After a week of heavy speculative trading, the market remained optimistic on Monday with liquidity concerns alleviating. The S&P 500 registered its best daily gains since November 24, 2020.
On Monday, February 1, the Dow Jones Industrial Average (INDEXDJX: .DJI) surged 229 points as investors seem to be moving past the concerns of speculative trading last week. The r/WallStreetBets community of retail investors stormed Wall Street hedge funds who booked billions-of-dollars in losses with the GameStop Corp (NYSE: GME) stock shorting.
Dow and Other Indices on the First Day of February
Last week, the US stock market registered its worst weekly sell-off since October 2020. On Monday, February 1, the market renewed its lost momentum. Dow Jones was up 0.8% or 229 points closing the first day of February at $30,211 levels. At the same time, the S&P 500 (INDEXSP: .INX) also registered 1.6% gains ending at 3773 levels, its best single-day gains since November 24. While the Nasdaq Composite (INDEXNASDAQ: .IXIC) registered 2.55% gains ending at 13,403 levels.
The market volatility in the last week has baffled investors and big players in the market. Goldman Sachs has also raised caution over the hedge-fund exposure. It has warned that the GameStop event can lead to a massive sell-off in the markets. However, wealth management giant UBS notes that there’s no need to take significant pressure as of now. Mark Haefele, chief investment officer at UBS Global Wealth Management, told CNBC:
“The return of volatility over the past week has been driven by market positioning rather than worries over growth. Many institutions have been adjusting their books to account for the risks to short positions arising from recent coordinated buying by retail investors. But given the speed and magnitude of flows in recent days, we think most of the pressure is now behind us”.
Robinhood Raises Capital to Handle Liquidity Issues
After facing massive investor backlash last week over restricting GameStop trading, the Robinhood app has raised $2.4 billion from investors to take care of liquidity issues. The retail frenzy has also forced Robinhood to increase its deposit requirements by ten times last week. The funding suggests that Robinhood investors are confident the broker can successfully come out of the red waters.
Sam Stovall, chief investment strategist at CFRA, has shrugged off any liquidity concerns in the market. In a note to investors, Stovall wrote:
“Despite the uncertainty surrounding the fallout from the surge in prices for stocks with substantial levels of short interest, we don’t see the advent of a 1998-style liquidity crisis. Even though we think the equity market needs to go through a readjustment of expectations and valuations, we don’t think the bull has come to an end, nor are we recommending any changes to our year-end S&P 500 target or asset allocation.”
The Reddit boom has, however, moved away from GME and AMC and currently its precious metal silver on the radar. The largest silver-backed ETF iShares Silver Trust jumped 7.1%. Silver prices have now surged to an 8-year-high of $30 per ounce.
This week shall be crucial for the market. Big Tech giants like Apple Inc (NASDAQ: AAPL), Microsoft Corporation (NASDAQ: MSFT) and Amazon.com Inc (NASDAQ: AMZN) shall be reporting their earnings. On Monday, MSFT stock jumped 3%, AMZN jumped 4.2%, and AAPL jumped 1.6%.
Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
