US stock markets closed sharply lower on Friday, recording the worst weekly decline in stocks since October, as speculative trading in a set of small, heavily traded companies, unsettled markets as a result of growing panic among traders. Also, investors were disappointed following that new trail results of Johnson & Johnson
JNJ
vaccine that came out to be somewhat less effective. All three major indexes ended the day in the red.
How Did The Benchmarks Perform?
The Dow Jones Industrial Average (DJI) slipped 2% or 620.74 points to finish at 29,982.62. The bluechip index closed below the 30,000 mark for the first time since Dec 14.
The S&P 500 declined 1.9% or 73.14 points to end at 3,714.24. Energy and technology sectors were the biggest losers on the index. The Energy Select Sector SPDR (XLE) lost 3.3%, while the Technology Select Sector SPDR (XLK) shed 2.4%. All the 11 sectors of the benchmark index closed in negative territory.
The tech-heavy Nasdaq slumped 2% or 266.46 points to end the day at 13,073.64 points. Shares of Facebook, Inc.
FB
and Apple, Inc.
AAPL
lost 2.5% and 3.7%, respectively. Apple has a Zacks Rank #1 (Strong Buy). You can see
the complete list of today’s Zacks #1 Rank stocks here
.
The fear-gauge CBOE Volatility Index (VIX) was up 9.5% to 33.09. A total of 17.13 billion shares were traded on Friday, higher than the last 20-session average of 15.26 billion. Decliners outnumbered advancers on the NYSE by a 2.88-to-1 ratio. On Nasdaq, a 2.38-to-1 ratio favored declining issues.
Panic Grips Markets
Worries that had begun at the start of the week once again resurfaced on Friday after a number of retailer investors started trading shares in heavily sorted stocks like GameStop Corp.
GME
and avoided exposure to other stocks to minimize risk.
GameStop’s shares surged 67.9% on Friday after trading app Robinhood said that it would allow limited buying of the stock and other heavily sorted companies after putting a restriction on purchase on Thursday. Prior to that Robinhood raised a whooping $1 billion from its investors on Thursday to ensure it had enough capital to allow trading in volatile stocks like GameStop and Koss Corporation
KOSS
.
This raised panic in the mind of investors who are concerned that if stocks like GameStop continue to surge with such volatility it may soon create a crisis in the financial markets, and may thus compel hedge funds to sell other securities to meet the cash crisis.
GameStop’s sudden surge has also raised fears that it might be a sign of a bigger bubble in the market which could hit hard the retail investors. This saw several lawmakers calling for an investigation into the volatile trading.
Johnson & Johnson New Trial Results Disappoint
Johnson & Johnson, on Friday, said that its single-dose vaccine had 72% efficacy rate against protection form COVID-19 in the United States, while it was lesser, that of 66% globally. The latest trial result came as a disappointment which weighed both on the Dow and S&P 500.
Also, worries grew on the slowness of the COVID-19 vaccine rollout in the United States as a slow immunization drive means a delay in return to economic normality.
Weekly Roundup
In a volatile week that saw huge ups and downs, all three major indexes ended in the red, suffering their worst loss since the end of October. The Dow and S&P 500 each lost 3.3% for the week, while the Nasdaq shed 3.5%.
Monthly Roundup
On a monthly basis, the Dow and S&P 500 shed 2% and 1.1%, respectively. The Nasdaq on the other hand gained 1.4% for the month.
Economic Data
U.S. consumer spending declined for the second consecutive month. The Commerce Department on Friday that consumer spending declined 0.2% in December as rising cases of coronavirus ignited fears in the mind that economic recovery may take more time than expected.
U.S. labor cost rose 0.7% in the fourth quarter although it is far from reaching the pre-pandemic levels. Incomes increased 0.9% in the fourth quarter after gaining 0.4% in the third quarter. On the other hand University of Michigan’s January consumer sentiment index gave a reading of 79 against expectations of 79.2.
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