Top News  Shutterstock The three major stock averages all fell about 2% in Friday trading, wrapping up a week dominated by a feeding frenzy on highly shorted stocks touted on Reddit. Oh yes, and Q4 GDP rose 4.0% at an annualized rate, down from 33% in Q3, and the Fed continued its ultra-dovish talk, with Fed Chair Jerome Powell promising he'd give markets plenty of notice before considering any tapering of bond purchases. For the last session of the week, the Nasdaq Composite fell 2.0%, the S&P 500 declined 1.9%, and the Dow Jones Industrial Average lost 2.0%. The energy sector fell the most, followed by information technology; real estate dropped by the least. All three averages turned in their worst week since October, with the Nasdaq shedding 3.5%, the S&P dropping 3.3%, and the Dow dipping 3.3%. Of mega-tech names, Tesla sank 6.3% over the week and Facebook dropped 5.9%; Microsoft managed to climb 2.7%. The 10-year Treasury yield ended the week at 1.09%, not far from the 1.07% where it started, though in the interim fell as low as 1.00% on Wednesday ahead of the Fed policy decision. The U.S. dollar strengthened some, with the U.S. Dollar Index up 0.4% for the week | | Top News Shutterstock The three major stock averages all fell about 2% in Friday trading, wrapping up a week dominated by a feeding frenzy on highly shorted stocks touted on Reddit. Oh yes, and Q4 GDP rose 4.0% at an annualized rate, down from 33% in Q3, and the Fed continued its ultra-dovish talk, with Fed Chair Jerome Powell promising he'd give markets plenty of notice before considering any tapering of bond purchases. For the last session of the week, the Nasdaq Composite fell 2.0%, the S&P 500 declined 1.9%, and the Dow Jones Industrial Average lost 2.0%. The energy sector fell the most, followed by information technology; real estate dropped by the least. All three averages turned in their worst week since October, with the Nasdaq shedding 3.5%, the S&P dropping 3.3%, and the Dow dipping 3.3%. Of mega-tech names, Tesla sank 6.3% over the week and Facebook dropped 5.9%; Microsoft managed to climb 2.7%. The 10-year Treasury yield ended the week at 1.09%, not far from the 1.07% where it started, though in the interim fell as low as 1.00% on Wednesday ahead of the Fed policy decision. The U.S. dollar strengthened some, with the U.S. Dollar Index up 0.4% for the week | |
| Trending Outrage escalated in the retail trading world on Thursday as Robinhood (RBNHD) and other brokerages imposed trading limits on WSB/Reddit plays, and questions are circling about the protections that should be in place for investors. While Robinhood cited clearing house requirements as reasons for the stoppage, it also said "these requirements exist to protect investors and the markets and we take our responsibilities to comply with them seriously." Users were only permitted to close positions, leading the stocks to plunge during the session, while Robinhood looked to reopen trades on Friday (see below).
Investors and lawmakers alike lambasted the trading limits, including Dave Portnoy, Alexandria Ocasio-Cortez and Ted Cruz, accusing the trading platform of seeking to protect Wall Street's interests at the expense of smaller investors. "We need an SEC that has clear rules about market manipulation and then has the backbone to get in and enforce those rules," added Sen. Elizabeth Warren, a longtime critic of Wall Street. "You've got to have a cop on the beat."
How should market manipulation be defined? We're also talking about public markets here, where every share is only worth as much as people are prepared to pay for it - regardless of the fundamentals of the company. Regulators can't pick and choose which market participants are able to play in the market or the value of healthy share prices (or can they?). The pros are also going to have to get a whole lot smarter on how they take bets against companies if an army of day traders can be rallied within hours to make that bet go wrong.
