Thursday, January 28, 2021

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A very partial recap of a bizarre day in financial markets.

It’s hard to think of a more chaotic set of circumstances than what befell the stock market on Wednesday.

The day’s main event was the continuing rally in highly-shorted stocks fueled by attention from Reddit — and by now, almost certainly accompanied by big money investors piling into the strangest trade in years.

Shares of GameStop (GME) gained 134% to close at $347.51. Last Wednesday, the stock closed at $39.12.

Shares of movie theater operator AMC (AMC) rose 301% on Wednesday to close at $19.90.

Shares of the company responsible for liquidating Blockbuster’s operations — BB Liquidating Co. (BLIAQ) — doubled.

This is not an exhaustive list of the day’s big winners.

As Deutsche Bank’s Jim Reid said in a note early Wednesday, “The question I have is whether this [market dynamic is] a fascinating curiosity, or whether it’s indicative of a larger problem for global markets in 2021.”

Wednesday yielded no firm answers. The SEC’s statement on the matter was of little help.

Some of those betting against GameStop did start to cut their losses.

Melvin Capital, the hedge fund which took on $2.75 billion in capital from Steve Cohen and Ken Griffin earlier this week, said it got out of its short bet on GameStop Tuesday afternoon.

“We have closed out our position in GME,” a company spokesperson told Yahoo Finance. “The social media posts about Melvin Capital going bankrupt are categorically false.”

And yes, we’re at the point in the cycle when hedge funds have to squelch rumors they are going out of business.

Andrew Left of Citron Research also announced Wednesday morning he had covered a “majority” of his short on GameStop — for a loss of 100%.

Outside of these heavily-shorted names, however, the stock market came under considerable pressure on Wednesday. All three of the major averages fell more than 2%. The S&P 500 (^GSPC) and Dow (^DJI) are now in the red for the year.

The Reddit community has been focused on the short bets of Citron Research and Melvin Capital, but these are not the only firms selling short some of the popular names that investors have piled into on the long side. These shorts are called “popular” for a reason.

When a stock you are selling short starts to rise in price, you are forced to either cover the short, or post more collateral. Both require cash, often raised by selling stocks you own.

As a result, recent high flyers were among the big losers on Wednesday — Netflix (NFLX), Snap (SNAP), and Alphabet (GOOGL) all fell more than 5%. Chip stocks fared even worse, this despite AMD’s (AMD) strong quarterly report Tuesday evening. The PHLX Semiconductor Index (^SOX) has more than doubled from the March 2020 market low; this index is now down about 7% in the past five days.

The Federal Reserve also announced its latest monetary policy decision on Wednesday, making no substantive changes to its statement. In a press conference on Wednesday afternoon, Fed Chair Jay Powell was “remarkably dovish” said Paul Ashworth, an economist at Capital Economics. Ashworth adds that Powell was “sanguine about the risks of rising inflation.”

But the day was not over with Powell’s latest public statements.

After the market close on Wednesday, Facebook (FB), Tesla (TSLA), and Apple (AAPL) all reported their latest quarterly results.

Facebook and Apple both crushed expectations. Tesla reported better-than-expected sales on earnings that missed estimates. All three stocks were lower, but little changed, in after hours trading.

An injection of some relative calm in this week’s market — though there are still two days left to go.

By Myles Udland, a reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland

What to watch today

Economy

  • 8:30 a.m. ET: GDP annualized, quarter-over-quarter, 4Q first print (4.2% expected, 33.4% in third quarter)

  • 8:30 a.m. ET: Personal Consumption, quarter-over-quarter, 4Q first print (3.1% expected, 41.0% in third quarter)

  • 8:30 a.m. ET: Core Personal Consumption Expenditures, quarter-over-quarter, 4Q first print (1.2% expected, 3.4% in third quarter)

  • 8:30 a.m. ET: Initial jobless claims, week ended January 23 (866,000 expected, 900,000 during prior week)

