Stock-index futures fell Friday as shares of GameStop Corp. soared again in premarket trade, underlining fears that sharp gains, driven by individual investors, for heavily shorted stocks could force hedge funds to liquidate profitable long positions in other equities.
What are major benchmarks doing?
Futures on the Dow Jones Industrial Average
fell 153 points, or 0.5%, to 30,354.
S&P 500 futures
were off 22.05 points, or 0.6%, at 3,757.25.
fell 112 points, or 0.9%, to 13,074.
Stocks partially rebounded Thursday from the previous session’s tumble, with the Dow
rising 300.19 points, or 1%. The S&P 500
also rose 1%, while the Nasdaq Composite
What’s driving the market?
Investors were set to wrap up a hectic week of earnings reports, including results from several technology heavyweights, but those results were often overshadowed by a battle between individual investors and short sellers over a handful of stocks, particularly GameStop
GameStop shares were up sharply in premarket trade early Friday after trading app Robinhood said it would allow limited purchases of the stock. Robinhood restricted trading Thursday of GameStop and others caught up in a wave of buying by individual investors spurred on by a Reddit message board.
Robinhood late Thursday said it was raising more than $1 billion from its existing investors as it dealt with demands on its cash as a result of the trading frenzy, the New York Times reported. Before the capital raise, Robinhood drew on its credit lines to meet higher margin requirements from its central clearing facility for stock trades, known as the Depository Trust & Clearing Corp., the report said.
Read: Peterffy calls Robinhood decision to allow ‘limited buys’ of GameStop troubling: ‘I’m not comfortable’
“The markets are clearly concerned that the general clearing system could come under risk of fracture if these bull raids persist unabated and U.S. legislators have already called for hearings into the matter,” said Boris Schlossberg, managing director at BK Asset Management, in a note.
But others argued that any bouts of forced liquidation by hedge funds suffering losses on short positions would likely blow over.
“It is crucial to stress that nothing has changed in the big picture. The elements that drove equity markets to record highs and stratospheric valuations are still in play,” said Marios Hadjikyriacos, investment analyst at XM, in a note.
“Vaccines are being rolled out, central banks are all-in, America is about to go on a federal spending spree, and the Biden administration will probably unleash even more if anything goes wrong,” he said.
The U.S. economic calendar features December data on personal income and consumer spending at 8:30 a.m. Eastern. Economists surveyed by MarketWatch, on average, look for personal income to show a 0.1% rise, while spending is expected to drop 0.4%.
The data set’s measure of core inflation, the Fed’s favored price-pressure guide, is expected to show a monthly rise of 0.1%.
The Employment Cost Index for the fourth quarter is also due at 8:30 a.m. and is expected to rise 0.5%.
The January Chicago Purchasing Managers Index, set for release at 10 a.m., is forecast to fall to 58.5 from 59.5. A final reading of the University of Michigan’s January consumer sentiment index at 10 a.m. is forecast unchanged at 79.2. The December pending home-sales index, also due at 10 a.m., is expected to fall 0.2%.
Which companies are in focus?
Shares of Dow component Caterpillar Inc.
rose more than 3% in premarket trade after the maker of mining and construction equipment posted better-than-expected profit for the fourth quarter and revenue that was in line with consensus.
Eli Lilly & Co.
shares rose after the drugmaker surpassed fourth-quarter profit and revenue expectations as it recognized $850 million in U.S. revenue for bamlanivimab, the drugmaker’s treatment for mild to moderate COVID-19 that has been granted Emergency Use Authorization
Shares of Novavax Inc.
in premarket trade after the company late Thursday said studies showed its proposed COVID-19 vaccine was nearly 90% effective overall, but much less effective against a new variant.
Juniper Networks Inc.
shares after the computer-networking company matched earnings expectations and topped revenue forecasts.
late Thursday beat earnings and revenue expectations amid strong debit-card and online-shopping trends, and announced a new $8 billion buyback program. Shares rose in premarket trade.
Shares of United States Steel Corp.
were up more than 5% after the steel producer reported a better-than-expect performance on a key profit metric for the fourth quarter.