By Joy Wiltermuth and Mark DeCambre
Stocks tumbled Friday, with the Dow and S&P 500 index booking the worst month of losses since October, as volatile trade in a batch of small, heavily shorted companies raised broader concerns about a bubble in a market already worried that the slowness of the coronavirus vaccine rollout is delaying a return to economic normality.
How did major benchmarks perform?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.48% slumped 620.74 points, or 2%, to close at 29,982.62, its lowest close since Dec. 14, 2020.
The S&P 500 /zigman2/quotes/210599714/realtime SPX +0.36% shed 73.14 points, or 1.9%, ending at 3,714.24.
The Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +0.10% tumbled 266.46 points, or 2%, finishing at 13,073.64.
The small-capitalization Russell 2000 index /zigman2/quotes/210598147/delayed RUT +0.25% fell 1.6%, closing at 2,073.64.
For the week, the Dow closed 3.2% lower, the S&P 500 down 3.3% and Nasdaq Composite off 3.5%.
On a monthly basis, the Dow lost 2%, the S&P 500 shed 1.1% and the Nasdaq Composite gained 1.7%.
What drove the market?
Stocks came under pressure again Friday, as surging prices on a small group of heavily shorted stocks continued to take oxygen out of the market as hedge funds covered short positions and reduced exposure to other stocks to reduce risk.
“It’s all anybody is talking about on the Street,” Michael Reynolds, investment strategy officer, Glenmede, told MarketWatch, adding, “We are not seeing the broader sentiment flashing red that would suggest this is moving beyond the broader market.”
GameStop GME shares rose another 67.9% on Friday, a gain on the year of 1,625.1%, 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.
Charles Schwab & Co. and its affiliate TD Ameritrade reiterated that both firms adjusted margin requirements on select stocks to ensure clients had sufficient assets to pay for stock purchases, but weren’t restricting basic purchases of options or stocks.
“The market has been distracted by the excess volatility in a handful of stocks that a week ago no one cared about,” wrote David Donabedian, chief investment officer of CIBC Private Wealth, in emailed remarks.
“The idea that individual investors can gang up on institutional investors is intriguing as is the debate over what should and shouldn’t be regulated,” the investment officer wrote.
Donabedian said that his firm is “staying focused on the fundamentals, not what low quality stock is soaring at the moment, and expect to see several positive factors emerge over the coming months.”
This comes as Washington has kept its eye trained on the situation. White House press secretary Jen Psaki on Friday deferred to the Securities and Exchange Commission when asked by reporters about the huge moves made this week by GameStop and others, as she said the federal government was working “how it should” to respond.
Investors also parsed a wave of quarterly earnings reports and expressed concern that a recovery from the COVID-19 pandemic may take longer than hoped, as doubts grow about the rollout and effectiveness of new vaccines against more transmissible strains of the pathogen.