Stocks close sharply higher as Wall Street tries to move past GameStop jitters

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
    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
    added 59.62 points, or 1.6%, to settle at 3,773.86.

  • The Nasdaq Composite
    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.

Read next: A financial-markets whodunit is rocking the exchange-traded world

Last week’s decline came as volatile trading in bricks-and mortar retailer GameStop
and movie chain AMC Entertainment Holdings
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.
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.

See: New MarketWatch data page: U.S.’s most heavily shorted stocks

Meanwhile, the social-media trading community appears to have turned its attention to the $1.6 trillion silver market
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.”

Stockton said market corrections can be healthy, since they relieve excessive optimism from time to time. “When ‘Saturday Night Live’ starts covering the stock market you know we’re in trouble,” she said.

Recent gains come amid a decline in U.S. COVID-19 cases, with newly reported coronavirus cases down Sunday from a day earlier, as were hospitalizations and deaths.

Investors continue to watch the progress of President Joe Biden’s proposed $1.9 trillion economic aid package. Hopes for aid, along with the Federal Reserve’s pledge to keep low-cost credit plentiful, have buttressed financial markets. A group of 10 Republican senators have called on Biden to consider a smaller proposal of $600 billion. Biden was set to meet with the Republican lawmakers Monday afternoon.

See: Here’s what’s in the $600 billion relief plan from 10 Republican senators

In corporate quarterly results, around 100 S&P 500 companies were set to report earnings this week, including Inc.
and Google parent Alphabet Inc.

due Tuesday.

In economic reports, the Institute for Supply Management’s manufacturing index for January slipped to 58.7 in January from 60.5 in the prior month. Any number above 50 represents an expansion in industrial activity.

“The nation’s factories are still humming, despite the uncertainty created by the slowing economy. Normally, you would expect to see softer manufacturing conditions against the weaker economic backdrop that has developed in recent months,” said Jim Baird, chief investment officer for Plante Moran Financial Advisors.

Meanwhile, spending on construction projects rose 1% in December at a seasonally adjusted annual rate of $1.49 trillion.

Which companies were in focus?
  • Shares of Thermo Fisher Scientific Inc.
    rose 1% after the health care diagnostics and therapies company reported a big earnings beat and revenue.

  • Northrop Grumman Corp.
    said Monday it has entered a $2 billion accelerated share buyback agreement with Goldman Sachs & Co. The defense company’s shares closed 2% higher.

  • Shares of Otis Worldwide Corp.
    slipped after the elevator and escalator maker reported fourth-quarter profit and sales that rose above expectations, and provided an upbeat full-year outlook.

  • Shares of Eaton Corp.
     gained 3.4% for the session after the power management company announced an agreement to buy Cobham Mission Systems in a deal valued at $2.83 billion.

  • Shares of Apple Inc.
    closed up 1.6% after the company said it would sell bonds for general corporate purposes, which could include share buybacks.

  • Square Inc.
    shares rose 2.8% Monday after an analyst suggested the company’s Cash App was grabbing users who are leaving Robinhood’s trading platform.

How did other assets perform?
  • U.S. crude-oil futures

    climbed $1.35, or 2.6%, to settle at $53.55 a barrel on the New York Mercantile Exchange on signs oil producers are honoring their pledge to limit output increases. In precious metals, gold futures
    gained 0.7%, $13.60, to settle at $1,863.90 an ounce.

  • The 10-year Treasury note yield
    was down nearly 1 basis point to 1.069%. Bond prices move in the opposite direction of yields.

  • The greenback strengthened 0.5% against its major trading partners, based on the ICE U.S. Dollar Index.
  • The Stoxx Europe 600 index

    closed 1.2% higher, while the U.K.’s FTSE 100
    gained 0.9%. In Asia, the Nikkei
    closed 1.6% higher and China’s CSI 300 index
    added 1.2% and the Shanghai Composite
    gained 0.6%.

See: How the GameStop options frenzy could price itself out of existence