Wall Street’s main indexes closed a stormy week on a lower and a volatile note that comprised a David vs Goliath battle between retail investors and major financial institutions holding short positions on stocks such as GameStop (GME). The likes of GameStop and AMC Entertainment (AMC) were at the centre of the retail-buying frenzy, worrying analysts of such trades spilling over to other names.
An army of retail investors traded in GameStop, among others, and shares gained traction after brokers such as Robinhood eased restrictions in their trading. The U.S. Securities and Exchange Commission has also said it was closely monitoring any potential wrongdoing.
For the week, the Dow (DOW) shed 3.28%, the S&P 500 (GSPC) fell 3.31% and the Nasdaq (IXIC) slid 3.49%, marking their biggest weekly fall since end-October, while for January, all three indexes recorded a drop between 1.12% and 2.04%.
Top Stories This Week
GameStop extends surge amid regulators, gov’t officials watching volatility
GameStop shares continued to surge after a short breather during the week, with the stock rising 68% on Friday. Inflows into the stock rose after brokers such as Robinhood eased some curbs on trading of the stock.
GameStop has been the centre of a major retail-buying frenzy for the past couple of weeks as retail investors on online forums such as Reddit continued to take on major financial institutions that had shorted the stock. The news assumes significance at a time when GameStop short sellers have incurred losses of nearly $20 billion so far this year, data from S3 Partners showed, with about $11.2 billion short interest shares in the offing.
J&J’s single-dose vaccine reports 66% effectiveness
Johnson & Johnson’s (JNJ) single-dose vaccine was 66% effective in preventing COVID-19 in a large global trial against multiple variants, even as rivals Pfizer(PFE)/BioNTech (BNTX) and Moderna (MRNA) reported 95% effectiveness.
J&J’s vaccine news was on investors’ radar as it uses a common cold virus to introduce coronavirus proteins and get an immune response. It also doesn’t require a second shot weeks after the first or need to be kept frozen. This makes for a strong case for the vaccine for places with issues around transportation and lack of cold storage.
Beyond Meat inks joint venture with PepsiCo
Beyond Meat Inc (BYND) formed a joint venture with PepsiCo Inc (PEP) to develop and sell snacks and beverages made from plant-based protein, adding to a list of successful associations with giants such as Walmart (WMT), Taco Bell, KFC and Starbucks (SBUX). Following the news, shares of the company jumped to an 18-month high.
The deal builds on its marketing success for a distribution deal with Walmart, among others. The company has been steadily cornering higher market share in food consumption as its burger patties and sausages have led the way in boosting demand for plant-based alternatives over the past two years. Consumers too have preferred the alternative as they become more worried about their health, animal welfare and food safety.
Big guns lay out financials during major earnings announcement week
Pharmaceutical major Eli Lilly and Co (LLY) beat Wall Street estimates for fourth-quarter profit, with the firm recording $871.2 million in quarterly sales of the COVID-19 therapy, bamlanivimab. It benefited from the U.S. government’s stockpiling of the drug for emergency use. Its net earnings rose to $2.12 billion.
Visa Inc (V) beat Wall Street estimates for quarterly profit as it cashed in on a surge in online shopping during the pandemic, and during the holiday season. Mastercard’s (MA) net income came in at $1.64 per share, while its gross dollar volume rose to $1.7 trillion. Peer American Express (AXP) reported a dip in its net income to $1.44 billion and said it didn’t expect a full-blown recovery before 2022. However, all three payment processors have flagged an uptick in demand and spends due to vaccine rollouts.
McDonald’s Corp (MCD) missed Wall Street estimates when its total revenue fell to $5.31 billion, as it battles weak sales in European nations where the coronavirus’ spread has intensified.
Tesla Inc’s (TSLA) fourth-quarter profit, too, fell short of Wall Street expectations. Net income excluding share-based compensation payouts to CEO Elon Musk rose to $903 million from $386 million last year but fell short of average analyst expectations for a $1.08 billion quarterly profit.
Meanwhile, Microsoft (MSFT) reported that quarterly commercial cloud gross margins – a measure of the profitability of its sales to large businesses – were 71%, compared with 67% a year earlier. Revenue from its personal computing division rose to $15.1 billion.
December quarter earnings, along with annual 2020 results, for U.S. companies are being tracked by investors to get a complete picture of the extent of the damage done by the COVID-19 pandemic, while the management commentary provides a timeline or trajectory for them to bet for or against the stock. The pandemic has disrupted businesses, economies and earnings from the fundamental aspect for any substantial moves in the market. Trends and data emerging from this earning season holds the key for investors, going forward.