As speculative trading by retail investors continued to disrupt the stock market, the stock market plunged on the 29th, ending a week of stock market action that experienced significant shocks at highs and lows.
The Dow Jones Industrial Average fell 620.74 points or 2.03% to 29,982.62 points, falling below 30,000 for the first Time since December 14. The Stamp 500 Index fell 73.14 points or 1.93% to 3,714.24, with 10 classes posting losses. The Nasdaq Composite Index fell 266.46 points or 2 percent to 13,070.79, with Apple down 3.74 percent and other major technology stocks also lower.
All three major indexes fell more than 3 percent for the week, their worst single-week performance since October. The Dow and Historic Index fell 2% and 1.1%, respectively, for the month, the same worst performance in four months. That index is up 1.4% this month.
GameStop shares rose 64.61% after Robinhood, a free trading platform, said it would open up limited buying of GameStop shares and other heavily shorted stocks after setting limits the day before. Robin Hood, in addition to using a bank line of credit, raised more than $1 billion from existing shareholders overnight to ensure it had sufficient funds to respond to another trade in a volatile stock like GameStop.
Investors are concerned that if GameStop continues to rise in this highly volatile manner, it could spread to other financial markets, leading to losses for brokers like Robin Hood and forcing hedge funds that shorted the stock to sell other individual stocks to raise cash.
There are also concerns that GameStop’s mania is a sign of a larger bubble in the market, and that its shakeout could also cause chaos and hit retail investors hard. Many members of Congress have also called for an investigation into the chaotic trading. The Securities and Exchange Commission (SEC) said on the 29th that it will investigate the actions of the regulated institutions to find out whether the decision was detrimental to investors.
Miller Tabak chief market strategist Maley (Matt Maley) said, “There is too much leverage operating in the system, and there are beginning to be signs that this excessive leverage will disappear in a matter of days, thus adversely affecting the stock market and other risk assets.
Meanwhile, the results of a new trial of Joulsen’s new coronavirus vaccine disappointed some investors and weighed on the overall stock market.
Joulsen said its single-dose vaccine in development showed 66% overall effectiveness in preventing neo-coronavirus (CCA virus). The company said it was 72 percent effective in the U.S. after four weeks, 66 percent in Latin America and 57 percent in South Africa. However, the vaccine still provides full protection against patients hospitalized with the new coronavirus. Shares of Jusei fell 3.56%.
The previous rise in the stock index to a new all-time high was bullish on the vaccine’s effectiveness against the neo-coronavirus outbreak, leading to a smooth economic reopening by the end of the year. And a mutant virus that is more resistant to the vaccine could upend investors’ optimistic outlook.
Wall Street has been in sharp turmoil this week. The Dow fell more than 600 points on the 27th, the biggest one-day sell-off in three months. A sharp rebound followed, with the Dow rallying 300 points on the 28th. All three major average stock indexes fell at least 1% for the week.
The stock market also saw its highest trading volume in years as the frenzy with short pairs intensified. Total stock market volume exceeded 23.7 billion shares on the 27th, surpassing levels seen at the height of the financial crisis in 2008. 28th volume was also very high, with over 19 billion shares changing hands.
Many retail investors have been motivating each other on the popular Reddit forum WallStreetBets to buy the stocks most shorted by hedge funds, resulting in a massive short-selling of stocks. gameStop shares have soared more than 1,000% this month, while AMC Entertainment is up more than 500%.
Billionaire bond king Bill Gross, in his investment outlook released on the 29th, was alarmed by the growing speculative frenzy this week.
He wrote: “The apparent mushrooming of this crisis required warnings from regulators and the mainstream media to guard against the dangers posed to the overall stock market and retail bird investors this week.
However, some believe that the impact on the overall stock market should be limited for the time being as retail investors are focused on only a few individual stocks.
We remain optimistic that it could tend to miniaturize, even though we believe there will be more pain,” said Maneesh Deshpande, head of equity derivatives strategy at Barclays. “The relatively small market exposure of hedge funds long and short represents a small impact on the overall stock market even with deleveraging.
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