Dow Jumps 200 Points, GameStop And ViacomCBS Plunge, Prompting Warnings Of Risky Stock Frenzies

This article was originally published on this site

Topline

Stocks are recovering after a broad selloff that pushed the major indexes down about 1% Tuesday, but shares of heavily shorted GameStop and ViacomCBS–which have posted eye-popping gains amid retail-driven trading–are floundering as experts continue to warn of risky pockets in the market.

Key Facts

Shortly after the market open, the Dow Jones Industrial Average ticked up 186 points, or 0.6%, while the tech-heavy Nasdaq jumped 0.7% and the S&P 500 climbed 0.4%.

Heading up gains in the Dow, shares of semiconductor giant Intel, which has languished amid the global chip shortage, are soaring 4% after the firm on Tuesday announced a $20 billion turnaround plant including funds for a new U.S. plant; the firm expects revenue of $76.5 billion.

On the earnings front, shares of meme stock GameStop are sinking nearly 12% after reversing early gains from an earnings report that met analyst expectations, headlined by $2.1 billion in revenue and $90.7 million in adjusted earnings.

The volatility in heavily shorted stocks also continues with ViacomCBS, one of the S&P’s best-performing stocks over the past year; shares are down 8% after the firm said it will raise $3 billion in two stock offerings, cashing in on more than 500% gains over the past year.

Largely hailing from recently surging cyclical industries, other outperformers Wednesday include industrial conglomerate Textron and energy giants Nucor, Nov and Occidental Petroleum–all up between 3% and 4%.

The uptick in energy stocks comes as oil prices reverse a near-6% Tuesday selloff, with the price of a barrel of U.S. benchmark West Texas Intermediate climbing about 3% Wednesday morning to roughly $59.50–about 50% more than prices one year ago.

Crucial Quote 

“S&P futures were about flat for most of the morning but started rallying around 4 a.m. ET when the Eurozone flash Purchasing Managers’ Index began crossing the tape and exceeded expectations,” Vital Knowledge Media Founder Adam Crisafulli said in a note Wednesday. “Otherwise, the macro narrative is largely the same as before: Despite some discouraging headlines in the last few days, the U.S. Covid outlook remains quite sanguine, with the country on track to achieve herd immunity by the end of April.” He also notes that though tax hike threats are on the rise, differences among Democrats could make President Joe Biden’s proposed increases hard to enact.

Tangent

The Purchasing Managers’ Index, an indicator of economic activity in the manufacturing and service sectors, showed that business activity has expanded in March for the first time in six months, but bearishness over a third wave of Covid-19 infections in Europe pushed the United Kingdom’s FTSE 100 Index down 0.4%, and Germany’s DAX Index down 0.5%.

Key Background

Testifying before a House committee on Tuesday, Federal Reserve Chair Jerome Powell told lawmakers that the worst of the economic crisis was avoided thanks to “swift and vigorous” action from Congress and the Federal Reserve, praising both the aggressive stimulus spending and accommodative monetary policy that helped lift the market to new highs during the pandemic. Adding to the bullishness, Treasury Secretary Janet Yellen says the economy could return to full employment by next year. Others have warned the labor market could take at least two years to recover.

Chief Critic

Meanwhile, experts continue to warn about pockets of speculative trading. “By being unaware of the high level of risk involved in these social media-led activist investment campaigns, people are playing a potentially very costly game,” Nigel Green, the CEO of $12 billion advisory deVere Group, said in a note Wednesday morning of the recent retail-led rise in stocks like GameStop and Viacom. “Extreme caution should be exercised before joining stock frenzies of this nature.  The valuations can be expected to be wild—in both directions—and there’s a legitimate risk that novice investors could face a financial hit.”

Further Reading

Bitcoin, Tesla And GameStop: Ten Numbers That Sum Up The Fastest Market Recovery Ever (Forbes)

Powell And Yellen Praise Aggressive Stimulus Spending, Acknowledge Incomplete Economic Recovery In Congressional Testimony (Forbes)

GameStop Posts $2.1 Billion In Sales In First Earnings Report Since Reddit Traders Fueled 2,000% Surge (Forbes)