U.S. equities rose on Friday and the S&P and Nasdaq indices posted their highest weekly earnings percentages since the U.S. election in early November, driven by earnings optimism, stimulus talks and progress in vaccine launching.
The S&P 500 rose for the fifth straight session in its longest earnings streak since August. The benchmark index and the Nasdaq recorded record highs for a second day.
The Dow Jones Industrial Average rose 92.38 points, or 0.3 percent, to 31,148.24, the S&P 500 gained 15.09 points, or 0.39 percent, to 3,886.83 and the Nasdaq Composite added 78.55 points, or 0.57 percent, to 13,856.30.
During the week, the S&P 500 gained 4.65 percent, the Nasdaq added 6.01 percent and the Dow rose 3.89 percent. The Russell 2000 small-cap index rose 7.7 percent during the week, its highest weekly percentage since the week ended June 5.
But as the trading frenzy that tore the shares of GameStop Corp. and other retail investor favorites into a wild pace, investors are seeing signs of potential market stress that could affect broader stock performance in the coming weeks.
For now, US equities seemed to look beyond the rising volatility that led the S&P 500 to its biggest weekly decline since October last week, as solid gains, expectations of fiscal stimulus and progress in vaccination efforts across the country bring stocks to record highs. .
Some investors, however, worried that wild variations in GameStop shares and other “meme stocks” could exacerbate concerns about market volatility and high valuations that could cause investors to be more risk averse.
“Recent retail activity was worrisome for the wider market,” said Benjamin Bowler, head of global equity derivatives research at BofA Global Research.
According to BofA analysts, the liquidity in futures of the S&P 500 dried up as market makers and other investors tried to reduce risk during the rise of GameStop. Earlier this week, the “market fragility,” measured by the bank, peaked at its highest level since March 2020, making U.S. stocks exceptionally vulnerable to sudden shocks from market, said the firm.
Movements on the Cboe volatility index, known as the Wall Street “fear gauge,” also indicated that investors may be more sensitive to market turmoil than usual: last Wednesday the index rose 14 points, its biggest one-day gain since March, as the S&P 500 lost 2.6 percent.
According to UBS strategist Stuart Kaiser Stuart Kaiser, the rise in the fear gauge was eight to ten points higher than the forecast after a fall in the S&P 500. The oversized reaction, he said, points to sharp nerves among investors who might suggest larger market sales in response to the negative trend.
The VIX has since returned to its post-pandemic lows as US stocks have rallied this week. Still, “I wouldn’t say we’ve gone through it completely,” Kaiser said.
Next week, investors will look for quarterly corporate results from Cisco Systems Inc., General Motors Co. and Walt Disney Co., as well as consumer price data in the US.
At the moment, the option markets do not give the green light.
Investor demand for calls to the S&P 500, which used to be in index gains, has jumped after falling to a minimum of several decades earlier in the week, according to CEO Charlie McElligott. Nomura’s macroactive strategy. Growing demand points to the risk of a setback and bewilderment in the coming weeks, he said.
In the long run, several market analysts said the GameStop effect could only be a glance at the radar screen for all markets. VIX falls of 20% or more tend to augur stocks, with the S&P 500 rising 2.6% a month later, according to Christopher Murphy, co-head of derivatives strategy at financial group Susquehanna.
However, the exuberance that increased the market failure lines has not completely faded. According to Trade Alert data, the options activity showed high demand for upward calls on the SPDR S&P Retail ETF, which includes GameStop, and the iShares Silver Trust, which was also influenced by trade in the detail.
As a result, some investors said they plan to walk cautiously at the moment, especially if they are exposed to passive funds that contain a large number of small-cap stocks that could be sensitive to a sudden retail frenzy.
“Time will tell if this has a more lasting effect on the market,” said Matt Forester, chief investment officer at Lockwood Advisors. “We need to monitor our stakes to make sure we are not overly exposed to these trends.”