Market Recap - Market Falls from Record Highs as Short Sellers Get Squeezed and Brokerage Firms Restrict Trading

The S&P 500 (-3.3%), Nasdaq Composite (-3.5%), And Dow Jones Industrial Average (-3.3%) Fell More Than 3.0% This Week, As Risk Sentiment Was Pressured By A Frenzy Of Short-Squeeze Activity. The Russell 2000 Dropped 4.4%.

To begin, GameStop (GME) entered the week at $65 per share and peaked at $483 per share later in the week, as it become the poster child for the short-squeeze mania/rebellion against short sellers. Things got so wild that brokerage firms restricted trading activity on heavily-shorted stocks like GME, which sent these stocks lower and drew the ire of many market participants.

These brokerage firms eventually eased some restrictions, allowing users to resume their speculation and push these stocks higher at the end of the week. GME shared ended the week higher by 400%. This volatility unnerved the market for multiple reasons, including concerns about fund managers selling long positions to cover their shorts and, for some, the potential for increased regulation.

The drama fixated the market and took away from the batch of better-than-expected earnings reports, including from leading companies like Apple (AAPL), Microsoft (MSFT), Facebook (FB), and Tesla (TSLA). To be fair, MSFT shared did gain 2.7% this week.

All 11 S&P 500 sectors closed lower. The energy sector was the weakest link with a 6.6% decline. On the other end was the real estate sector with a modest 0.2% decline.

In other developments, Fed Chair Powell delivered a dovish-sounding post-FOMC press conference, reports suggested that President Biden's $1.9 trillion stimulus deal could be pushed back to mid-March due to bipartisan objections, and fourth quarter real GDP increased at an annualized rate of 4.0% (Briefing.com consensus 4.4%) despite a challenging macroenvironment.

On the vaccine front, Johnson & Johnson (JNJ) published encouraging data for its one-shot COVID-19 vaccine, although the efficacy rate was much lower than the two-shot vaccines currently on the market. Novavax (NVAX) said its vaccine candidate produced an 89.3% efficacy rate in its Phase 3 trial in the UK.

For what it's worth, the S&P 500 set an intraday all-time high early in the week and ended the week marginally below its 50-day moving average (3716). The 10-yr yield was unchanged at 1.09% despite the market volatility.

Market Recap - The Return Of The Mega-Caps

The Shortened Trading Week Featured Renewed Strength In The Mega-Cap Stocks, Which Drove The Outperformance Of The Nasdaq Composite (+4.2%) And Lifted The S&P 500 (+1.9%) And Dow Jones Industrial Average (+0.6%) In The Process. Including The Russell 2000 (+2.2%), Each Index Set New Record Highs.

Namely, Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOG), and Facebook (FB) rallied between 6-9% this week amid positive-minded analyst recommendations and an appreciation from Netflix's (NFLX) earnings report that these companies still have serious earnings potential. NFLX shares surged 13.5%.

The iShares US Home Construction ETF (ITB, +8.9%) and Philadelphia Semiconductor Index (+2.7%) were other pockets of strength. Together, the mega-caps, homebuilding stocks, and semiconductor stocks lifted the S&P 500 communication services (+6.0%), information technology (+4.4%), and consumer discretionary (+3.1%) sectors to the top spots.

Homebuilding stocks rallied around positive housing data, including one report that featured the strongest pace of housing starts since September 2006.

Conversely, the financials (-1.8%), energy (-1.6%), and materials (-1.2%) sectors cooled off amid profit-taking interest, with the financials sector unable to gain traction from a host of better-than-expected earnings reports.

In Washington, Joe Biden was inaugurated as the 46th president and signed several executive orders to aid the fight against the coronavirus, and Treasury Secretary nominee Janet Yellen asserted that it's time to "act big" on fiscal stimulus. Republican lawmakers, however, pushed back on President Biden's $1.9 trillion stimulus proposal.

The 10-yr yield decreased one basis point to 1.09% in a quiet week for Treasuries.

Market Recap - STOCKS BACKTRACK FROM RECORDS

The Stock Market Faced Some Selling Pressure During The Second Full Week Of January, But Not Before The Dow And Nasdaq Reached Fresh Record Highs. The Two Indices Surrendered A Respective 0.9% And 1.5% For The Week While The S&P 500 Lost 1.5%. Small Caps Outperformed Notably, Allowing The Russell 2000 (+1.5%) To Finish The Week With A Gain.

The S&P 500 spent the first three days of the week in a slow crawl toward its record from January 8 while the Dow and Nasdaq rose to fresh records. High-beta names were particularly impressive, as the PHLX Semiconductor Index gained 1.9% while the iShares Nasdaq Biotechnology ETF (IBB) climbed more than 2.0% for the week.

