Stock index futures surged on Tuesday, indicating a rebound from the previous session's nosedive as investors looked to a Federal Reserve statement for clues on how it may combat a market meltdown linked to fears of a new recession.
In the first session since the United States lost it top-tier credit rating, equities suffered a massive slide on Monday, with the S&P posting its worst loss since December 2008 and nearing bear market territory.
Both the S&P and Nasdaq sank more than 6 percent and the Dow lost more than 5 percent on the heaviest trading volume since the flash crash in May 2010. The CBOE Volatility Index jumped 50 percent.
There's so much volatility out there that both up days and down days are viewed as overdone, said Cort Gwon, chief strategist at HudsonView Capital Management in New York. While futures pointed to strong gains, he added, it's really fear and panic that continue to lead the market.
Standard & Poor's downgrade of the U.S. credit rating late Friday, removing the nation's triple-A designation for the first time in history, sparked the decline and underlined fears a recession was inevitable given increasing signs of slowing growth and more turmoil in the euro zone.
Fed policymakers meet on Tuesday, and a Fed statement, due at 2:15 p.m EDT, will be closely scrutinized. While the central bank isn't expected to debut any massive new program to help asset prices, investors may return to selling if there's no indication that help is on the way.
Investors are looking for stability. They didn't get it from the government, so the only place they can turn is the Fed, Gwon said. If there's no indication of help, selling could come back.
S&P 500 futures rose 17.2 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures added 149 points, and Nasdaq 100 futures rose 34.5 points.
Even though fear remained a dominant emotion in the markets, analysts said stocks could be nearing a bottom. They noted the S&P was now more technically oversold than at any other time in the last ten years. Its 14-day relative strength index was at 16.5 percent. Generally a level below 20 attracts buyers.
Bank of America Corp, the S&P's biggest decliner on Monday, climbed 3.8 percent to $6.76 in premarket trading.
Adding to global concerns, China's annual inflation quickened to a higher-than-expected 6.5 percent in July, putting its central bank in a bind as it tries to keep prices in check without dragging down an economy facing increasing threats from abroad.
Overseas, the FTSEurofirst 300 index of top European shares fell 0.3 percent, while Hong Kong shares slumped to their lowest since June 2010.
September crude futures lost 0.4 percent to $81.03. Gold, seen as a safe haven for assets, soared to another record of $1,778 an ounce.
Dow component Walt Disney Co is scheduled to report quarterly results later Tuesday, with investors watching for an outlook on its theme park business in the midst of economic uncertainty.
AOL Inc reported a second-quarter loss but revenue fell less than expected.
Every S&P 500 component ended in negative territory in Monday's selloff, with all ten S&P sectors losing more than 3.5 percent. At its low, the Dow fell under 11,000 for the first time since November.
(Editing by Jeffrey Benkoe)