Tech shares climb ahead of earnings deluge
The S&P 500 and Nasdaq Composite clinched closing records Monday, but the Dow lagged behind its peers, in volatile trading as investors focused on a raft of corporate earnings set to be released this week amid rising cases of Covid-19 and tightened lockdowns to attempt to limit the spread of the pathogen.
Investors also were keeping one eye trained on a battle between speculative buyers and short sellers on a high-profile stock that was eliciting concerns about out-of-whack valuations in certain pockets of the market.
What did major benchmarks perform?
- The Dow Jones Industrial Average DJIA closed 36.98 lower, or 0.1%, to end at 30,960, after briefly falling more than 1% earlier in the session.
- The S&P 500 SPX pulled off a 13.89 gain, or 0.4%, closing at a record 3,855.36, after struggling to hold direction for much of the session.
- The Nasdaq Composite COMP rose 92.93 points, 0.7%, finishing at a record 13,635.99, after also clinching an intraday record near the open at 13,728.98.
Stocks ended mostly lower Friday but logged weekly gains, with the Dow rising 1.6% and the S&P 500 advancing 1.9%. The tech-heavy Nasdaq Composite ended Friday at an all-time high and a weekly rise of 4.2%.
What drove the market?
Stock benchmarks rallied late in the session as a battle raged between speculative buyers and short sellers that drew some attention on Monday.
Sahak Manuelian, head of equity trading at Wedbush Securities, told MarketWatch that there was some “real pain out there,” pointing to tumult and some forced selling on Monday that was sparked by the need to cover short bets placed on several stocks popular with individual investors.
“GameStop Corp. GME, is a poster child,” he said of the trend, which along with GSX Techedu GSX, has been center stage as speculative trades from individual investors sometimes overpower more institutional money managers and hedge funds.
The salvo of volatility marked the first time the tech-heavy Nasdaq Composite traded both as high, and low, as 1% from the previous trading day in about 10 weeks, according to Dow Jones Market Data. The ruction also left the Cboe Volatility Index, VIX, a popular proxy for investor anxiety, up 9.1% on Monday.
While the overall equity market looks poised for additional gains this year as the vaccine rollout gathers stream and the economy heals with the help of more stimulus, many investors also have been waiting for stocks to be hit by a short-term correction.
“Speculation leading to euphoria is clearly a sign that a correction is coming. Whether it starts tomorrow or two years from tomorrow is a guess,” said James Meyer, chief investment officer at Tower Bridge Advisors.
The stock gyrations kick off a busy week for earnings reports, with roughly a quarter of the S&P 500 due to release quarterly results, including tech behemoths Apple Inc. AAPL, Tesla Inc. TSLA and Facebook Inc. FB.
“We’ve seen a pretty robust start to fourth-quarter earnings,” Manuelian said. “It’s a big week for tech earnings.”
Earnings of large-cap tech-related companies have been pegged to show continued gains from the stay-at-home environment due to the Covid-19 pandemic, said Richard Saperstein, chief investment officer at Treasury Partners.
But analysts also continue to eye prospects for additional fiscal stimulus as President Joe Biden pushes for a $1.9 trillion package, though it faces difficult negotiations in a Senate where Democrats have a slim majority.
Stimulus expectations have helped investors largely look past worries over potentially more contagious variants of the virus that causes Covid-19, as well as snags in vaccine distribution, which helped spur renewed interest in so-called stay-at-home stocks.
“The recent market reversal back into growth might be a short-term reaction to vaccine delays, ongoing restrictions, and uncertainty about fiscal stimulus,” said Mark Haefele, chief investment officer global at UBS wealth management, in a Monday note. “But it may also simply be that investors are booking some profits in the cyclical areas that had performed well from early November until last week.”
The Federal Reserve will hold its first policy meeting of the new year on Tuesday and Wednesday. While no policy moves are expected, Fed watchers expect Chairman Jerome Powell and fellow policy makers to signal a cautious but optimistic outlook, while also reinforcing expectations the central bank won’t be quick to ease up on monetary stimulus efforts.
Which companies were in focus?
- Shares of videogame retailer GameStop Corp. surged 18.1% to a fresh record, after surging 51% higher on Friday, leaving it up 307.6% so far this month. The most recent gains came after short selling firm Citron Research and speculative buyers organizing on Reddit clashed.
- BlackBerry Ltd. BB shares soared 28.4% Monday, putting it 172% in January. The company says it is “not aware” of reason for the trading activity.
- Virtual events company ON24 Inc. set terms for its initial public offering as it seeks to raise up to $315.8 million and be valued at up to $2.22 billion. The IPO of shares is expected to price between $45 and $50 a share.
- AMC Entertainment Holdings Inc. AMC shares jumped 25.9% after the world’s biggest cinema-chain operator said it had raised $917 million in debt and equity to help it get through a coronavirus-impacted winter.
- Merck & Co. Inc. MRK shares closed up 0.2%, after the drugmaker said it was discontinuing development of its two Covid-19 vaccine candidates following disappointing trial results, and will instead focus on the development of two investigational therapeutic candidates.
- World Wrestling Entertainment Inc. WWE shares fell 2.8% after it announced Monday it had agreed to license its content to NBC Universal’s new streaming service Peacock.
- Shares of Kimberly-Clark Corp. KMB rose 3.3% after the consumer products company reported fourth-quarter profit and sales that beat expectations and announced a dividend increase and a new billion stock repurchase program.
Which assets were on the move?
- The yield on the 10-year Treasury note BX:TMUBMUSD10Y slipped 5.2 basis points to around 1.04%. Yields and bond prices move in opposite directions.
- Crude-oil futures CL for February delivery added 1% to settle at $52.77 a barrel, while gold futures GCG21 settled down about 0.1% to 1,855.20 an ounce.
- The Stoxx Europe 600 index XX:SXXP closed 0.8% lower, while the U.K.’s FTSE 100 UK:UKX tumbled 0.9%. Hong Kong’s Hang Seng Index HK:HSI surged 2.4%, topping a key level at 30,000.
- The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was up 0.2% on the day.