Dow futures fall more than 100 points as volatile Wall Street week continues

U.S. stock futures were lower in early trading on Friday as heightened speculative trading by retail investors unnerved the market.

Dow Jones Industrial average futures lost 100 points, or 0.3%. S&P 500 futures lost 0.5%. Nasdaq 100 futures shed 0.8%.

Shares of GameStop doubled in premarket trading after Robinhood said it would allow limited buying of the brick-and-mortar gaming retailer’s stock and other heavily shorted names. Amid the market frenzy and increased demand for liquidity, Robinhood has raised more than $1 billion from its existing investors in addition to tapping bank credit lines, New York Times reported.

Investors are concerned that if GameStop continues to rise, it may force bigger losses at hedge funds, which in turn could cause ripples in the market as these funds are forced to sell other securities to raise cash. At the same time, there’s concern that the GameStop mania is a sign of a larger bubble in the market and that its unraveling could also cause turbulence and hit retail investors hard. Several e-brokers on Thursday took steps to curb the deliberate buying of highly speculative names.

“Between Washington calling for hearings and reports Robinhood was forced to not only draw down on its credit lines but also raise $1B from existing investors, the entire situation continues to erode market confidence,” Adam Crisafulli, founder of Vital Knowledge, said in a note Friday.

It’s been a volatile week on Wall Street. The Dow lost more than 600 points on Wednesday, suffering its worst sell-off in three months. Then the blue-chip benchmark rebounded by 300 points on Thursday amid a broad market rally. All three major averages have lost at least 1% this week.

The market also experienced the highest trading volume in years as the mania heated up. On Wednesday, total market volume hit more than 23.7 billion shares, surpassing the level during the height of the financial crisis in 2008. Thursday also saw extremely heavy trading with more than 19 billion shares changing hands.

“From a regulatory perspective, we’ve seen a phenomena of let’s call it retail investors flocking into new trading mechanisms,” Hercules Investments’ James McDonald said on CNBC’s “Fast Money.” “We saw this during the Dotcom run up and it resulted in the institution of practices that were restricted on day trade rules. There’s going to be limits on to what extent instructions or recommendations can be made, those rules will be applied and then the brokers will follow.”

Strong corporate earnings continued to roll in after the bell on Thursday. Payments giant Visa, Mondelez, Western Digital and Skyworks Solutions all rose in extended trading after reporting better-than-expected profits and sales for their quarterly results.

Caterpillar, Chevron, Eli Lilly and Honeywell report earnings before the bell on Friday.

On the vaccine front, biotech firm Novavax said Thursday that its coronavirus vaccine was more than 89% effective in protecting against Covid-19 in its phase three clinical trial conducted in the United Kingdom.

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