Dow futures rise 200 points as market set to rebound from worst week since October

Stock futures rose in early trading on Monday as Wall Street appeared to shake off concerns about speculative retail trading mania that largely drove the market’s worst weekly sell-off since October.

Futures contracts tied to the Dow Jones Industrial Average gained 200 points. S&P 500 futures climbed 0.9% and Nasdaq 100 futures jumped 1.1%. The moves came in a choppy session, with Dow futures dropping as much as 300 points overnight.

GameStop, the brick-and-mortar video game retailer that has been the center of attention on Wall Street, fell about 2% in premarket and trading was calmer than usual. Last week, the popular stock among retailer investors on Reddit forum WallStreetBets soared 400% amid extreme trading volume and volatility.

“The return of volatility over the past week has been driven by market positioning rather than worries over growth,” Mark Haefele, chief investment officer at UBS’ Global Wealth Management, said in a note.

“Many institutions have been adjusting their books to account for the risks to short positions arising from recent coordinated buying by retail investors. But given the speed and magnitude of flows in recent days, we think most of the pressure is now behind us,” Haefele said.

All three major averages slipped more than 3% last week 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 did manage to post a gain for the month.

Many on Wall Street were spooked by a frenzy of activity by retail investors in heavily-shorted stocks including GameStop and AMC Entertainment, which fueled concerns about the overall health of the market. Goldman Sachs noted that the current short squeeze is the worst in 25 years.

AMC jumped another 18% in premarket trading after a 277% rally last week.

The Reddit boom also seems to be spreading to other areas of the market. Futures contracts for silver surged 11%, the biggest one-day jump in 11 years. The Reddit chat room had multiple active threads dedicated to silver on Sunday night. The phrase “#silversqueeze” was also trending on Twitter.

Still, some strategists believe it’s unlikely that the impact of the short squeezes will ripple through Wall Street and derail the new bull market.

“Despite the uncertainty surrounding the fallout from the surge in prices for stocks with substantial levels of short interest, we don’t see the advent of a 1998-style liquidity crisis,” Sam Stovall, chief investment strategist at CFRA, said in a note. “Even though we think the equity market needs to go through a readjustment of expectations and valuations, we don’t think the bull has come to an end, nor are we recommending any changes to our year-end S&P 500 target or asset allocation.”

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 plan calls for $1.9 trillion in additional fiscal stimulus.

The alternative proposal comes after House Speaker Nancy Pelosi said the chamber will move to pass a budget resolution, the first step toward approving legislation through reconciliation. The process would enable Senate Democrats to approve an aid measure without GOP votes.

Elsewhere, another busy week of earnings is coming up with 99 S&P companies set to report. Alphabet, Amazon, Alibaba, Snap, Exxon, Biogen, Pfizer and Chipotle are among the names set to report this coming week. Thursday is the busiest day of the earnings season.

—CNBC’s Michael Bloom and Jacob Pramuk contributed reporting.

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