The political circus was in full swing last week, and the S&P 500 futures (ESM17:CME) bore the brunt of it. After a quiet start to the week, the President Tump / former FBI director Comey headlines kicked the ES into high gear. On Wednesday, the S&P took a 1.8% nose dive, the Dow futures (YMM17:CME) were down 1.5%, and the Nasdaq 100 futures fell 2.75%. One of the things I asked my Twitter followers and the PitBull was, ‘did algorithmic trading push the markets further then they should have?’ For the most part, the answer was a unanimous ‘YES’!
After a big rally on Thursday the index futures markets continued higher on Friday. The S&P 500 futures (ESM17:CME) rose 17.9 points, or 0.75%, to 2381.50. The Nasdaq 100 futures (NQM17:CME) climbed 22.75 points, or 0.45%, to 5653.25, and the Dow Jones futures (YMM17:CME) gained 143 points, or 0.55%, to 20787.00. Even with the strong late week rebound, major indexes in the U.S., Europe and Japan ended the week lower on worries about President Donald Trump’s ability to push through proposals, including tax cuts and infrastructure spending.
In the end, despite the drop and all the ‘bad news’ out of Washington, the S&P 500 futures, at its high of 2388, was only 16 points off its all time contract high. Yes, the bears got their way, but the overall patterns remain the same; drop and pop. After the dust settled, the S&P 500 fell 0.4% for the week, its worst weekly drop in more than a month. The Dow industrials also fell 0.4% during the week, and the Nasdaq Composite dropped 0.6%.
The late week rebound regained much of the weeks losses and showed not only how political strife can rattle the markets, but also how investors focus eventually goes back to corporate earnings and economic growth. I understand that the markets are over extended, and have been for a long time, but I also understand how historically low interest rates have made it impossible to be a seller. It all goes back to that old saying, ‘don’t fight the Fed’. The bounce back showed that as long as the data is improving, the stock market still has more room on the upside.