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Global Stocks Slump as Investors Seek Safety in a Wild Week

With small-time traders hitting the spotlight, Wall Street experienced a slew of large-cap earnings on Wednesday after the closing bell.

SageFX - Jan, 28, 21

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Principal Points

  • Global Stocks outlook
  • Amateur traders hit the spotlight
  • Vaccine shortages on the horizon

Wall Street experienced a slew of large-cap earnings on Wednesday after the closing bell. Apple reported its highest ever profit in a holiday quarter, more than $111bn. Results are in large part thanks to strong sales in China. Tesla topped Wall Street expectations for revenue growth, but it failed to hit its earnings forecasts. Facebook beat expectations as the social media giant announced record quarterly earnings. The uplifted figures are a result of its eCommerce business throughout the pandemic.

The big story this week, however, is about amateur traders who have been using the social media site Reddit to strategize. The group of retail day traders piled into companies like GameStop, AMC, and BlackBerry. AMC, which owns movie theatres, was up more than 300% on Wednesday. Reddit traders have been targeting hedge funds who have been betting against these companies. One hedge fund, Melvin Capital, closed its bet against GameStop after the stock soared by 1,900% in January. The hedge fund reportedly lost billions of dollars. The impact of the amateur traders has even caught the attention of the White House.

Investors Weigh In Key Issues

Despite the surge in certain individual stocks, the broader S&P500 ended sharply lower on Wednesday. The 2.6% drop in the index made the day the worst since October. Investors seem to be worried about problems with Covid-19, vaccine rollouts, and the expected delay in the negotiations of President Biden’s $1.9tn fiscal relief package. Despite the Federal Reserve’s announcement that it will keep its monetary policy unchanged for the foreseeable future, investors fled riskier assets for safer havens. The Dow Jones Industrial Average lost 633.87 points to close 2.05% lower, while the S&P500 declined by 2.57% or 98.85 points. The Nasdaq Composite slid 2.61% and closed the session down by 355.47 points.

Stocks continued to sell off after the FOMC monetary policy decision to leave interest rates unchanged, close to zero, and its asset purchases steady. Fed Chairman Jerome Powell warned that the fight against the pandemic continues as the state of the economy remains under pressure. “We have not won this yet”, Mr. Powell commented, while also describing a weakening in the US economic recovery.

Over to Europe, political tensions are rising over a shortage of vaccine doses. In Spain, authorities have had to stop the vaccination program in the Madrid region because of vaccine scarcity. On Wednesday, the Anglo-Swedish drugmaker AstraZeneca announced it will not meet the demand from the EU.

On Thursday, stocks in Europe slide with US futures going into negative territory. The pressure from yesterday’s fallout on Wall Street has spread into the European markets with investors looking for less risk amid the increased uncertainty. The German DAX is leading the way, down by about 1.50% as the session unfolds. The FTSE100 and the CAC40 are also negative, lower by 1.40% and 0.70%, respectively. US futures remain in the red with Nasdaq in the lead, indicating a lower open by roughly 1.00%. Futures tied to the Dow Jones Industrial Average and the S&P500 are also pressured in pre-market trading as US investors prepare to enter the day.