For weeks, as the stock market regularly climbed to records, investors wondered what it would take to snap Wall Street out of its blissful state. The resurgent pandemic certainly wasn’t doing it. Even an insurrection at the U.S. Capitol wasn’t alarming enough to end the rally.
On Friday, the S&P 500 fell more than 1.9 percent, capping a stretch of volatile trading that left the index down more than 3 percent for the week — its worst week since late October.
By: Ella Koeze·Data delayed at least 15 minutes·Source: FactSet
The selling came as Wall Street was consumed by the antics of a group of day traders who have been bidding up a handful of stocks — notably the ailing video game retailer GameStop — and forcing losses on big hedge funds.
The traders appear to be mostly small investors who are focused only on a handful of stocks. But they have emerged as a new risk factor for large firms that had bet against those companies with what are known as short sales. Short sellers lose money when a company’s shares rise, and the losses are potentially limitless.
GameStop’s shares gained 400 percent this week and over 1,600 percent this month. Short sellers who had bet against the stock are facing losses of as much as $19 billion in January, according to estimates from Ortex, a market data firm. Another target, AMC Entertainment, gained about 280 percent this week.
For the rest of Wall Street, the worry is that the hedge funds will have to sell shares of other companies to cover their losses on GameStop and AMC — “forced liquidation.” That selling was a factor in the stock market’s 2.6 percent drop on Wednesday, the S&P 500’s worst daily decline in three months, Mark Haefele, the chief investment officer at UBS Global Wealth Management, wrote in a note to clients on Friday.
It isn’t just GameStop that’s giving investors a reason to sell. They’re also concerned about the rollout of the coronavirus vaccine as countries begin to clamp down on supplies or warn of shortages. On Friday, the European Union announced plans to effectively halt any attempt by AstraZeneca to move vaccine doses manufactured in the bloc to other countries unless it first meets its supply obligations to the bloc’s 27 member states. Earlier in the week, Spain said it would have to partly suspend immunizations for lack of doses.
The trading Friday reflected some of these concerns. Shares of companies that are sensitive to concerns about the pandemic — including Norwegian Cruise Line, Delta Air Lines and the shopping mall owner Kimco Realty — were among the worst performers on the S&P 500.
But the conversation of the week focused on GameStop. And although the Securities and Exchange Commission and several lawmakers have said they’re watching the situation, it’s not yet…
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