High-beta stocks and small caps remained ahead even as the broader market faced some pressure on Thursday and Friday. The losses were concentrated in some of the biggest components like Apple (AAPL), Facebook (FB), and Amazon (AMZN) while less influential names and stocks that stand to benefit from commodity inflation outperformed.

The energy sector fell 4.0% on Friday, but it still gained 3.1% for the week, extending its January advance to 12.7%.

The Q4 reporting season was kicked off on Friday with better than expected earnings from Citigroup (C), JPMorgan Chase (JPM), and Wells Fargo (WFC).

Fed Chairman Powell reiterated on Thursday that the fed funds rate will not be raised for a long time.

Market Recap - New Year Kicks Off With Huge Gains In Small-Caps And Energy Stocks

The Record-Setting Run That Ended 2020 Carried Over To The Start Of 2021 As Each Of The Major Indices Set Intraday And Closing Record Highs. The Russell 2000 Was The Hero This Week With A 5.9% Gain, Followed By The Nasdaq Composite (+2.4%), S&P 500 (+1.8%), And Dow Jones Industrial Average (+1.6%).

The S&P 500 topped the 3800 level, the Dow topped 31,000, the Nasdaq topped 13,000, and the Russell 2000 (briefly) topped 2100.

The positive momentum was aided by expansionary December manufacturing PMIs out of the eurozone, Asia, and the U.S.; expectations for more fiscal stimulus after Democrats clinched control of Congress after flipping both Senate seats in Georgia; Saudi Arabia agreeing to cut an additional 1 million barrels/day in February and March; and Tesla (TSLA) reporting record Q4 deliveries.

The energy sector rallied 9.3% amid sharply higher oil prices ($52.25/bbl, +3.98, +8.3%) while the materials (+5.7%), financials (+4.7%), and consumer discretionary (+3.8%) sectors advanced between 3-6%. The counter-cyclical real estate (-2.6%), consumer staples (-1.0%), utilities (-0.7%), and communication services (-0.3%) sectors finished in negative territory.

The tech sector received solid support from its semiconductor components. The Philadelphia Semiconductor Index advanced 5.0% this week.

Notably, the market was able to look past the political unrest in D.C. and a weak December employment report, which showed payrolls unexpectedly decline.

The 10-yr yield rose 19 basis points to 1.11% amid increased selling interest, which benefited bank stocks but weighed on gold prices ($1836.70/ozt, -$57.00, -3.0%).

Market Recap-2020 ENDS WITH STOCK MARKET AT ALL-TIME HIGHS

The Large-Cap Indices Set Fresh Intraday And Closing Record Highs In The Last Week Of The Year. The S&P 500 (+1.4%) And Dow Jones Industrial Average (+1.4%) Both Increased 1.4%, And The Nasdaq Composite Gained 0.7%. The Small-Cap Russell 2000, However, Pulled Back From Record Territory With A 1.5% Decline.

Besides momentum, which was arguably the main driver, supporting factors this week included President Trump signing the $900 billion stimulus and omnibus spending bill, and the UK approving the COVID-19 vaccine from AstraZeneca (AZN) and Oxford for emergency use. Neither were particularly surprising, but the news was good for sentiment reasons.

Ten of the 11 S&P 500 sectors contributed to the advance. The consumer discretionary (+2.0%), communication services (+1.9%), financials (+1.9%), health care (+1.9%), and utilities (+2.5%) sectors outperformed the benchmark index. The energy sector (-0.4%) was the lone holdout and ended the year with a 37.3% decline.

Unsurprisingly, the market wasn't bothered by Senate Majority Leader McConnell saying that the $2000 stimulus checks (an increase from $600) have "no realistic path" to quickly pass in the Senate. It could be taken up in the new Senate in January, but that's an issue for the new year.

The 10-yr yield declined one basis point to 0.92%, leaving it down 100 basis points for the year.

It's also worth mentioning that the S&P 500 ended the year with a 16.3% yearly gain, which was more than the Dow (+7.3%) but less than the Nasdaq (+43.6%) and Russell 2000 (+18.4%).

Market Recap - Tech Stocks and Small-Caps End Week as Winners

Each Of The Major Indices Set Fresh All-Time Highs This Week In A Continuation Of The Market's Positive Trend. The Nasdaq Composite (+3.1%) And Russell 2000 (+3.1%) Both Advanced 3.1%, While The S&P 500 (+1.3%) And Dow Jones Industrial Average (+0.4%) Finished With More Modest Gains.

