U.S. stock futures plummeted, putting Wall Street on the path to extending losses amid investor concerns about a slow and frothy economic recovery in the markets, exemplified by wild trading at retailer GameStop.
Futures contracts linked to the S&P 500 fell 0.8% after the benchmark stock indicator posted its biggest drop in two days since October. Nasdaq-100 contracts fell 1.2% after the profits of several tech giants, including Apple, discouraged investors late on Wednesday. Futures contracts linked to the Dow Jones Industrial Average, which fell for five consecutive days in their longest losing streak since February, fell 0.5%.
The fall in shares follows a strong start to the year, which some investors say has pushed stock prices beyond levels justified by corporate fundamentals. The settlement took place amid large 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 a certain enthusiasm in the market,” said Olaf van den Heuvel, investment director at Aegon Asset Management in the Netherlands, pointing to the increase in GameStop’s shares as an example. “It was bubble territory.”
GameStop’s shares fell 8.5% ahead of the New York bell, having shot up 135% on Wednesday. AMC fell 23%, reducing Wednesday’s earnings by more than 300%.
The slow release of the vaccine and Covid-19 restrictions in major economies have led investors to take some money off the table, added van den Heuvel. He said Aegon is likely to see the sale as a chance to buy risky assets when markets stabilize.
Technology stocks fell before the bell in New York. Apple’s shares fell 3.4% after the iPhone maker reported its three most profitable months, but did not provide specific revenue guidance for the current quarter.
Facebook,
which posted record net profit, but warned that uncertainty from regulatory polls and ad targeting limits could create headwinds, fell 2.2% in the premarket. Tesla fell 5.9% after the electric vehicle maker – whose shares have soared in recent months – released its first full-year profit, but lost Wall Street expectations.
In a sign of increasing risk aversion, the yield on the 10-year US Treasury benchmark note fell below 1% for the first time since January 6, falling to as low as 0.998%, according to Tradeweb.
Bond yields fall as prices rise. Falling yields are often an indicator that investors see a weakening economic outlook.
The dollar strengthened against several currencies, including the Australian dollar and the Korean won. The WSJ Dollar Index, which measures the US dollar against a basket of other currencies, was up 0.2%.
Investors will analyze data on claims for unemployment benefits – which are due to be published at 8:30 am ET and are expected to show that the number of workers seeking benefits has declined in the past week – looking for new clues about how the economy is resisting the pandemic.
The Federal Reserve maintained its easy money policies on Wednesday, saying business activity has slowed with the resurgence of Covid-19 cases.
“Any removal of the fiscal stimulus could soon lead to a fluctuation in recovery,” said Mary Nicola, portfolio manager at PineBridge Investments.
Nicola is optimistic about the prospects for actions in the United States and elsewhere, saying that vaccines will generate additional gains in the next 18 months.
“It is difficult to say that the markets are overvalued, or what is happening in the markets is confusing,” when comparing stocks with the low yields available on bonds, she said.
The liquidation of US shares has extended abroad. The pan-continental Stoxx Europe 600 fell 2%, led lower by shares in oil and gas, technology and healthcare companies.
The shares of several heavily sold European stocks that shot up on Wednesday, when the short tightening spread beyond the US, came under pressure. Commercial real estate firm Unibail-Rodamco-Westfield lost 4.7% and German pharmaceutical company Evotec fell 5.5%.
Among other individual moves, Prudential fell 6.5% after the insurer said it was considering a stock offer and would split its Jackson National arm in the U.S. Diageo gained 3.4%, while analysts celebrated strong first half sales in North America by the alcohol producer.
Markets have 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, falling 10%.
In a sign of nervousness in the Chinese markets, money market rates continued to rise. Shanghai’s week-long interbank rate rose 0.012 percentage points to 2.981%, the highest since 2015, according to FactSet.
Short-term borrowing costs have risen in recent days, as the People’s Bank of China unexpectedly drained funds from the financial system. Earlier this week, a major business newspaper also published comments from Ma Jun, an adviser to the central bank, who warned of asset bubbles arising due to loose monetary policy.
Xing Zhaopeng, China’s market economist at ANZ in Shanghai, said that exits from Chinese markets and the central bank’s stance contributed to sales in Shanghai and Shenzhen.
“International investors are reducing their risk positions due to concerns about bubbles, including stocks and onshore bonds,” said Xing.
Tai Hui, chief strategist for the Asian market at JP Morgan Asset Management, said that new outbreaks of coronavirus outbreaks in China have also affected investor sentiment.
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