By Sunny Oh and Andrea Riquier
U.S. stocks ended higher Monday, bouncing after the worst weekly loss since October after worries about frenzied trading in GameStop Corp. and a handful of other heavily shorted stocks sparked a ripple of selling on Wall Street.
How did stocks perform?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.75% gained 229.29 points, or 0.8%, to close at 30,211.91, after hitting an intraday high of 30,335.91.
The S&P 500 /zigman2/quotes/210599714/realtime SPX -0.68% added 59.62 points, or 1.6%, to settle at 3,773.86.
The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -0.92% surged 332.70 points, or 2.6%, touching 13,403.39 at the close.
Stocks on Friday registered their worst weekly declines since the period ended Oct. 30. The Dow closed 3.2% lower for the week, the S&P 500 was down 3.3% and the Nasdaq Composite finished with a weekly slide of 3.5%.
For the month, the Dow lost 2%, the S&P 500 shed 1.1% and the Nasdaq Composite gained 1.7%.
What drove the market?
The bounce on Monday came after an epic short squeeze that gripped Wall Street and Main Street last week, adding to worries about inflated stock valuations.
Last week’s decline came as volatile trading in bricks-and mortar retailer GameStop /zigman2/quotes/203755179/composite GME -3.55% and movie chain AMC Entertainment Holdings /zigman2/quotes/200235402/composite AMC -3.93% prompted fears that further forced selling in highly leveraged and heavily shorted areas of the market would put pressure on prices.
Shares of GameStop soared 400%, AMC Entertainment shares ended 277% higher and Koss Corp. /zigman2/quotes/207340503/composite KOSS -3.69% rallied 1,816% last week, amid extreme trading volume and volatility that forced many brokerages to curb trading activity in certain names. GameStop shares lost more than 30% Monday.
“The mayhem on Wall Street has already attracted the attention of regulators and lawmakers but until action is taken, it is looking unlikely that the frenzy will settle down,” wrote Raffi Boyadjian, senior investment analyst at XM, in a daily research note.
Indeed, last week’s moves compelled brokerages, including Robinhood Markets, to limit trading on its platforms. The wild trading in stocks by individual investors also drew the attention of the White House, Congress and regulators, including the Securities and Exchange Commission.
Meanwhile, the social-media trading community appears to have turned its attention to the $1.6 trillion silver market /zigman2/quotes/210315219/delayed SI00 +0.39% . Silver has rallied in recent trading sessions after users on Reddit’s WallStreetBets forum posted about executing a “short squeeze” similar to ones credited with fueling GameStop’s surge.
Despite Monday’s gains, technical analyst Katie Stockton, founder of Fairlead Strategies, thinks there still may be room for a broader and deeper downturn over the next few weeks. Stockton, who predicted the January downturn in December, told MarketWatch that there are both near-term and medium-term indicators that markets could remain choppy and biased to the downside.
“The current environment has been likened to 2018,” Stockton said. “We came into 2018 pretty hot, and the S&P 500 had some acceleration before giving way to a pretty damaging short-term pullback. The overall takeaway is that it’s just the stuff of a pullback. When sentiment is shifting, it does so in dramatic fashion.”