Stocks Turn Negative for Year as GameStop Mania Triggers Big Volatility Surge

The GameStop short squeeze has spread waves of uncertainty across the market, overshadowing major earnings and economic news.

The S&P 500 plunged 3.3 percent between Friday, January 22, and Friday, January 29. It was the biggest weekly decline since October, with 85 percent of the index’s members losing value. The selloff also dragged stocks into negative territory on a year-to-date basis.

The GameStop (GME) short squeeze illustrates how a new generation of investors is reshaping the market. They’re not concerned with established rules or norms. They’re interested in value investing — unlike the growth-focus of many investors. They get information from newer forums like Reddit instead of Wall Street research.

Biggest Gainers in the S&P 500 Last Week
Iron Mountain (IRM) +12%
Western Digital (WDC) +11%
Lumen Technologies (LUMN) +11%
Discovery (DISCA) +10%
Seagate Technologies (STX) +10%

Their interest in heavily shorted stocks spread to other companies perceived as bargains. Theater chain AMC Entertainment (AMC) gained 278 percent. Former tech darling Blackberry (BB) more than doubled before pulling back, while Bed Bath & Beyond (BBBY) ripped 78 percent at one point. Silver and silver miners like Coeur Mining (CDE) could be next on the list.

The excitement seemed to distract attention from strong quarterly results at major companies like Apple (AAPL), Microsoft (MSFT) and 3M (MMM).

GameStop Lifts Retailers

Every major sector fell last week. Energy led the selling with a 6.5 percent drop — its worst week since September — but remains the best performer this year. Solar energy, steel makers, banks and semiconductors fell sharply as well.

Retailers gained the most, lifted by heavily shorted names like GME, Rite-Aid (RAD) and Big Lots (BIG).

S&P 500, daily chart, with trend line and 50-day moving average.

Last week’s selloff caused the S&P 500 to break a trend line that began in early November after positive vaccine news drove the index to new highs. It also drove up Cboe’s volatility index ($VIX.X), which could make some investors more cautious.

This week features more key technology earnings and economic news.

The Institute for Supply Management’s manufacturing index is the main item today.

Biggest Decliners in the S&P 500 Last Week
Teradyne (TER) -18%
Lam Research (LRCX) -14%
Enphase Energy (ENPH) -14%
Apache (APA) -13%
PVH (PVH) 13%

Tomorrow features earnings from major companies like (AMZN), Alphabet (GOOGL) and Alibaba (BABA).

ADP’s private-sector payrolls report and ISM’s service-sector index are the big economic numbers Wednesday. Qualcomm (QCOM), PayPal (PYPL) and eBay (EBAY) are the most prominent companies to announce results.

Thursday brings jobless claims, plus earnings from Snap (SNAP), Ford Motor (F), Pinterest (PINS), Penn National Gaming (PENN), Bristol-Myers Squibb (BMY) and Merck (MRK).

The week concludes with the government’s key non-farm payrolls report on Friday morning.

This article was written by David Russell, TradeStation Securities, Inc., part of the Monex Group Inc, published on 01/02/2021.

David Russell
David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.

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