As expected when the Nasdaq noticeably outperforms, the information technology sector (+3.2%) claimed the top spot in the S&P 500, followed by consumer discretionary (+2.3%) and materials (+1.9%). The energy (-4.3%) sector succumbed to profit-taking interest with a 4.3% decline, and the communication services sector (-0.5%) was the one other negative sector.

Positive factors throughout the week included news that a stimulus deal is close to being reached, the Fed affirming its "extraordinarily accommodative" policy stance, the Pfizer (PFE)-BioNTech (BNTX) coronavirus vaccine rolling out in the U.S., and news that Apple (AAPL) is planning to increase iPhone production by 30% yr/yr in the first half of 2021.

To be more specific, the size of a potential stimulus deal is looking to be around $900 billion, although negotiations extended into the weekend amid continued disagreements. The Fed committed to purchasing at least $120 billion of Treasury and mortgage-backed securities per month until substantial progress has been made with respect to employment and inflation targets.

The Fed's stance helped investors overlook relatively disappointing retail sales data for November and higher weekly initial claims, and it also put downwards pressure on the U.S. Dollar Index, which fell to its lowest level since April 2018.

The 10-yr yield increased six basis points to 0.95% amid increased selling interest in part due to the Fed's dovish policy and expectations for new supply of Treasuries needed to finance a potential stimulus deal.

Market Recap - November Bullish Momentum Carries into December

Each Of The Major Indices Set All-Time Highs This Week, Powered Higher By Growth Stocks And Value Stocks Alike. The Nasdaq Composite Claimed The Winning Spot With A 2.1% Gain And Was Followed By The Russell 2000 (+2.0%), S&P 500 (+1.7%), And Dow Jones Industrial Average (+1.0%).

Nine of the 11 S&P 500 sectors contributed to the advance. The energy sector rallied 4.5%, and the information technology sector rose 2.8%. The utilities sector (-2.2%) was the weakest link by a wide margin.

There was no one specific catalyst that propelled stocks higher. Rather, it was the positive cumulative effect that the week's developments had on an already bullish investor mindset that could best explain the gains. In simpler terms, the market rode a bullish momentum.

Stimulus talks were renewed. Moderna (MRNA) said its vaccine was 94.1% effective in preventing COVID-19 and 100% effective in protecting against serious outcomes. Pfizer (PFE) and BioNTech (BNTX) received emergency approval for their COVID-19 vaccine in the UK. Apple (AAPL) and Tesla (TSLA) were upgraded to Buy ratings by a couple of analysts.

Regarding stimulus talks, Democratic Congressional leadership and some Republicans supported a proposed $908 billion bipartisan stimulus bill as a starting point for negotiations. House Speaker Pelosi spoke with Senate Majority Leader McConnell about attaching a smaller stimulus deal to the year-end spending bill.

It's not for certain that the mixed November employment report, which highlighted slower jobs growth, pushed lawmakers over the edge on Friday, but the market reacted as if the report had some negotiating power.

In the Treasury market, the 2s10s spread widened by 14 bps to 83 bps, reaching its highest level since late 2017 in an affirmation of the market's upbeat economic outlook. The 10-yr yield finished the week 13 basis points higher at 0.97%. The U.S. Dollar weakened by 1.0% to 90.82 to reach its lowest level since April 2018.

Separately, Salesforce (CRM) confirmed it agreed to acquire Slack (WORK) in a cash-and-stock deal with an enterprise value of about $27.7 billion. CRM shares fell 9% this week given the hefty price tag.

Market Recap - DOW Hits 30K And Other Milestones

Each Of The Major Indices Rose More Than 2.0% This Shortened Week And Set New Record Highs, Including The Dow Jones Industrial Average (+2.2%), Which Crossed Above 30,000 For The First Time Ever. The Russell 2000 Rose 3.9%, The Nasdaq Composite Rose 3.0%, And The S&P 500 Rose 2.3%.

Value, cyclical, and small‐cap stocks retained their leadership roles in this part of the bull market. The S&P 500 energy sector rose 8.5%, and the financials sector rose 4.6%. Every other sector, except real estate (‐0.4%), ended the week with gains.

Positive catalysts included news that Joe Biden will nominate former Fed Chair Janet Yellen as Treasury Secretary, the General Services Administration saying it will release funds to help the Biden administration transition into office, and more upbeat vaccine/treatment updates for COVID‐19.

Regarding the latter, AstraZeneca (AZN) and the University of Oxford said their vaccine has an efficacy rate of up to 90%, and Regeneron Pharma (REGN) said it received emergency use authorization from the FDA for its antibody cocktail. Note, AstraZeneca acknowledged at the end of the week that it made a dosage mistake in its trials, likely prolonging federal approval in the U.S.

