U.S. stock index futures declined in overnight trading as rising speculative trading by retailers continued to cause hedge funds to take risks and worry investors about a market bubble. Losses are up from last week’s low, which was the worst in the market since October.
Futures contracts linked to the Dow Jones Industrial Average fell 270 points, indicating a loss of 271 points in the initial bell. S&P 500 futures fell 1%, while Nasdaq 100 futures fell 1.2%.
The Dow fell 620 points on Friday, or 2%, to close below the 30,000 level for the first time since December. The Nasdaq Composite also fell 2%, while the S&P 500 fell 1.9%.
During the week, the top three averages fell more than 3% for their worst weekly performance since October. Dow and S&P also posted losses in January (the first negative month in four), although the Nasdaq managed to record gains for the month.
Friday’s fall came amid a frenzy of activity by retail investors in very short stocks, including GameStop and AMC Entertainment, which fueled concerns about the overall health of the market. Goldman Sachs noted that the current short compression is the worst in the last 25 years.
“This week’s events may have turned markets into their heads, but fear indicators imply that we may have seen the worst of the downgrade,” Jefferies wrote in a note to clients over the weekend. Barclays added that the impact of short cuts is unlikely to spread across the wider market.
“The ongoing ongoing reduction of some stocks by retail investors has raised concerns of a wider contagion,” the firm wrote in a recent note to clients. “While we believe there will be more pain to come, we remain optimistic that it is likely to remain localized.”
Meanwhile, a group of ten Republican senators sent a letter to President Joe Biden on Sunday urging him to consider a smaller and smaller Covid-19 relief proposal. Its current plans require an additional $ 1.9 trillion fiscal stimulus. The alternative proposal comes after the Speaker of the House, Nancy Pelosi, said that the House will move to pass a budget resolution, the first step in passing legislation through reconciliation. The process would allow Senate Democrats to pass a no-vote aid measure from the Republican Party.
Elsewhere, another week of profits is approaching with 99 S&P companies reporting. Alphabet, Amazon, Alibaba, Snap, Exxon, Biogen, Pfizer and Chipotle are some of the names that will be announced this coming week. Thursday is the busiest day of the earnings season.
“We believe the medium-term path for the market remains higher,” noted Mark Haefele, CEO of global information at UBS Wealth Management. “In a pattern similar to the previous two quarters, 4Q20’s corporate earnings exceeded expectations by a significant margin.”
He added that a stimulus package and investors looking beyond delays in vaccine production and distribution should further boost stocks.
– CNBC’s Jacob Pramuk contributed the information.
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