Thought bubble: Should a hedge fund be able to get 10x leverage and short 140% of a company in a healthy market? Should mob and herd mentality of rolling into stocks be curbed? Regulators may want to step in on both sides, but government bodies may also be fueling the bubble. Easy money policies from the Fed have also driven consumers out of savings accounts and CDs, encouraging riskier behavior and flows into related products. (216 comments)    | |
| Financials The NYT reported that Robinhood (RBNHD) drew on credit lines of $500M-$600M to meet lending requirements and separately raised $1B in emergency funding to avoid having to place further limits on trades (just hours after saying there was "no liquidity problem"). It's a significant amount of money for a firm that was valued at about $12B just a few months ago, as users take their money elsewhere. "We pulled those credit lines so that we could maximize within reason the funds we have to deposit at the clearing houses," CEO Vlad Tenev declared, saying Robinhood will allow limited buys of previously halted plays like GameStop (NYSE:GME) and AMC (NYSE:AMC) on Friday, but will "continue to monitor the situation and make adjustments as needed."
Quote: "As a brokerage firm, we have many financial requirements, including SEC net capital obligations and clearinghouse deposits," Robinhood continued in a blog post. "Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment. These requirements exist to protect investors and the markets and we take our responsibilities to comply with them seriously, including through the measures we have taken today."
Other brokerages gave similar reasons for the Thursday halt, attributing growing financial pressure vs. the shadowy motivations claimed by the retail bros. "This has to do with settlement mechanics of the market," Webull CEO Anthony Denier told Yahoo Finance. "It wasn't our choice. Our clearing firm gave us a call and said we're going to have to stop allowing you from opening positions due to high volatility. It takes two whole days for brokerages to fund trades with central clearing houses, and because of the volatility of these stocks, the clearing houses have made the cost of collateral for the holding period extremely expensive. We also cannot use customer funds to front that cost due to regulation."
Bottom line: The entire system needs more transparency. Robinhood allows free trades through a practice called payment for order flow, or PFOF, which sends customer orders to high frequency traders like Citadel in exchange for cash. Orders may also be filled at a slightly lower price (often pennies) than buying the same shares on a public exchange. While that may have enabled the commissions-free revolution that led retail investors into the market, it has also led to a moment of reckoning over how healthy public markets should work and function. (141 comments)
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| Outlook Strong earnings reports from Apple (NASDAQ:AAPL) and Facebook (NASDAQ:FB) did little to boost sentiment after the bell on Wednesday, while Tesla (NASDAQ:TSLA) missed analyst expectations, and the three tech powerhouses sold off.
Apple - The iPhone maker reported its largest revenue on record at $111.4B, with sales in every product category rising by double-digit percentage points. The blowout quarter also saw big results at Apple's services business, which the company has highlighted as a growth engine, as well as significant growth in China. However, it didn't give a formal guidance for the upcoming quarter, and executives said sales growth from AirPods and other wearables will decelerate. (141 comments)
Facebook - The social network disclosed falls in daily usage at home, but global growth boosted numbers. Earnings beats were also swept aside as the company warned about the impact from Apple's privacy changes and called the latter a "significant competitor." Pandemic trends could also hurt its advertising business and it may not be able to grow as quickly in the second half of 2021. (28 comments)
Tesla - The EV maker knocked out another profit and floated a 50% deliveries growth target, but that wasn't enough to impress. Earnings missed analyst expectations, though revenue beat estimates, and some other announcements were made. Tesla talked subscriptions, software licensing and its 4680 battery on a conference call and said it expects its two new factories in Texas and Germany to come online this year. (286 comments) | |
| Healthcare Health officials and researchers have been racing to determine whether COVID-19 vaccines will work against new variants as governments across the globe roll out jabs they hope will reopen schools and businesses. A new Pfizer (NYSE:PFE) laboratory study this week found that coronavirus mutations identified in the U.K. and South Africa strain had only small impacts on the effectiveness of antibodies generated by the company's vaccine.
The fine print: The research is preliminary, has yet to be peer-reviewed, and was only tested on a subset of mutations found in the variants (not the variants themselves). The researchers also didn't assess whether their results were statistically significant.
The findings are still consistent with other preliminary results reported in recent weeks by several research groups, but precautions are being taken. Moderna (NASDAQ:MRNA) has said it would develop a booster shot for the South Africa variant, while President Biden restricted travel from South Africa and re-established a ban on most incoming travel from Europe, the U.K. and Brazil.
