The stock market has been volatile recently. Last week the market lost virtually all of the gains for the year and now the market has recouped most of those losses. Where is the market going next? Is it time to buy or sell stock futures? According to Bloomberg U.S. and European stock futures drop because earnings are missing forecasts and because of predictions of slower Chinese growth and vanishing equity due to recent stock losses.
About $4.3 trillion has been wiped from the value of global equities over the past four weeks on concern global economic growth is slowing. The European Central Bank started purchases of covered bonds today in an effort to stimulate the region’s economy, according to three people familiar with the matter. Chinese expansion will slow to about 4 percent annually after 2020 following decades of rapid growth, the Conference Board said before gross domestic product data due tomorrow.
If, indeed, the global economy is going to slow substantially that will eventually have an effect on the US stock market. On the other hand much lower energy costs in the USA and continued low interest rates may keep the market afloat. Accurate fundamental analysis is necessary to make the decision to buy or sell stock futures.
Stock Futures
According to Investopedia the futures definition is as follows:
A financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash. The futures markets are characterized by the ability to use very high leverage relative to stock markets.
Futures can be used either to hedge or to speculate on the price movement of the underlying asset. For example, a producer of corn could use futures to lock in a certain price and reduce risk (hedge). On the other hand, anybody could speculate on the price movement of corn by going long or short using futures.
Depending on your read of the market you will choose to buy or sell stock futures. Your interest may be speculation or it may be your desire to hedge risk.
Buy or Sell Stock Futures
Investors buy stock futures when they believe that the value of a stock will go up and they sell stock futures when they believe that the value of a stock will fall. Investors.com notes that stock futures rose on Tuesday, Oct. 21, because of strong quarterly reports.
Stock futures rose Tuesday bucked up by quarterly earnings reports and an updraft on European markets.
Dow futures traded 64.3 above fair market value, and well below their early highs. S&P 500 futures pared their gain to 12.9 points. Nasdaq futures were steady and up 36.3 points.
Big footprints stamped across premarket action on the stock market today, with Kimberly Clark (NYSE:KMB), Travelers Co. (NYSE:TRV), Verizon (NYSE:VZ) and United Technologies (NYSE:UTX) ticking higher after delivering quarterly results.
If you believe that the market is headed up you probably want to buy and if you think that the big correction is just around the corner you perhaps want to sell. As always do your own homework before deciding to buy or sell stock futures.