By Anna Hirtenstein and Paul Vigna
U.S. stocks extended declines Friday as frenzied trading
continued to drive GameStop and other heavily shorted shares,
pointing to a volatile end to 2021's first month of trading.
The Dow Jones Industrial Average fell 2.1% to 29953 and the
S&P 500 declined 2.1%, a day after rising nearly 1%. The
tech-heavy Nasdaq Composite lost 2.2%.
If the losses held through the close of trading, the DJIA and
S&P 500 would finish January in the red. The Nasdaq would have
about a 1.1% gain. Ironically, that would comprise a month in which
the DJIA set four new record highs, the S&P 500 set five, and
the Nasdaq six.
Shares of GameStop jumped roughly 82% after closing down 44%
Thursday. AMC Entertainment was up 73%. Robinhood Markets, a
popular venue for online traders that had restricted trading in
GameStop and AMC, said late Thursday it would reinstate some
trading in stocks that it had curbed earlier.
The frenetic trading has caught the attention of lawmakers and
regulators. On Thursday, both Rep. Alexandria Ocasio-Cortez (D.,
N.Y.) and Sen. Ted Cruz (R., Texas) took to Twitter to criticize
Robinhood. On Friday morning, the Securities and Exchange
Commission said it was reviewing the trading curbs by brokerage
firms and was also on the lookout for potentially manipulative
trading.
"The GameStop story, where you have retail investors that are a
new actor on the market, [is] one that people cannot ignore," said
Luc Filip, head of private banking investments at SYZ Private
Banking. "There are some critical links for hedge funds that are
short on those stocks." Those investors are selling other long
positions to close out money-losing short positions, weighing down
markets overall.
While it's hard to precisely measure social media's effect on
politics and people's views, capital markets offer a unique
backdrop, said Lindsey Bell, chief investment strategist at Ally
Invest. "You can actually see it at work here in the stock market,"
she said.
That can make social media's influence seem more dramatic, she
said. Still, most trading is controlled by institutional investors:
"They have so much more money."
Stock markets have seesawed in January, buffeted by headlines
about coronavirus vaccine supplies and tightened lockdown measures
around the world. The Cboe Volatility Index, a gauge of stress in
markets, rose 6.9% Friday and is up about 37% in January.
Consumer spending in the U.S. declined by 0.2% in December,
according to data from the Bureau of Economic Analysis. It fell for
the second straight month due to a rise in coronavirus cases,
although a little less than economists had predicted. Household
incomes rose 0.6%, which could prime the economy for growth later
this year.
Gero Jung, chief economist at Mirabaud Asset Management, said he
expected more prudence from consumers in the short term, which
would affect the recovery, given that consumer spending makes up
two-thirds of U.S. gross domestic product.
"But we also think there is some pent-up demand, which will
increase consumption in the medium term," he said.
Earnings season continued Friday, with oil major Chevron falling
3.9% after reporting a loss for the fourth quarter. Skyworks
Solutions, a chip maker that supplies Apple, rose 6% after it
reported earnings after hours Thursday that beat analysts'
estimates. Its board also approved a $2 billion share buyback. Eli
Lilly fell 2.3% after it posted revenue and earnings that beat
expectations and said it expected to make billions in revenue in
2021 from its Covid-19 treatments.
American Airlines, which on Thursday reported a record loss last
year, fell 3.9%.
Pharmaceutical company Novavax soared 62% after it said its
Covid-19 vaccine was 89% effective in a late-stage trial in the
U.K. Johnson & Johnson fell 4.3% after saying its own vaccine
was 66% effective.
Megacap tech companies slipped after the opening bell. Microsoft
fell 2.3%. Google's parent company Alphabet fell 2%.
"Those hedge funds that have been hit, they'll have no choice
but to get rid of some favorite holdings in order to raise that
cash," to cover their short positions, said Seema Shah, chief
strategist at Principal Global Investors, adding that she would see
any further declines as a buying opportunity for tech stocks.
Overseas, the pan-continental Stoxx Europe 600 fell 1.3%. The
European Union's comparatively slow rollout of vaccines and recent
delays to supply are creating concerns about prolonged lockdowns
and weighing on markets, investors said.
Swedish telecom Ericsson jumped 6.5% after it posted earnings
that beat estimates and said it had gained market share. Meanwhile,
Nokia's shares listed in Finland rose 3.9%. The cellphone company's
U.S.-listed shares have been among those buffeted by retail
investors in recent days.
In Asia, most major benchmarks declined. The Shanghai Composite
Index edged down 0.6% and Japan's Nikkei 225 fell 1.9%. South
Korea's Kospi index retreated 3%, in the biggest daily drop in five
months.
In bond markets, the benchmark 10-year U.S. Treasury bond yield
rose to 1.080%, from 1.055% Thursday.
Bitcoin gained 8% to trade at $36,129. Tesla CEO Elon Musk
mentioned the cryptocurrency in his Twitter account, writing
"#bitcoin."
Write to Anna Hirtenstein at anna.hirtenstein@wsj.com and Paul
Vigna at paul.vigna@wsj.com
(END) Dow Jones Newswires
January 29, 2021 13:28 ET (18:28 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.