US stocks cap worst week since October on Reddit development

by Jonathan Adams
Reddit

The SEC said that it was monitoring recent market volatility for signs of wrongdoing

US stocks capped their worst week since October on Friday as Reddit day traders continued to furiously attack shorts and drive massive volatility.

GameStop, AMC, and other Reddit-favorite stocks soared as day traders piled back into their risky positions. The highly volatile names enjoyed strong buying throughout the week. Moves by Robinhood, Interactive Brokers, and other platforms to restrict trading temporarily cut into gains before rallies on Friday pared losses.

Market participants fear that the retail traders’ targeting of shorts could force hedge funds to cover their bearish bets by selling their long positions. While the phenomenon has rocked only some funds, strategists have raised concerns about a growing market disruption.

Chasing the squeeze is like buying a lottery ticket. You might profit, but you might also lose everything, said Lindsey Bell, the chief investment strategist at Ally Invest. This type of speculative trading is more about luck and less about skill.

The Securities and Exchange Commission (SEC) said Friday that it was monitoring recent market volatility for signs of wrongdoing. Stocks’ wild price swings risk exposing investors to “rapid and severe losses” and undermining overall confidence, the agency said.

The Dow briefly sank below 30,000 for the first time since January 4 before partially recovering. Energy and tech stocks were the session’s worst performers. Healthcare and utilities outperformed. Still, all 11 S&P 500 sectors sank into the close. Cboe’s VIX – a popular measure of market volatility – surged to its highest level since October. The index reached an intraday high of 37.51 before closing just below 31.

Investors also sold off on less-than-ideal news from a trial of Johnson & Johnson’s coronavirus vaccine. The pharma giant announced on Friday that its single-dose vaccine was found to be 66% effective, well below the efficacy demonstrated by other companies’ two-dose programs. Johnson & Johnson said its vaccine was also less effective in South Africa, suggesting the shot is less beneficial at protecting against the more contagious virus strain first identified in that country.



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