TOKYO/NEW YORK, Feb 6 (Reuters) - U.S. S&P 500 futures ，the world’s most liquid, tumbled as much as 2.5 percent to 4-month lows in Asian trade on Tuesday as the sell-off triggered by worries about inflation showed no sign of abating, indicating Wall Street could be set for another brutal day.
Futures fell to as low as 2,542, the weakest levels since early October, and 11.7 percent below their record peak of 2,878.5 touched on Jan. 29. S&P futures were last down 1.6 percent while Dow futures were last down 2.2 percent.
The slide added to sharp falls over the past week. The S&P 500 index and the Dow Jones Industrial Average had their biggest single-day percentage drops since August 2011 on Monday, while last week, they posted their biggest weekly percentage drops since January 2016.
“The amount of the selloff that we are seeing is normal,” said Michael Purves, chief global strategist at Weeden & Co in New York. “The speed at which we are doing it is not normal.”
Purves said the futures slide could be magnified because of the “short volatility” trade unwinding, as well as being a reaction to Asian markets selling off.
Wall Street’s “fear gauge”, the VIX, notched its biggest one-day jump on Monday in over two years, as U.S. stocks slumped and investors took to the options market in search of protection against a further slide in equities prices.
Monday’s stock market rout left two of the most popular exchange-traded products that investors use to benefit from calm rather than volatile conditions facing potential liquidation, market participants said.
The question now for investors, who have ridden a nearly nine-year bull run, is whether this is the long-awaited pullback that paves the way for stocks to again keep rising after finding some value, or the start of a decline that leads to a bear market.
Bulls argue that strong U.S. corporate earnings, including a boost from the Trump administration’s tax cuts, will ultimately support market valuations. Bears, including short sellers that bet on the market decline, say that the market is over-stretched in the context of rising bond yields as central banks withdraw their easy money policies of recent years.
“Where does the market rout end? I think we are pretty close to a selling climax here,” said Purves. “The fundamentals are pretty good. The only thing that is really different is that bond yields got up to 2.8 percent.”
Treasury yields fell from four year highs on Monday after a rapid selloff in equity markets sparked demand for the low risk debt, and benchmark 10-year note yields were last at 2.68 percent. (Reporting by Hideyuki Sano and Megan Davies; Editing by Shri Navaratnam and Sam Holmes)