Stock Futures Point to More Losses on Wall Street; GameStop in focus

Stock stumbling follows a strong start to the year that some investors claim pushed stock prices above levels justified by corporate fundamentals. The sell-off has taken place amid wild swings in individual stocks including GameStop and AMC Entertainment,

AMC 301.21%

fueled by a battle between day traders and hedge fund professionals.

“There is some exaggeration in the market,” said Olaf van den Heuvel, chief investment officer of Aegon Asset Management in the Netherlands, citing as an example the surge in GameStop shares. “It was bubble territory.”

Individual stocks remained volatile before the bell in New York. GameStop shares were up 28% after rising 135% Wednesday. AMC reclaimed past losses and rose 6.1%, extending Wednesday’s gains by more than 300%.

The slow roll-out of vaccines and the Covid-19 restrictions in major economies have prompted investors to take some money off the table, Mr. van den Heuvel added. He said Aegon is likely to see the sell-off as an opportunity to buy risky assets when the markets settle.

Technology stocks plummeted in New York. Apple’s stock fell 2.9% after the iPhone maker reported its most profitable three months on record, but failed to provide specific revenue expectations for the current quarter.

Tesla was down 6.1% after the electric vehicle manufacturer – whose shares have skyrocketed in recent months – posted its first year of profit but fell short of Wall Street expectations. Facebook,

which posted record net income but warned that uncertainty due to regulatory investigations and ad targeting limits could create headwinds fell 0.8% in premarket trading.

As a sign of increasing risk aversion, the yield on the 10-year US Treasury bill fell below 1% for the first time since January 6, before rising back to 1.008%, Tradeweb said..

Bond yields decline as prices rise. Falling returns are often an indication that investors are seeing the economic outlook deteriorate.

The dollar strengthened against several currencies, including the Australian dollar and the Korean won. The WSJ Dollar Index, which measures the greenback against a basket of other currencies, rose 0.2%.

Comcast,

American Airlines and Mastercard will publish the results before markets open. Investors will also analyze unemployment claim data – which will be released at 8:30 a.m. ET and expected to show the number of workers seeking benefits last week – for fresh clues as to how the economy is weathering the pandemic.

The Federal Reserve on Wednesday upheld its easy money policy, saying business activity has softened with the resurgence of Covid-19 cases.

“Any short-term fiscal stimulus lift could lead to a hiccup in the recovery,” said Mary Nicola, a portfolio manager at PineBridge Investments.

The sell-off of US equities spread abroad. The pan-continental Stoxx Europe 600 was down 0.7%, down by shares of oil and gas and financial companies.

Shares in several European stocks with heavy short positions that skyrocketed on Wednesday as the short squeeze expanded outside the US came under pressure. Commercial real estate company Unibail-Rodamco-Westfield lost 2.4% and German drug company Evotec lost 4%.

“It’s nerve-wracking,” said Remi Olu-Pitan, a fund manager at Schroders, referring to the big moves in stock prices fueled by day traders trading tips online. She said the volatility has likely prompted some professional investors, including those caught in loss-making short positions, to take money off the table, weighing on broader markets.

“You will see more violent withdrawals,” said Ms Olu-Pitan. “There are parts of the market that are in a bubble.”

Among other things, individual movers, Prudential was down 7.5% after the insurer said it weighed in on an equity offering and would separate the Jackson National arm in the US. .

Markets largely retreated in Asia. Hong Kong’s Hang Seng fell 2.6%, the Shanghai Composite Index fell 1.9% and Japan’s Nikkei 225 fell 1.5%. Container transport giant Cosco Shipping led losses in mainland China, down 10%.

As a sign of nervousness in the Chinese markets, money market rates continued to rise. The one-week interbank rate offered by Shanghai increased 0.012 percentage points to 2.981%, the highest level since 2015, according to FactSet.

Short-term financing costs have risen in recent days as the People’s Bank of China unexpectedly withdraws money from the financial system. Earlier this week, a major business newspaper also published comments from Ma Jun, a central bank adviser, who warned of the emergence of bubbles as a result of loose monetary policy.

Tai Hui, Chief Asia Market Strategist at JP Morgan Asset Management, said new sources of coronavirus outbreaks in China had also hurt investor sentiment.

Write to Joe Wallace at [email protected] and Chong Koh Ping at [email protected]