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By Matthew
Klein | Friday, January 29 Immune
Response. At the end of the day,
nothing matters more to the markets than the state of the pandemic. So
discouraging news about the effectiveness of new vaccines—especially against
the more virulent mutations that have emerged in places such as England and South Africa—is going to be bad for
share prices. That helps
explain the massive drops in the major U.S. indices today, with the S&P
500 down
1.9% and the Russell 2000 small-cap index down 1.6%. It’s also
consistent with the fact that the biggest losers of the day include
pandemic-sensitive stocks such as Norwegian
Cruise Lines, United
Airlines, Royal
Caribbean Cruises, Kimco
Realty, Carnival, and Delta
Air Lines. All of those stocks were
down at least 5% on Friday. Given the
global nature of the pandemic, the bad news wasn’t confined to the United
States. Europe’s STOXX 600 index and Japan’s Nikkei
225 were also down 1.9%. The Hang
Seng was down about 1%, Canada’s TSX and the FTSE
100 were down 1.8%, while Korea’s KOSPI
Composite was down 3%. It’s worth noting that that Johnson
& Johnson’s vaccine was shown to be
85% effective at preventing severe disease and completely eliminated
hospitalization and death, 28 days post-vaccination. The impact
of virus news on overall asset prices has been exacerbated by peculiarities
of market structure. When heavily-shorted small-cap stocks get squeezed “to
the moon,” as the new saying goes, it forces the shorts to liquidate their
long positions to raise cash. GameStop and AMC
Entertainment may have gained 68% and 54% today,
respectively, but those gains came in part at the expense of the rest of the
market. Only 59 components of the S&P 500 were up today, while all 11
sectors were down. Utility stocks fared the best on a relative basis, with
the sector down 0.5%. More
generally, if short-selling is no longer a viable way to make money, it makes it harder
for investors to hedge their long positions. That means anyone who had been
using shorts to help target a given risk profile now has to sell shares in
companies they think should do well. That’s bad for the market longer term,
even if it’s beneficial for fraudsters and other targets of short-sellers. There was
some clearly good news today: the Bureau
of Economic Analysis reported that Americans
earned more
total wage and salary income in December than in any month before
the pandemic on a seasonally-adjusted basis. While there are still roughly 10
million fewer Americans with jobs than there were in February, higher pay for
everyone who is still employed has offset the aggregate impact on labor
income. Assuming vaccinations do their job, those higher wages should help
power the consumer recovery later this year. Watch our TV
show on Fox Business Fridays at 10 p.m. or 11:30 p.m. ET; Saturdays at 10
a.m. or 11:30 a.m.; or Sundays at 7 a.m., 10 a.m., or 11:30 a.m. This week,
see interviews with Brian
Moynihan, Chairman and CEO of Bank
of America, and Todd
Ahlsten, chief investment officer
of Parnassus Investments.
Plus, get more insights on the mania surrounding GameStop. |
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DJIA: -2.03% to 29,982.62 The Hot
Stock: Western Digital
Corporation +7.2% Best Sector:
Utilities -0.5% |
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