Outlook: White House health advisor Dr. Anthony Fauci said Pfizer and Moderna's vaccines could be easily adapted to target new strains of the virus, something the drugmakers are already working on. "We're already trying to stay one or two steps ahead of the game so that if, in fact, we have a situation where the South African strain is prevalent here... you want to really get ahead of it from a protection standpoint." (30 comments) Go Deeper: COVID vaccines for kids? Trials are underway. | |
| Global Global foreign direct investment (FDI) collapsed in 2020, falling by 42% to an estimated $859B, from $1.5T in 2019. In fact, FDI finished 2020 more than 30% below the trough after the global financial crisis in 2009, according to the United Nations Conference on Trade and Development, while further weakness is expected in 2021. The economic measure accounts for investments made by businesses in other countries, such as the construction of a factory, an acquisition of a local company or the opening of a satellite office.
Bigger picture: As the coronavirus upended the global economy, China became the largest FDI recipient, attracting an estimated $163B in inflows, followed by the U.S. with $134B. The country was also the only major economy not to contract in 2020 due to a strict centralized lockdown that reportedly contained COVID-19. The economic numbers suggest another acceleration in China's share of global trade and its position as the world's factory floor.
FDI examples: Walmart (NYSE:WMT) announced it would invest 3B yuan ($460M) in Wuhan, the city that was the first center of the pandemic, over the next five years, while Starbucks (NASDAQ:SBUX) is spending $150M on an innovation park in the eastern Chinese city of Kunshan. Tesla (NASDAQ:TSLA) is also ramping up production at Giga Shanghai, and Walt Disney (NYSE:DIS) is continuing a big expansion at its Shanghai theme park. Back in December, Goldman Sachs (NYSE:GS) and JPMorgan (NYSE:JPM) took full ownership of their Chinese joint venture partner, and earlier this year, PepsiCo (NASDAQ:PEP) spent $705M on Be & Cherry, one of China's largest snack brands.
Go deeper: Total stock of foreign investments is still larger in the U.S., but the momentum of FDI has been shifting towards China since 2017. Although the Trump administration urged American companies to leave the country, it also put Chinese investors on notice that U.S. acquisitions would face new scrutiny on national security grounds. The Biden administration will also have to contend with the rise of China, but the sheer size of its consumer market could draw in foreign investments that are betting on the nation's robust economic recovery. (224 comments) | |
| U.S. Indices
Dow -3.3% to 29,983. S&P 500 -3.3% to 3,714. Nasdaq -3.5% to 13,071. Russell 2000 -4.% to 2,082. CBOE Volatility Index +51% to 33.09.
S&P 500 Sectors
Consumer Staples -1.6%. Utilities -1.1%. Financials -4.6%. Telecom -3.4%. Healthcare -2.2%. Industrials -4.2%. Information Technology -3.%. Materials -5.%. Energy -6.6%. Consumer Discretionary -4.4%.
World Indices
London -4.3% to 6,407. France -2.9% to 5,399. Germany -3.2% to 13,433. Japan -3.4% to 27,663. China -3.4% to 3,483. Hong Kong -4.% to 28,284. India -5.3% to 46,286.
Commodities and Bonds
Crude Oil WTI -0.3% to $52.13/bbl. Gold -0.4% to $1,849.6/oz. Natural Gas +4.5% to 2.556. Ten-Year Treasury Yield +0.1% to 137.21.
Forex and Cryptos
EUR/USD -0.24%. USD/JPY +0.89%. GBP/USD +0.21%. Bitcoin +5.6%. Litecoin -3.7%. Ethereum +10.8%. Ripple +6.6%.
Top Stock Gainers
Koss Corporation (NASDAQ:KOSS) +1816%. GameStop (NYSE:GME) +400%. New Concept Energy (NYSEMKT:GBR) +350%. AMC Entertainment Holdings (NYSE:AMC) +278%. Express (NYSE:EXPR) +235%.
Top Stock Losers
eHealth (NASDAQ:EHTH) -40%. ReneSola (NYSE:SOL) -38%. Zymeworks (NYSE:ZYME) -35%. Vinco Ventures (NASDAQ:BBIG) -35%. Irhythm Technologies (NASDAQ:IRTC) -33%.
Where will the markets be headed next week? Current trends and ideas? Add your thoughts to the comments section. | |
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