Volatile Week Signals Spotlight on Speculative Trading

There were plenty of earnings reports as well

Assistant Editor
Jan 29, 2021 at 3:22 PM
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It was a wild week on Wall Street, with GameStop (GME) at the center of the action. Concerns about speculative trading began on Monday, while the Nasdaq Composite (IXIC) hit a record high thanks to Big Tech earnings. The packed earnings session continued into Tuesday, though stocks finished the day muted after the S&P 500 Index's (SPX) record high. Wednesday is when everything seemed to hit the metaphorical fan, with the U.S. stock market becoming an international conversation piece. Heavily shorted GME and AMC Entertainment (AMC) soared thanks to online chatter via Reddit, while the broader market plummeted -- the Dow Jones Industrial Average (DJI) closing over 630 points lower Wednesday evening. Meanwhile, the market's "fear gauge" -- the Cboe Volatility Index (VIX) -- saw its biggest single-day pop since 2018. 

Thursday, investors celebrated upbeat earnings reports from major tech names, while investors' attention remained on the Reddit-fueled speculative trading frenzy. Several online brokerage firms, including Robinhood and Interactive Brokers, began restricting trading on several stocks, including GME, drawing criticism from lawmakers. By Friday, blue-chip Johnson & Johnson's (JNJ) vaccine update weighed on the market, while "Robinhood vs. Reddit" remained in the spotlight. Robinhood allowed limited buying of restricted stocks at the end of the week, while the Securities and Exchange Commission (SEC) announced it would investigate the online brokerage firm's actions. With stocks continuing to crumble on Friday, all three benchmark's are eyeing weekly losses. 

Vaccine Stocks in the Spotlight

Though coronavirus vaccines from Moderna (MRNA) and Pfizer (PFE) are being distributed throughout the world, there is still an open faucet of news out of the pharma sector. Merck & Co (MRK) abandoned its vaccine program after generating inferior immune responses, but will instead focus on treatments for the virus. At the beginning of the week, Johnson & Johnson (JNJ) was lifted to record highs after earnings, however, by Friday the blue chip dipped after its vaccine update. Conversely, Novavax (NVAX) soared on the same day, with J.P. Morgan Securities calling its vaccine as "best-in-class" among other candidates. On a semi-related note, options traders flocked to Biogen (BIIB) stock, after the Food and Drug Administration (FDA) extended the review period for its experimental Alzheimer's disease treatment

Earnings Season Continues

Earnings season is still in full swing, with plenty of big-name reports to digest. Before Apple's (AAPL) big earnings beat, the stock hit record highs at the start of the week. On Tuesday, both General Electric (GE) and Raytheon Technologies (RTX) jumped higher after their fourth-quarter reports. Wednesday was a bizarre day for earnings, as the broader market's headwinds left some stocks with unexpected losses -- despite upbeat reports. AT&T (T) saw plenty of options volume after earnings, while Texas Instruments (TXN) and Starbucks (SBUX) received an array of price-target hikes. Meanwhile, VF (VFC) veered lower after mixed quarterly results. Later in the week, Southwest Airlines (LUV) and blue-chip Caterpillar (CAT) reported their fourth-quarter earnings as well. 

A Look at Next Week's Earnings Excitement

Earnings season will continue next week, with reports from Alibaba (BABA), BP (BP), Capri Holdings (CPRI), Exxon Mobil (XOM), and Spotify (SPOT) on the docket. Also set to report are FAANG names Alphabet (GOOGL) and Amazon.com (AMZN). After manufacturing data and housing vacancies, there's plenty of jobs data to unpack as well. In the meantime, see what Schaeffer's Senior Quantitative Analyst Rocky White has to say about the "Super Bowl indicator" and the pitfalls of plausible-sounding theories. 

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