The bullish price action continued to feed on itself, contributing to a fear of missing out on further gains and parabolic moves in some parts of the market. Tesla (TSLA) surged 20% this week, and Palantir (PLTR) surged 52%. 

The 10‐yr yield Treasury note yield edged higher by two basis points to 0.85% ahead of the bond market close on Friday.

Market Recap - Another Winning Week for the Small-Caps

Cyclical Stocks Retained Their Monthly Leadership Roles This Week Following Several Positive Vaccine Developments, But The S&P 500 (-0.8%) And Dow Jones Industrial Average (-0.7%) Finished In Negative Territory. The Russell 2000 Climbed 2.4%, And The Nasdaq Composite Increased 0.2% Despite Relative Weakness In The Technology Stocks.

Briefly, Pfizer (PFE) and BioNTech (BNTX) filed for emergency use authorization for their COVID-19 vaccine after concluding their Phase 3 study, which indicated that their vaccine is 95% effective; Moderna (MRNA) said its vaccine is 94.5% effective; and AstraZeneca (AZN) and Oxford's vaccine showed encouraging immune responses in older patients in Phase 2 data. 

The S&P 500 energy sector set the performance pace with a 5.0% gain to extend its monthly gain to 23%. The industrials (+1.1%), materials (+1.1%), and financials (+0.5%) sectors followed suit, and the Philadelphia Semiconductor Index (+1.9%) and the SPDR S&P Retail ETF (XRT, +5.5%) were other pockets of strength this week.

The semiconductor space was fueled by news that Taiwan Semi (TSM) is expanding production capacity to meet high demand from chip companies. The retail space drew support from a host of better-than-expected earnings reports from retailers like Walmart (WMT) and Target (TGT). 

Conversely, the information technology sector (-0.9%) was an influential drag on index performance, and the counter-cyclical utilities (-3.9%), health care (-3.0%), and real estate (-1.7%) sectors declined noticeably.

Separately, Boeing (BA) shares gained 7% in part due to the FAA approving the 737 MAX safe to fly again, Tesla (TSLA) shares surged 20% on news it will be added to the S&P 500 on Dec. 21, and Walgreens Boots Alliance (WBA) shares fell 12% following the launch of Amazon's (AMZN) online pharmacy business.

The 10-yr yield fell six basis points to 0.86% amid increased demand despite the encouraging vaccine news. 

Market Recap - A Rally on Monday Leads to Four Days of Consolidation as Earnings Season Begins

The Large-Cap Indices Ended The Week Higher But Noticeably Lower Than Where They Were At Monday's Highs (Before Earnings Season Started). The Nasdaq Composite Advanced 0.8%, While The S&P 500 (+0.2%) And Dow Jones Industrial Average (+0.1%) Eked Out Smaller Gains. The Russell 2000 Decreased 0.2%. 

There was no clear sector leadership this week with five S&P 500 sectors finishing higher between 0.7% (consumer staples) and 1.1% (industrials). At the other end, the energy (-2.1%) and real estate (-2.3%) sectors declined more than 2.0%, followed by financials (-0.9%). 

Growth-oriented stocks, however, did secure the slight advantage, evident by the outperformance of the Nasdaq Composite. That might have been due to the negative-sounding developments throughout the week. 

Starting with earnings, the big banks and the top health care companies kicked off the Q3 earnings-reporting season, and the reactions to their reports were generally lackluster or disappointing. JPMorgan Chase (JPM), Citigroup (C), and Goldman Sachs (GS) for their part issued cautious-minded commentary about the economic outlook.

In addition, investors had to contend with Johnson & Johnson (JNJ) and Eli Lilly (LLY) pausing their vaccine/antibody trials, lawmakers reaching an impasse on fiscal stimulus, weekly jobless claims increasing by 53,000 to 898,000 (Briefing.com consensus 830,000), and Europe announcing renewed lockdown measures due to a second wave of the coronavirus. 

These events came in the midst of a three-day losing streak in the S&P 500, which was ultimately snapped on Friday after retail sales for September increased more than expected and it was reported that Pfizer (PFE) may file for emergency use authorization for its COVID-19 vaccine candidate by the end of November. 

It's worth pointing out, however, that the S&P 500 was up as much as 10.6% on Monday from its low on Sept. 24. The benchmark index ended that day with a 1.6% gain, and no progress was made after that. With all these events in mind, it's reasonable to posit that the market may have just needed some time to consolidate those gains. 

The 10-yr yield decreased four basis points to 0.74%. The U.S. Dollar Index advanced 0.7% to 93.71. WTI crude futures increased 0.5% to $40.85/bbl.