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Stock futures rise as investors brace for another volatile week

U.S. stock futures were slightly higher Monday morning, following sharp gains last week, as the number of coronavirus cases in the U.S. continued to rise at an alarming rate over the weekend.

Dow Jones Industrial Average futures traded 135 points higher, indicating an opening gain of about 70 points. S&P 500 futures and Nasdaq 100 futures also rose slightly. Earlier, futures had pointed to opening gains.

A 6% drop in crude prices capped gains for the stock futures as big declines in oil has triggered selling in other areas of the markets. West Texas Intermediate crude futures were last seen at $20.28 per barrel.

“We have argued that given the speed of the fall there will have to be relief rallies, but that they are likely to end up being faded,” wrote Mislav Matejka, a JPMorgan equity strategist, citing in a note a spiral between job losses, falling demand and declining earnings. “Ultimately, this bounce might prove tactical, too.”

The Dow last week posted its biggest weekly gain since 1938, surging more than 12%. The S&P 500 and Nasdaq are coming off their best week since 2009, after rising 10.3% and 9.1%, respectively. To be sure, it was a volatile ride for investors. The S&P 500 posted daily swings of at least 2.9% in four of the five sessions. That includes a 3.4% drop on Friday for the S&P 500.

The sharp gains last week were sparked in part by the prospect of massive fiscal and monetary stimulus. President Donald Trump signed into law Friday a $2 trillion stimulus package that includes direct payments to curb the economic blow from the outbreak. The Federal Reserve also launched a series of measures to sustain the economy, including an open-ended asset-purchase program.

“Bulls staged an epic comeback,” said Ken Berman, strategist at Gorilla Trades. “Despite the rally … the uncertainty regarding the length of the necessary, but economically damaging global lockdowns continues to weigh on risk assets.”

“The technical picture continues to be bearish across the board, despite the mid-week surge in stocks, with all of the key trend indicators still pointing lower,” said Berman, noting the major averages are still below their respective moving-day averages even after last week’s strong gains. 

Coronavirus cases around the world are still climbing, adding to the uncertainty over when lockdown and quarantine measures will be removed and the economy can return to normal.

Data compiled by Johns Hopkins University shows more than 713,000 coronavirus cases have been confirmed globally. The U.S. overtook Italy and China last week as the country with the most cases with over 136,000. Nearly half of all U.S. cases come from New York, where more than 59,000 people have been infected.

“Equity markets are overextended, but face a bumpy period of even grimmer virus news and poor economic statistics in the next 1-2 months,” strategists at MRB Partners wrote in a note. “The world is now entering a third phase, the first being the shock of an out-of-control virus spreading around the globe, then the massive policy response, and now the economic fallout phase has arrived and will test investors’ very fragile confidence.”

Investors got a glimpse of the virus’ economic impact last week. On Thursday, the Labor Department reported a record 3.28 million workers filed for unemployment benefits the week of March 20. That number easily topped the previous record of 695,000 set in 1982. U.S. consumer sentiment also fell to its lowest level in more than three years.

To be sure, the market has also flashed some signals of a potential bottom. The confidence spread between the so-called smart money — large institutions — and dumb money, retail investors, sits squarely in positive territory after dropping to extremely low levels. Meanwhile, insider buying reached an 11-year high.

President Donald Trump also extended at a news conference Sunday the national social distancing guidelines to April 30 and said the death rate would peak in two weeks.

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—CNBC’s Eustance Huang contributed to this report.

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