Stocks rose on Monday, the first meeting in February, as Wall Street seemed to shake off concerns over a speculative retail frenzy that largely sparked the market’s worst weekly sell-off since October.
The Dow Jones Industrial Average gained 130 points, led by Intel and Goldman Sachs. The S&P 500 rose 0.9% while the Nasdaq Composite rose 1.3%.
GameStop, the brick and mortar video game retailer that was the focus of attention on Wall Street, fell as much as 34% and trading was temporarily suspended. Last week, the stock popular with retail investors on the Reddit forum WallStreetBets rose 400% in extreme trading volume and volatility.
Many on Wall Street were spooked by a plethora of activity among retailers with sharply shortened stocks like GameStop and AMC Entertainment, which resulted in hedge funds taking risk across the board, even if they weren’t directly involved in trading. Goldman Sachs said the brief pressure caused by the buying frenzy was the most extreme in 25 years. However, some strategists believe it is unlikely that the impact will affect Wall Street and derail the new bull market.
“The return of volatility last week was more driven by market positioning than concerns about growth,” said Mark Haefele, chief investment officer at UBS Global Wealth Management, in a note.
“Many institutions have adjusted their books to take account of the risks to short positions that have arisen from recent coordinated purchases by retail investors. However, given the speed and magnitude of flows over the past few days, we believe most of it the pressure is now behind us, “said Haefele.
All three major averages fell more than 3% last week as they had their worst weekly performance since October. The Dow and S&P also posted losses for January – the first negative month in four years – although the Nasdaq managed to post a profit for the month.
The Reddit boom seems to be spreading to other areas of the market as well. Futures contracts for silver rose as much as 11%, the biggest one-day jump in 11 years. The Reddit chat room had several active topics devoted to silver on Sunday night. The phrase “#silversqueeze” was also trending on Twitter.
“Despite the uncertainty about the impact of rising prices in stocks with significant short interest, we do not see a 1998-style liquidity crisis,” said Sam Stovall, CFRA’s chief investment strategist, in a note. “While we believe the stock market needs to go through an expectation and valuation adjustment, we do not believe the bull has come to an end, nor do we recommend any changes to our S&P 500 target or asset allocation for End of year. “”
Meanwhile, a group of 10 Republican Senators sent a letter to President Joe Biden on Sunday asking him to consider a smaller, scaled-down Covid-19 aid proposal. Its current plan provides additional fiscal stimulus of $ 1.9 trillion.
The Republican proposal would reduce the size of any new round of checks Biden plans to send to the Americans from $ 1,400 per person to $ 1,000. This would also make the income limits that determine eligibility for the stimulus payments far stricter. For individual filers, the checks for those earning more than $ 40,000 would be phased out.
The alternative proposal comes after House Spokeswoman Nancy Pelosi said the house would pass a budget resolution, the first step in approving laws through reconciliation. The process would allow Senate Democrats to approve a relief effort with no GOP votes.
99 S&P companies are waiting for another busy week of wins. Alphabet, Amazon, Alibaba, Snap, Exxon, Biogen, Pfizer, and Chipotle are among the names to be released in the coming week. Thursday is the busiest day of the winning season.
– CNBC’s Tom Franck, Michael Bloom and Jacob Pramuk contributed to the coverage.
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