  • 8:30 a.m. ET: Continuing claims, week ended January 16 (5.088 million expected, 5.054 million during prior week)

  • 8:30 a.m. ET: Advance Goods Trade Balance, December (-$84.0 billion expected, -$84.8 billion in November)

  • 8:30 a.m. ET: Wholesale Inventories, month-over-month, December preliminary (0.6% expected, 0.0% in November)

  • 8:30 a.m. ET: Leading Index, December (0.3% expected, 0.6% in November)

  • 10:00 a.m. ET: New Home Sales, December, month-over-month, (3.0% expected, -11.0% in November)

  • 11:00 a.m. ET: Kansas City Fed Manufacturing Activity, January (13 expected, 14 in December)

Earnings

Pre-market

  • 6:00 a.m. ET: Dow Inc. (DOW) is expected to report adjusted earnings of 67 cents per share on revenue of $9.99 billion

  • 6:30 a.m. ET: McCormick & Co (MKC) is expected to report adjusted earnings of 81 cents per share on revenue of $1.57 billion

  • 6:45 a.m. ET: Southwest (LUV) is expected to report an adjusted loss of $1.67 per share on revenue of $2.11 billion

  • 7:00 a.m. ET: JetBlue (JBLU) is expected to report an adjusted loss of $1.67 per share on revenue of $626.77 million

  • 7:00 a.m. ET: American Air Lines (AAL) is expected to report an adjusted loss of $4.11 per share on revenue of $3.86 billion

  • 7:00 a.m. ET: Altria (MO) is expected to report adjusted earnings of $1.02 per share on revenue of $5.00 billion

  • 7:00 a.m. ET: McDonald’s (MCD) is expected to report adjusted earnings of $1.77 per share on revenue of $5.37 billion

  • 7:00 a.m. ET: Comcast (CMCSA) is expected to report adjusted earnings of 47 cents per share on revenue of $26.82 billion

  • 7:00 a.m. ET: The Sherwin-Williams Co. (SHW) is expected to report adjusted earnings of $4.86 per share on revenue of $4.34 billion

  • 7:30 a.m. ET: T Rowe Price Group (TROW) is expected to report adjusted earnings of $2.72 per share on revenue of $1.69 billion

  • 8:00 a.m. ET: Mastercard (MA) is expected to report adjusted earnings of $1.51 per share on revenue of $4.00 billion

Post-market

  • 4:00 p.m. ET: Skyworks Solutions (SWKS) is expected to report adjusted earnings of $2.06 per share on revenue of $1.05 billion

  • 4:05 p.m. ET: Mondelez International (MDLZ) is expected to report adjusted earnings of 66 cents per share on revenue of $7.16 billion

  • 4:05 p.m. ET: Visa (V) is expected to report adjusted earnings of $1.28 per share on revenue of $5.53 billion

  • 4:15 p.m. ET: United States Steel Corp (X) is expected to report an adjusted loss of 68 cents per share on revenue of $2.58 billion

  • 4:20 p.m. ET: Xilinx (XLNX) is expected to report adjusted earnings of $2.06 per share on revenue of $1.05 billion

Top News

European stocks sink after Fed and Reddit drive Wall Street sell-off [Yahoo Finance UK]

Fed holds rates at near-zero as it watches progress on vaccinations [Yahoo Finance]

Facebook beats on Q4 earnings, revenue, but stock slides on ‘significant uncertainty,’ ad headwinds [Yahoo Finance]

Tesla posts record quarterly revenue, but profit misses expectations [Yahoo Finance]

Apple reports record earnings powered by iPhone 12 sales [Yahoo Finance]

Apple to launch app privacy feature that Facebook has railed against [Yahoo Finance]

YAHOO FINANCE HIGHLIGHTS

GameStop phenomena is about ‘the poor vs rich’: Reddit WSB user

Robinhood CEO: The retail investors that have felt ‘talked down to’ are now ’empowered’

Microsoft CEO Satya Nadella: There is ‘a big crisis right now’ for cybersecurity

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