Concepts in this lesson
- Futures contract
- An exchange-traded agreement to buy or sell a set amount of something later, at a price fixed today.
- Cost of carry and fair value
- Holding costs over time, interest and storage less income; a future's fair value is today's price adjusted by that cost.
- US dollar index (DXY)
- ICE's index of the US dollar against six major currencies, mostly the euro; higher means a stronger dollar.
01April 2, 2025: reading the board after the bell
On the afternoon of April 2, 2025, after the US stock market's 4:00 p.m. close, the White House announced sweeping new tariffs on imports. The stock market's main session was over. Futures weren't, so they gave the first full read on the reaction: S&P 500 futures fell within minutes, and just after midnight they were down 2.7%.
By the close the next day the whole board had moved. The S&P 500 fell 4.8%, its biggest one-day drop since 2020. The 10-year Treasury yield fell from 4.20% to 4.06% as money ran for safety. Brent oil fell 6.4%, on recession fears and a surprise production increase by OPEC+ the same day. The VIX jumped from 21.5 to 30.0.
Two prices didn't do what the textbook says. The US dollar fell, about 1.3% against a broad basket of currencies, and gold slipped too. By the end of this lesson, those two misfits will be the most telling prices on the board.
02Why futures speak first
The US stock market's main session runs six and a half hours, 9:30 a.m. to 4:00 p.m. Eastern time. Stock index futures trade nearly around the clock: on CME's electronic market from Sunday evening to Friday afternoon, with a one-hour break each day. So when news breaks overnight, earnings after the close, a central bank in Asia, a war, futures are where it shows up first.
When a news anchor says "futures are up half a percent" before the open, that's the market's best guess at where trading will start. One adjustment: futures usually sit a little above the index when interest rates are higher than its dividends, because of the cost of carrying it, as the futures lesson explains. So traders compare the futures with their "fair value" rather than with yesterday's close. The Morning Line shows the S&P 500 and Nasdaq-100 futures every weekday morning.
How much to trust a move. Three checks. First, against fair value: futures 10 points above the index's last close, when fair value is 8 points, means the open is called up about 2. Second, time and volume: a 1% move at 3 a.m. on thin trading means less than the same move at 8:31, right after the government's jobs or inflation numbers come out at 8:30. Third, the overnight high and low: they are the day's first reference points, and traders watch whether the open holds inside them.
Reading futures before the open is watching the room before you take a seat: who's stacking chips, who's leaving, how big the pots are getting. You haven't played a hand, but you already know whether it's a loose night or a tight one.
03The stock index futures
Four contracts cover the US stock market, each a different slice of it:
| Contract | Ticker | Tracks | What it tells you |
|---|---|---|---|
| E-mini S&P 500 | ES | 500 large US companies | The broad market; the one most often quoted |
| E-mini Nasdaq-100 | NQ | 100 of the largest non-financial companies on Nasdaq | Big tech and growth |
| E-mini Dow | YM | 30 large, long-established companies | Old-line blue chips |
| E-mini Russell 2000 | RTY | About 2,000 smaller companies | Small companies, closest to the US economy |
Micro versions, a tenth of the size, let individuals trade them too. The gaps between them tell a story: Nasdaq-100 futures up while Russell 2000 futures fall says money is going to big tech, not to the wider economy; the Russell leading says confidence in the US economy itself.
04Treasury futures: the price of safety
Futures on US Treasury notes and bonds, the 10-year note above all, trade around the clock too. Like the bonds they track, their prices move opposite to yields, as the bonds lesson shows: Treasury futures rising means yields falling. On a scared morning, money tends to flow into Treasuries, pushing their futures up. On a morning when inflation news is hot, or the market expects the Fed to lean hawkish, they fall.
Shorter maturities speak to the Fed. Fed funds futures price the next few meetings, as the FOMC lesson shows; the 2-year note roughly prices where rates will average over the next two years.
05Oil and gold: growth and fear
Crude oil futures are a read on the world economy's appetite, and on supply shocks: oil rises when growth looks strong, or when war or production cuts threaten supply, and falls when the economy looks weak or supply surges. The contango lesson has what the shape of the oil curve says.
