US stocks try to recover from worst week since October

Stocks jumped on Monday, the first session of February, as Wall Street appeared to shake off concerns about a speculative retail trading mania that largely drove the market’s worst weekly sell-off since October.

The Dow Jones Industrial Average rose 229.29 points, or 0.8%, to 30,211.91, led by Microsoft and Visa. The S&P 500 climbed 1.6% to 3,773.86, posting its best day since Nov. 24 as all 11 sectors gained. The Nasdaq Composite jumped 2.6% to 13,403.39.

GameStop, the brick-and-mortar video game retailer that has been the center of attention on Wall Street, fell 30.8%. Last week, the popular stock among retailer investors on Reddit forum WallStreetBets soared 400% amid extreme trading volume and volatility. AMC Entertainment — another short squeeze target that jumped 277% last week — closed flat on Monday.

Photo: CNBC

Many on Wall Street were spooked by a frenzy of activity among retail traders in heavily-shorted stocks, including GameStop and AMC Entertainment, which caused hedge funds to take off risk across the board even if they weren’t directly involved in the trade. Goldman Sachs said that the short squeeze triggered by the buying spree is the most extreme in 25 years. However, some strategists believe it’s unlikely that the impact will ripple through Wall Street and derail the new bull market.

Popular online brokerage Robinhood said Monday it raised another $2.4 billion from investors as the manic retail trading forced its clearinghouse to increase deposit requirements by tenfold last week. The funding could be a sign that investors are confident the broker can ride out the market turmoil.

Silver mining companies: Stocks like Pan Am Silver (PAAS), Wheaton Precious Metals (WPM), Hecla Mining (HL), and others are jumping as the price of silver surges. Silver has also caught the attention of the Reddit community, leading to a buying binge.

Tesla (TSLA) – Piper Sandler raised its price target on Tesla to a Street high of $1,200 per share from $515 a share, with the firm saying Tesla could have new opportunities to pursue for decades due to its target industries currently embracing outdated business models. Tesla shares rose 2.8% in the premarket.

Moderna (MRNA) – Moderna is seeking Food and Drug Administration permission to increase the number of Covid vaccine doses in a vial to 15 from 10, according to sources who spoke to CNBC. Such a move would help ease a manufacturing crunch for the drugmaker. Moderna shares climbed 1.8% in premarket trading.

Apple Inc. sold $14 billion of bonds to take advantage of cheap borrowing costs, tapping the market for a third time since May as it looks to return more cash to shareholders. Apple shares rose 1.65% to $134.41.

“Despite the uncertainty surrounding the fallout from the surge in prices for stocks with substantial levels of short interest, we don’t see the advent of a 1998-style liquidity crisis,” Sam Stovall, chief investment strategist at CFRA, said in a note. “Even though we think the equity market needs to go through a readjustment of expectations and valuations, we don’t think the bull has come to an end, nor are we recommending any changes to our year-end S&P 500 target or asset allocation.”

The Reddit boom seemed to be spreading to other areas of the market, however. Futures contracts for silver surged as much as 11% and settled 9.3% higher, the biggest one-day jump in 11 years. The Reddit chat room had multiple active threads dedicated to silver, while the phrase ”#silversqueeze” was trending on Twitter at one point.

Carson Block, Muddy Waters Capital LLC chief executive officer, the activist short-seller famous for targeting Chinese fraud recognizes familiar behavior in the rally of shares such as GameStop. To him, the parabolic moves look less like the product of Reddit-driven retail orders than short squeeze by hedge funds targeting other funds.

For the moment, it’s an unproven theory. But if Block is right, what seeded like a history-making retail uprising last week just as much a convenient smokescreen for internecine hedge-fund warfare.

Meanwhile, a group of 10 Republican senators sent President Joe Biden a letter on Sunday, urging him to consider a smaller, scaled-down Covid-19 relief proposal. His current plan calls for $1.9 trillion in additional fiscal stimulus.

The Republican proposal would reduce the size of a new round of checks Biden wants to send to Americans, from $1,400 per individual to $1,000. It would also make the income limits that determine eligibility for the stimulus payments far stricter. For individual filers the checks would start to phase out for those making more than $40,000.

The alternative proposal comes after House Speaker Nancy Pelosi said the chamber will move to pass a budget resolution, the first step toward approving legislation through reconciliation. The process would enable Senate Democrats to approve an aid measure without GOP votes.