Week In Perspective: Market falls from record highs as short sellers get squeezed and brokerage firms restrict trading [29-Jan-21]

Updated: 29-Jan-21

A weekly recap of market activity and events, featuring commentary, analysis written with individual investors in mind.

Week in perspective provided by Briefing.com. Briefing.com offers live market analysis on their web site www.Briefing.com

The S&P 500 (-3.3%), Nasdaq Composite (-3.5%), and Dow Jones Industrial Average (-3.3%) fell more than 3.0% this week, as risk sentiment was pressured by a frenzy of short-squeeze activity. The Russell 2000 dropped 4.4%. 

To begin, GameStop (GME) entered the week at $65 per share and peaked at $483 per share later in the week, as it become the poster child for the short-squeeze mania/rebellion against short sellers. Things got so wild that brokerage firms restricted trading activity on heavily-shorted stocks like GME, which sent these stocks lower and drew the ire of many market participants. 

These brokerage firms eventually eased some restrictions, allowing users to resume their speculation and push these stocks higher at the end of the week. GME shared ended the week higher by 400%. This volatility unnerved the market for multiple reasons, including concerns about fund managers selling long positions to cover their shorts and, for some, the potential for increased regulation. 

The drama fixated the market and took away from the batch of better-than-expected earnings reports, including from leading companies like Apple (AAPL), Microsoft (MSFT), Facebook (FB), and Tesla (TSLA). To be fair, MSFT shared did gain 2.7% this week. 

All 11 S&P 500 sectors closed lower. The energy sector was the weakest link with a 6.6% decline. On the other end was the real estate sector with a modest 0.2% decline. 

In other developments, Fed Chair Powell delivered a dovish-sounding post-FOMC press conference, reports suggested that President Biden's $1.9 trillion stimulus deal could be pushed back to mid-March due to bipartisan objections, and fourth quarter real GDP increased at an annualized rate of 4.0% (Briefing.com consensus 4.4%) despite a challenging macroenvironment.

On the vaccine front, Johnson & Johnson (JNJ) published encouraging data for its one-shot COVID-19 vaccine, although the efficacy rate was much lower than the two-shot vaccines currently on the market. Novavax (NVAX) said its vaccine candidate produced an 89.3% efficacy rate in its Phase 3 trial in the UK.

For what it's worth, the S&P 500 set an intraday all-time high early in the week and ended the week marginally below its 50-day moving average (3716). The 10-yr yield was unchanged at 1.09% despite the market volatility.


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