January 25 – January 29 Week in Review
It was quite the week for the stock market last week and a losing one for the major averages. The S&P 500 and Dow Jones Industrial Average both fell 3.3%, the Nasdaq Composite dropped 3.5%, and the small cap Russell 2000 was lower by 4.4%, as risk sentiment was pressured by a frenzy of short-squeeze activity.
As an example of the craziness that hit the market last week GameStop started the week at $65 per share and peaked at $483 per share later in the week, as it become the poster child for the short-squeeze mania/rebellion against short selling hedge funds. Things got so wild that brokerage firms restricted trading activity on heavily-shorted stocks like GameStop and AMC Entertainment, which sent these stocks lower and drew the ire of many market participants. Robinhood, a relatively small brokerage player in the scheme of things, especially drew the ire of investors.
These same brokerage firms eventually eased some restrictions, allowing users to resume their speculation and push these stocks higher at the end of the week. GameStop shares ended the week higher by 400%. This volatility unnerved the market for multiple reasons, including concerns about fund managers selling long positions to cover their shorts and, for some, the potential for increased regulation.
The drama fixated the market and took away from the batch of better than expected earnings reports, including from leading companies like Apple, Microsoft, Facebook, and Tesla although Microsoft shares did gain 2.7% last week. For what it's worth, the S&P 500 set an intraday all-time high early in the week and ended the week marginally below its 50-day moving average.
All 11 S&P 500 sectors closed lower last week. The energy sector was the weakest link with a 6.6% decline and the real estate sector was the best performer with a modest 0.2% decline.
In other developments last week, Fed Chair Powell delivered a dovish sounding post-FOMC press conference, reports suggested that President Biden's $1.9 trillion stimulus deal could be pushed back to mid-March due to bipartisan objections, and fourth quarter real GDP increased at an annualized rate of 4.0% despite a challenging macro environment.
On the vaccine front, Johnson & Johnson published mostly encouraging data for its one-shot COVID-19 vaccine, although the efficacy rate was much lower than the two shot vaccines currently on the market. Novavax said its vaccine candidate produced an 89.3% efficacy rate in its Phase 3 trial in the UK.
In the bond market rates were basically unchanged from last week. The 2 year Treasury yield fell roughly two basis point closing at 0.109% and the 10 year yield finished unchanged at 1.09%.
In other markets WTI crude closed marginally higher at $52.14 a barrel, the U.S. Dollar index closed higher at 90.53 and gold prices fell slightly closing at $1,849.80 an ounce.
February 1 – February 5 Economic Calendar