Gold pays nothing, so for years it did better when interest rates, after inflation, were low or falling, and when investors wanted something outside the financial system. That link has frayed: since 2022 gold has kept climbing even with real rates high, which the World Gold Council puts down to investors hedging other risks and to central banks, which bought more than 1,000 tonnes a year from 2022 to 2024. Gold often rises on scared days, but not always: in a sharp sell-off, some investors sell it to cover losses elsewhere.
06The dollar index
The US dollar index, usually called DXY, measures the dollar against six currencies at once: the euro (57.6% of it), the yen (13.6%), the pound (11.9%), the Canadian dollar (9.1%), the Swedish krona (4.2%) and the Swiss franc (3.6%). ICE, the exchange group that runs it and lists futures on it, says it was originally developed by the Federal Reserve in 1973. Its basket has changed only once, when the euro replaced five European currencies.
A higher index means a stronger dollar. On September 27, 2022, it closed at 114.24, its highest in 20 years; less than two years earlier, on January 6, 2021, it had closed at 89.32. Traders follow the dollar overnight through futures too: ICE lists futures on the index itself, and CME lists futures on the euro, the yen, the Canadian dollar and others against the US dollar.
Because its basket dates from 1999, the index leaves out China and Mexico, two of America's biggest trading partners. The Fed's own broad dollar index covers 26 economies, weighted by trade; in 2026 its largest weights are the euro area (21%), Mexico (15%), Canada (13%) and China (11%). For the dollar in general, the broad index is the better gauge.
For Canadian readers: the Canadian dollar used to rise and fall with oil. The Bank of Canada says that link has weakened since about 2015, so an oil rally no longer reliably lifts the loonie.
Why the dollar matters: a strong one shrinks US companies' foreign sales in dollar terms (Goldman Sachs estimated 28% of S&P 500 revenue came from abroad in 2024), makes dollar-priced commodities costlier for everyone else, and makes dollar debts heavier for the borrowers outside the US who owed $14.7 trillion of them by March 2026, by the Bank for International Settlements' count.
07Try it: build the dollar index
Move each currency against the US dollar; positive means that currency got stronger. The gold line shows the dollar index as the euro moves, with the other five where you set them; the dashed line is every currency moving together.
A euro 5% stronger takes the index from 100 to 97.23 on its own. Put the euro back to zero and move the yen 5% instead: the index barely moves, to 99.34. Then move all six by 5%: 95.24. The index is mostly a bet on the euro.
08Reading the board together
No single price tells you much. The most useful first read pairs two of them: Treasury yields and the dollar. Each of the four combinations points to a different story:
| Dollar up | Dollar down | |
|---|---|---|
| Yields up | A hot US economy, or a Fed expected to lean hawkish | Money leaving US assets altogether: the most alarming square |
| Yields down | Global fear: money hiding in Treasuries and dollars | A US-specific scare: the market pricing in Fed cuts |
Back to April 3, 2025. Yields fell and the dollar fell: the bottom-right square. The market read the tariffs as America's problem, not the world's, and priced in more Fed cuts to cushion it. A week later the board found the top-right square. On April 10, the S&P 500 fell 3.5%, the 10-year yield rose from 4.34% to 4.40%, and the broad dollar fell 1.2%: stocks, Treasuries and the dollar all lost ground on the same day. By the next day the 10-year yield was on course for its biggest weekly rise since 2001, and the dollar index slipped below 100 for the first time since July 2023. Traders called it "sell America." You can only see either story with the whole board.
Then add the rest of the board. Stock futures say how much the market cares; the Nasdaq-100 against the Russell 2000 says whether it's big tech or the wider economy; oil says growth or supply; gold says fear, or central banks. These are first reads, not rules. In 2022, stocks and Treasuries fell together for a year, because the threat was inflation and rising rates, which hurt both.
One tell is noise. Three tells that agree are a read. Three that disagree make the most interesting table in the room: someone knows something, and the board is telling you to find out what.
09Common misreads
- "Futures are up, so stocks will close up." They tell you where trading is now, not where it ends. A lot can change in six and a half hours of trading.
- "The dollar index is the dollar." It is the dollar against six currencies, mostly the euro. It doesn't measure the dollar against the Chinese yuan or the Mexican peso at all.
- "A strong dollar means a strong US economy." Sometimes. It can also mean the rest of the world is scared, and buying dollars for safety.
- "Risk-off means the dollar and gold go up." Often, not always. On April 3, 2025, both fell.