I am looking at the following website that shows the stock futures chain https://www.cmegroup.com/trading/equity-index/us-index/sandp-500.html

The way I read this, the further out you go, the lower the price on the S&P 500. That is, most future traders believe that stock prices will be lower a year or two from now, than they are today. That does not seem right to me. What am I missing?

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    Why does it not seem "right"? There are many factors (some of which can't be discussed without getting into politics) that suggest they well might be lower. If futures traders had had the same opinions in say early 2008, would that not have been right?
    – jamesqf
    Commented Aug 28, 2020 at 4:32
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    @jamesqf The term structure of stock index futures is determined entirely by arbitrage with the cash index and the risk-free rate, and has nothing to do with any "opinions" beyond those already priced into the current cash index level. If traders think stocks will be lower in 2021, they don't just mark down 2021 futures; they mark down current prices. This is because stocks are liquid financial assets. Your point might apply to a tangible commodity, where traders might mark down futures if expecting a supply glut next year, but spot price holds up because people need the commodity now.
    – nanoman
    Commented Aug 29, 2020 at 0:57
  • @jamesqf The stock market, over the last few months, has been going up. The long term trend is up. Hence, I was expecting the futures to show that.
    – Bob
    Commented Aug 29, 2020 at 12:26
  • @Bob: But many people think that the market is too far up - that is, overvalued - and so might expect a drop in the fairly near future. Especially given the medium-term effects of politics and viruses.
    – jamesqf
    Commented Aug 30, 2020 at 16:25

2 Answers 2


To a first approximation (ignoring interest and dividends), stock index futures are flat across expiration months at any given moment. This may be counterintuitive, but it does not conflict with the fact that stocks generally rise over time.

One way to see this is to note that the following are not equivalent:

  1. Buying a 2020 future and selling a 2021 future, today
  2. Buying the stock index in 2020 and selling it in 2021

The former is a riskless investment since the 2021 sale price is locked in up front; it's much like buying a 1-year CD. The latter is a risky investment because we don't know where the index will be in 2021. So the latter has an extra expected return to compensate for the risk.

If we look more closely at that "1-year CD", it should pay a competitive risk-free total return (which is nearly zero right now thanks to the Fed), but this return includes the dividends that will be earned on the stocks during that year. Thus, to give a nearly zero total return, the purchase and sale prices should produce a small loss balancing the dividends. That is why the 2021 future is priced slightly lower than the 2020 future.

Arbitrageurs actively trade these risk-free futures combinations against other risk-free investments and thereby keep their returns equal.


Do most future traders really believe that stock prices will be lower in the next two years?

No. Futures traders probably believe that dividends will be lower in the next two years. This means that the listed prices are already higher than they would have been, had we not experienced a global heath crisis.

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