US stock index futures fell during overnight trading as a surge in speculative trading by retailers caused hedge funds to reduce risk and worry investors about a market bubble. The losses build on last week’s decline, which was the worst for the market since October.
Futures contracts linked to the Dow Jones Industrial Average fell 270 points, indicating a 271 point loss at the opening bubble. S&P 500 futures were down 1%, while Nasdaq 100 futures were down 1.2%.
The Dow fell 620 points, or 2%, on Friday to close below 30,000 for the first time since December. The Nasdaq Composite also fell 2%, while the S&P 500 was down 1.9%.
For the week, all three major averages were down more than 3% for their worst weekly performance since October. The Dow and S&P also posted losses for January – the first negative month in four – although the Nasdaq managed to post a gain for the month.
Friday’s dip came amid a frenzy of activity by private investors in high short stocks, including GameStop and AMC Entertainment, sparking concerns about the overall health of the market. Goldman Sachs noted that the current short squeeze is the worst in 25 years.
“This week’s events may have turned the markets upside down, but fear indicators suggest we may have experienced the worst of the degrossing,” Jefferies wrote in a note to customers over the weekend. Barclays added that the impact of the short squeezes is unlikely to wave through the wider market.
“The continued short squeeze in a few stocks by private investors has raised concerns about wider contagion,” the company wrote in a recent note to clients. “While we think more pain will come, we remain optimistic that it is likely to remain localized.”
Meanwhile, a group of 10 Republican senators sent President Joe Biden a letter on Sunday urging him to consider a smaller, scaled-down Covid-19 relief proposal. His current plans call for $ 1.9 trillion in additional fiscal stimulus. The alternative proposal comes after House Speaker Nancy Pelosi said the chamber will pass a budget resolution, the first step toward passing legislation through reconciliation. The process would allow Senate Democrats to approve an aid measure without GOP votes.
Elsewhere, another busy week of profit is coming up with 99 S&P companies to report. Alphabet, Amazon, Alibaba, Snap, Exxon, Biogen, Pfizer and Chipotle are among the names that will be reporting this week. Thursday is the busiest day of the income season.
“We believe the path for the market will remain higher in the medium term,” said Mark Haefele, global CIO at UBS Wealth Management. “In a similar pattern to the previous two quarters, corporate earnings for 4Q20 significantly exceed expectations.”
He added that a stimulus package and investors looking beyond delays in vaccine production and distribution should further boost stocks.
– CNBC’s Jacob Pramuk contributed to the reporting.
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