Stocks Open Higher After Wall Street Selloff

By Joe Wallace and Chong Koh Ping

U.S. stocks opened higher after yesterday's losses that were induced by concerns about a slowing economic rebound and froth in markets, exemplified by the wild trading in retailer GameStop.

The S&P 500 rose 0.6%, and the Dow Jones Industrial Average, which had fallen for five consecutive days in its longest losing streak since February, climbed 0.7%. The technology-heavy Nasdaq-100 edged up 0.3%.

The recent selloff in stocks followed a strong start to the year that some investors say had pushed share prices beyond levels justified by corporate fundamentals. Wild swings in individual stocks including GameStop and AMC Entertainment were fueled by a battle between day traders and hedge-fund professionals.

"There is some over-excitement in the market," said Olaf van den Heuvel, chief investment officer for Aegon Asset Management in the Netherlands, pointing to the surge in GameStop shares as one example. "It was bubble territory."

Individual stocks remained volatile ahead of the bell in New York. GameStop shares jumped 32%, having rocketed 135% Wednesday. AMC fell 5.4%, trimming Wednesday's gains of more than 300%.

Shares of American Airlines Group, another heavily-shorted stock, leapt 53% after the airline reported a fourth-quarter loss of $2.18 billion. Cruise operator Carnival gained 16%.

"It is nerve-racking," said Remi Olu-Pitan, a fund manager at Schroders, referring to the big moves in stocks fueled by day traders swapping tips online.

"You will see more violent pullbacks," she said, adding that Europe's slow progress on vaccines and Covid-19 restrictions in major economies were also weighing on stocks.

Heavy retail trading of stocks and options is rippling through broader markets, said Peter Garnry, head of equity strategy at Saxo Bank. Hedge funds have moved to cover bets that stocks targeted by individual investors on social media would fall. That has increased volatility and prompted other funds to sell, hitting benchmark indexes, according to Mr. Garnry.

"What were observing right now is just a very complex reaction in markets," he said. "Everything is cascading right now."

Technology stocks slipped in premarket trading, despite some bumper earnings. Shares of Apple fell 2.6% after the iPhone maker reported its most profitable three months on record but didn't provide specific revenue guidance for the current quarter.

Tesla dropped 5% after the electric-vehicle maker -- whose shares have soared in recent months -- posted its first full-year profit but missed Wall Street's expectations.

Visa and Mondelez International are scheduled to publish results after the close.

Weekly data showed applications for unemployment benefits, tracked as an indicator of the health of the labor market, declined last week but remained elevated at 847,000. Separate figures showed gross-domestic product, a broad gauge of the value of goods and services produced in the economy, grew at a 4% annual rate in the final quarter of 2020, slightly slower than economists had expected.

This data came after the Federal Reserve maintained its easy money policies Wednesday, saying that business activity has softened with the resurgence of Covid-19 cases.

In one sign of rising risk aversion, the yield on the benchmark 10-year U.S. Treasury note dropped below 1% for the first time since Jan. 6, before climbing back to 1.008%, according to Tradeweb. Bond yields fall as prices rise. Falling yields are often an indicator that investors see the economic outlook weakening.

The dollar strengthened against various currencies including the Australian dollar and the Korean won. The WSJ Dollar Index, which measures the greenback against a basket of other currencies, rose 0.3%.

The selloff in U.S. stocks extended overseas. The pan-continental Stoxx Europe 600 fell 0.6%, led lower by shares of insurance and media companies.

Among individual movers, Prudential dropped 9.2% after the insurer said it was weighing an equity offering and would separate off its Jackson National arm in the U.S. Diageo gained 3%, as analysts cheered strong first-half sales in North America by the alcohol producer.

Markets broadly retreated in Asia. Hong Kong's Hang Seng dropped 2.6%, the Shanghai Composite Index fell 1.9% and Japan's Nikkei 225 declined 1.5%. Container-shipping giant Cosco Shipping led losses in mainland China, sliding 10%.

In a sign of jitters in Chinese markets, money-market rates continued to rise. The one-week Shanghai interbank offered rate rose 0.012 percentage point to 2.981%, its highest since 2015, according to FactSet.

Short-term borrowing costs have risen in recent days as the People's Bank of China unexpectedly drained funds from the financial system. Earlier this week, a major business newspaper also published remarks by Ma Jun, an adviser to the central bank, who warned of asset bubbles emerging due to loose monetary policy.

Tai Hui, chief Asia market strategist at J.P. Morgan Asset Management, said new pockets of coronavirus outbreaks in China had also dented investor sentiment.

Caitlin Ostroff

contributed to this article.

Write to Joe Wallace at [e-mail] and Chong Koh Ping at [e-mail]

(END) Dow Jones Newswires

01-28-21 0946ET