Worries About Speculative Trading Lead To Sell-Off On Wall Street

Stocks showed a substantial move back to the downside during trading on Friday, more than offsetting the notable rebound seen in the previous session. With the steep drop on the day, the Dow fell to its lowest closing level in well over a month.

The major averages all moved sharply lower for the session. The Dow plunged 620.74 points or 2 percent to 29,982.62, the Nasdaq plummeted 266.46 points or 2 percent to 13,070.69 and the S&P 500 tumbled 73.14 points or 1.9 percent to 3,714.24.

For the week, the Nasdaq sank by 3.5 percent, while the Dow and the S&P 500 both slumped by 3.3 percent.

The sell-off on Wall Street partly reflected concerns about recent market volatility as traders kept a close eye on heavily shorted stocks like GameStop (GME) and AMC Entertainment (AMC).

GameStop and AMC Entertainment moved sharply higher after Robinhood eased restrictions on certain stocks that have skyrocketed in recent trading.

The spikes by the heavily shorted stocks have been described as a “retail investor revolt,” raising concerns hedge funds may have to sell other securities to make up for their losses.

Negative sentiment was also generated in reaction to news that Johnson & Johnson’s (JNJ) one-dose coronavirus vaccine appears to be less potent against variants.

J&J said the vaccine demonstrated 72 percent effectiveness in the U.S. compared to 66 percent in Latin America and 57 percent in South Africa.

In U.S. economic news, the Commerce Department released a report showing a much bigger than expected increase in U.S. personal income in the month of December, although the report also showed a modest decrease in personal spending.

The report said personal income climbed by 0.6 percent in December after tumbling by a downwardly revised 1.3 percent in November.

Economists had expected personal income to inch up by 0.1 percent compared to the 1.1 percent slump originally reported for the previous month.

Meanwhile, the Commerce Department said personal spending dipped by 0.2 percent in December after falling by a downwardly revised 0.7 percent in November.

Economists had expected spending to decrease by 0.4 percent, matching the drop originally reported for the previous month.

The University of Michigan also released a report showing consumer sentiment deteriorated by slightly more than initially estimated in the month of January.

The report said the consumer sentiment index for January was downwardly revised to 79.0 from the preliminary reading of 79.2.

Economists had expected the consumer sentiment index to be unrevised from the preliminary reading, which was still down from 80.7 in December.

Sector News

Oil stocks moved sharply lower over the course of the session, dragging the NYSE Arca Oil Index down by 3.9 percent.

The sell-off by oil stocks came amid a modest decrease by the price of crude oil, with crude for March delivery edging down $0.14 to $52.20 a barrel.

Substantial weakness was also visible among airline stocks, as reflected by the 3.7 percent nosedive by the NYSE Arca Airline Index.

Steel stocks also showed a significant move to the downside on the day, resulting in a 3.6 percent slump by the NYSE Arca Steel Index.

Transportation, banking and chemical stocks also saw considerable weakness, moving lower along with most of the major sectors amid a broad based sell-off.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved notably lower during trading on Friday. Japan’s Nikkei 225 Index tumbled by 1.9 percent, while South Korea’s Kospi plummeted by 3 percent.

The major European markets also showed significant moves to the downside on the day. While the French CAC 40 Index plunged by 2 percent, the U.K.’s FTSE 100 Index and the German DAX Index slumped by 1.8 percent and 1.7 percent, respectively.

In the bond market, treasuries extended the pullback seen over the course of the previous session. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 3.6 basis points to 1.093 percent.

Looking Ahead

The Labor Department’s closely watched monthly jobs report is likely to attract attention next week along with reports on manufacturing and service sector activity, factory orders and the U.S. trade deficit.

On the earnings front, Exxon Mobil (XOM), Pfizer (PFE), UPS (UPS), Alphabet (GOOGL), Amazon (AMZN), eBay (EBAY), Qualcomm (QCOM), and Yum! Brands (YUM) are among a slew of companies due to report their quarterly results next week.

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