2012, the economic situation continues to improve. The unemployment rate is still at an unacceptable 8.5%, although this is much better than the lofty levels of the 9.2% rate that we saw earlier last year. Stock index futures appear to have already discounted some very bad news from Europe and to some degree from Asia. There appears to be no reason to fear that stock index futures will decline, despite gloomy prospects for the global economy.
The market is getting help from the Federal Reserve. The Federal Open Market Committee, at the conclusion of their two-day policy meeting on Wednesday, said their benchmark interest rate will stay low until at least the end of 2014. The statements from the Fed were more dovish than analysts were anticipating. The Fed’s policy statement caused traders to ramp up their hope that the central bank could, down the road, initiate a third quantitative easing program.
Better economic news, along with a renewed push from the FOMC will likely support stock index futures in the first part of 2012.
We are working on many options strategies to take advantage of the price moves in commodity futures markets. Please feel free to call me or email me to discuss the best ways to approach these markets. I can be reached at 1.877.872.3348 or david.pappas@archerfinancials.com.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright © ADM Investor Services, Inc.
