Stocks

Dow Futures Drop as Everything That Was Working Stops Working

On Monday, value stocks had one of their best relative days on record. A lot of that had to do with investors dumping what had been working, not a desire to own value. And it’s not clear that they will suddenly develop that desire.

On Monday, value stocks had one of their best relative days on record. A lot of that had to do with investors dumping what had been working, not a desire to own value. And it’s not clear that they will suddenly develop that desire.

8:48 a.m. The Dow Jones Industrial Average looks set for a lower open Tuesday morning as everything that was working has stopped working.

S&P 500 futures have fallen 0.2%, while Dow futures have declined 40 points, or 0.2%, and Nasdaq Composite futures have dropped 0.3%e.

On Monday, the focus was on the fact that value stocks, which had underperformed growth stocks for a long time now, had one of their best relative days on record. A lot of that had to do with investors dumping what had been working--high momentum stocks, bonds, etc.–not a desire to own value. And it’s not clear that they will suddenly develope that desire. “The bottom line, once the safety panic in bonds and inflation expectations has unwound, the Value tailwinds will fade and another sharp reversal is a risk,” writes Evercore ISI strategist Dennis DeBusschere.

That has implications for the S&P 500, too. If investors have really soured on growth, the financials, energy, industrials, and materials will have to do the heavy lifting. If they can’t the market could be setup for a fall. “I am concerned that there is immense crowding in momentum, and many will be forced to liquidate which will perpetuate a negative feedback loop of selling pressure,” writes Macro Risk Advisors technical analyst John Kolovos. “Perhaps this is healthy rotation, the percentage of four-week highs was at its best reading in over two months, thanks to Financials.”

And perhaps that will be enough.

Markets Now is a quick take on what’s happening with the Dow Jones Industrial Average and other major market indexes. Don’t forget to check out the rest of Barron’s markets coverage.

Write to Ben Levisohn at Ben.Levisohn@barrons.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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