US stock index futures fell in the early morning trades as an increase in speculative trades by retail traders continued to cause hedge funds to take the risk and worry investors about a market bubble. The losses add to 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 loss of 271 points at the opening bell. S&P 500 futures fell 1%, while Nasdaq 100 futures fell 1.2%.
The Dow fell 620 points on Friday, or 2%, to close below the 30,000 level for the first time since December. The Nasdaq Composite also fell 2%, while the S&P 500 fell 1.9%.
During the week, all three major averages fell more than 3% to their worst weekly performance since October. Dow and S&P also recorded losses in January – the first negative month in four – although Nasdaq managed to record a gain in the month.
Friday’s fall came amid a frenzy of activity by retail investors in heavily sold stocks, including GameStop and AMC Entertainment, which fueled concerns about the overall health of the market. Goldman Sachs noted that the current tightening is the worst in 25 years.
“This week’s events may have turned heads in the markets, but fear indicators indicate that we may have seen the worst of the degradation,” wrote Jefferies in a note to customers over the weekend. Barclays added that the impact of small pressures is unlikely to spread across the market.
“The ongoing tightening of some stocks by retail investors has raised concerns about wider contagion,” the company wrote in a recent note to customers. “While we believe there will be more pain to 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 and reduced Covid-19 relief proposal. Their current plans provide 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 in passing legislation through reconciliation. The process would allow Senate Democrats to pass a Republican Party vote-free aid measure.
Elsewhere, another busy profit week is coming with 99 S&P companies set to report. Alphabet, Amazon, Alibaba, Snap, Exxon, Biogen, Pfizer and Chipotle are among the names set to report next week. Thursday is the busiest day of the earnings season.
“We believe that the medium-term path to the market remains higher,” noted Mark Haefele, global CIO at UBS Wealth Management. “In a similar pattern to the previous two quarters, corporate earnings in 4Q20 are exceeding expectations by a significant margin.”
He added that a stimulus package, as well as investors looking beyond delays in vaccine production and distribution, should further increase inventories.
– Jacob Pramuk, from CNBC, contributed reporting.
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