FEBRUARY 1, 2021
U.S. stocks rebounded Monday, with major benchmarks recovering some ground following their worst week since October and the online day-trading crowd turning its sights to the silver market.
The Dow Jones Industrial Average rose 229.29 points, or 0.8%, to 30211.91, the S&P 500 gained 59.62 points, or 1.6%, to 3773.86 and the Nasdaq Composite climbed 332.70 points, or 2.5%, to 13403.39.
The day’s gains put the S&P 500 back into positive territory for the year.
Stocks had a rocky January, both setting records and getting roiled by day traders using Reddit and social media to coordinate and drive trading of heavily shorted stocks like GameStop. The latter sparked a volatile wave of trading that rocked a number of large hedge funds.
Beginning a new month gives the market a chance to reset, said Greg Harmon, founder and president of Dragonfly Capital.
“Things have settled down a little bit,” Mr. Harmon said. Trading volumes for GameStop are lower than last week, he noted, adding the stock has been halted for volatility only once so far Monday.
Many of the stocks popular with the Reddit community declined Monday. GameStop fell $100, or 31%, to $225, headphone manufacturer Koss dropped $29, or 45%, to $35 and Bed Bath & Beyond fell $5.07, or 14%, to $30.26. AMC Entertainment Holdings was an outlier, up 4 cents, or 0.3%, to $13.30.
Much of the action among day traders appeared to move to the silver market. The most actively traded silver futures climbed 9.3% to $29.398 a troy ounce, marking the biggest one-day percentage gain since 2009 and highest level since February 2013.
The precious metal has gained in recent sessions after users on Reddit’s WallStreetBets forum posted about executing a “short squeeze” similar to ones credited with fueling recent gains in GameStop, AMC and other stocks. That suggests individual investors are taking on hedge funds that are betting on silver prices falling.
“I totally underestimated this,” said Carsten Fritsch, a commodities analyst at Commerzbank. “I couldn’t imagine this could ever happen to a serious and large market like silver.”
Broader market volatility, however, declined. The Cboe Volatility Index, a gauge of stress in the U.S. stock market, fell 8.6% to 30.24 Monday, though it remains elevated after gaining 45% in January. Some investors expect volatility to edge down this week as many hedge funds have already reduced short positions on stocks that have attracted a tremendous amount of attention on the internet.
“There has always been, in financial markets, a desire on the part of investors to get rich quick and so you may still wind up with isolated incidents in which you wind up with volatile performance of certain assets,” said Mark Dowding, chief investment officer at BlueBay Asset Management.
The broader stock market is likely to continue its rally this year, he added. “We think markets are going to do really well in the near term because you’ve got the hope that the economies are going to get better and we have a lot of policy support,” Mr. Dowding said.
A recent decline in U.S. Covid-19 infection rates will likely support market sentiment and allow stocks to retrace some of last week’s losses, said Patrick Spencer, managing director at U.S. investment firm Baird. Newly reported coronavirus cases were down Sunday from a day earlier, as were hospitalizations and deaths.
“People were positioned very conservatively going into the weekend, and the news on the coronavirus and the continuation of central bank stimulation will add to momentum,” Mr. Spencer said. “You’ve still got a lot of cash on the sidelines wanting to come back into the market.”
In bond markets, the yield on the 10-year Treasury note ticked down to 1.077%, from 1.090% Friday. Yields fall when prices rise.
Investors are continuing to monitor the corporate earnings season, with 111 companies from the S&P 500 index reporting this week. Results from big technology companies including Amazon.com and Alphabet are due Tuesday.
In other company news, Exxon Mobil shares rose 8 cents, or 0.2%, to $44.92 after The Wall Street Journal reported that the company discussed a merger last year with rival Chevron as the oil industry reeled from the economic fallout of the pandemic. The talks aren’t continuing but could resume in the future. Chevron edged up $1.21, or 1.4%, to $86.41.
On the data front, the Institute for Supply Management’s manufacturing index for January came in at a lower level than in December, though it showed the economy continuing to expand. The January index was 58.7, down from 60.5, and below expectations of 60.0. Numbers above 50 reflect an expanding economy.
Overseas, the pan-continental Stoxx Europe 600 advanced 1.2%.
In Asia, benchmark indexes closed higher. South Korea’s Kospi climbed 2.7% and Hong Kong’s Hang Seng advanced 2.2%. China’s Shanghai Composite gained 0.6%.