Wednesday January 27th

27-01-2021

Dow futures drop 300 points, S&P 500 set to fall from record

U.S. stock index futures fell early Wednesday as investors pored through mixed earnings from major companies. Dow futures lost 330 points, or 1.1% and S&P 500 futures dropped 1.1%. The tech-heavy Nasdaq 100 futures dipped 0.9%. The S&P 500 and the Nasdaq Composite both hit intraday record highs in the previous session. Boeing fell more than 4% after its earnings report showed 2020 net loss hit a record of $11.9 billion amid the 737 Max grounding and the coronavirus pandemic. Microsoft investors cheered stellar results from the tech giant. Sales grew by 17% on a year-over-year basis in its fiscal second quarter, while its cloud business accelerated. Microsoft shares rose 1.5% in premarket trading. Starbucks topped earnings estimates for the last quarter, but its U.S. same-store sales fell 5% amid rising cases of Covid-19. Shares of the coffee chain fell more than 2% in premarket trading. Apple, Facebook and Tesla are due to report earnings after the closing bell. They represent three of the six largest companies in the U.S. by market cap, meaning fluctuations in their stock prices have an outsized impact on the performance of the broader S&P 500. Intensifying speculative behavior among retail investors is causing many on Wall Street to raise a red flag. Heavily shorted names, including GameStop and AMC Entertainment, continued to be pushed higher by amateur day traders in online chat rooms. GameStop shares were on the move again up another 70% in the premarket, but off their highs of the day after CNBC learned Melvin Capital, the hedge fund targeted by the retail investing crowd on Reddit had sold out of its short position. AMC was up more than 200% in premarket trading. “This is a battle, not a market,” said Gregory Faranello, head of U.S. rates trading at AmeriVet Securities. “Short gamma positions can be very painful. Couple this with large outright bets that go against the hedges that need to happen, and you have a dislocated, parabolic market where buying begets more buying. These moves end when they end, and generally with pain to the winners.” “The Big Short” investor Michael Burry said in a now-deleted tweet Tuesday that trading in GameStop is “unnatural, insane, and dangerous” and there should be “legal and regulatory repercussions.” The Cboe Volatility Index, known as the VIX or Wall Street’s fear gauge, jump above 17 on Wednesday, hitting its highest level in three weeks. Investors will also keep a close eye on comments from Federal Reserve Chairman Jerome Powell, who is expected to speak with reporters during a press conference Wednesday afternoon following the Fed’s latest interest rate decision. The central bank chief will likely explain how the Fed views the economic outlook and offer remarks about what, if any, monetary actions are needed to help further stabilize the U.S. economy. Many investors hope Powell and his colleagues will steer clear of the word “tapering,” the process by which the central bank would curb its monthly bond purchases that have helped keep the financial system adrift with cash and encouraged investors to take on risk despite rich equity valuations. Stocks in Asia-Pacific were mixed on Wednesday as the International Monetary Fund (IMF) raised its growth forecast for the global economy this year. The Nikkei 225 in Japan rose 0.31% to close at 28,635.21 while the Topix index gained 0.65% to finish its trading day at 1,860.07. South Korea’s Kospi closed 0.57% lower at 3,122.56. Mainland Chinese stocks nudged higher on the day: The Shanghai composite advanced 0.11% to 3,573.34 while the Shenzhen component gained 0.4% to 15,413.84. Hong Kong’s Hang Seng index was above the flatline, as of its final hour of trading, with shares of Chinese tech giant Alibaba rising 2.76%. Oil prices were steady Wednesday as industry data showed U.S. crude stockpiles fell unexpectedly last week and China, the world’s second-biggest oil user, reported its lowest daily rise in Covid-19 cases, bolstering hopes of a pick-up in demand. Brent crude futures climbed 10 cents, or 0.18%, to $56.01 a barrel, adding to a small gain on Tuesday. U.S. West Texas Intermediate (WTI) crude futures rose 4 cents, or 0.08%, to $52.65 a barrel, reversing Tuesday’s loss. Gold prices slipped on Wednesday as the dollar climbed, with bullion trading in a narrow range ahead of the U.S. Federal Reserve policy statement which investors expect to give further clarity on monetary stimulus. Spot gold was down 0.2% to $1,846.06 per ounce. U.S. gold futures eased 0.3% to $1,844.90.