Wall Street slid 2% on Friday for the second slump in three days as investors worried about the efficacy data of a new COVID vaccine from Johnson & Johnson and the continuing market battle between a fleet of small investors and hedge funds who short shares.
The Dow fell 2.03%, the Nasdaq lost 2% and the S&P 500 fell 1.93%.
All three fell in the week while the S&P 500 and the Dow ended lower in January after the week’s losses. Nasdaq still managed a gain for the month.
Overall it was the worst week since October because of the slumps on Wednesday and Friday.
The ASX 200 is heading for a drop on Monday after a 36 point drop on Friday in the wake of the volatility on Wall Street.
The ASX 200 fell 2.8% last week to be down 0.3% for January.
Iron ore prices rose slightly, but lost ground for the week and month; oil prices dipped but were up 7% to 8% for January and gold rose slightly on Friday but lost 2.4% for the month.
The Aussie dollar ended weaker at around 76.40 US cents while the 10 year US bond yield rose to end the week at 1.08% after data showed the economy slowed in the December quarter and in early January in the huge service sector – but not manufacturing.
Johnson & Johnson shares fell more than 3% after the drugmaker said its single-dose vaccine was 72% effective in preventing COVID-19 in the United States, with a lower rate of 66% observed globally.
Reuters said this was less than protection from two rival vaccines from Pfizer Inc/BioNTech SE and Moderna Inc, which were around 95% effective in preventing symptomatic illness in key trials when given in two doses. Moderna shares climbed 8.5% while Pfizer Shares were little changed, down 0.1%. Shares in another vaccine major, AstraZenecca dropped 2.7% on Friday.
Worries of a short squeeze that began earlier in the week and help trigger Wednesday’s slump, resurfaced on Friday after an army of retail investors returned to trade shares in stocks such as GameStop Corp and Koss Corp, which rose after brokers including Robinhood eased some of the restrictions they had placed on trading.
GameStop shares jumped 60% on Friday to be up 400% for the week.
The US Securities and Exchange Commission said it was closely monitoring any potential wrongdoing, to both brokerages and social media traders and trading platforms like Robinhood allowed limited trading to restart but still maintained tough restrictions.
Robinhood’s decision only came after it raised a rushed $US1 billion plus from its investors that allowed it to maintain its trading access.
That’s because to maintain its access to clearing houses for dealing in highly speculative shares, Robinhood had tp put up hundreds of millions of dollars in extra cash or margin.
The New York Times reported “To continue operating, it drew on a line of credit from six banks amounting to between $500 million and $600 million to meet higher margin, or lending, requirements from its central clearing facility for stock trades, known as the Depository Trust & Clearing Corporation.
“Robinhood still needed more cash quickly to ensure that it didn’t have to place further limits on customer trading, the paper reported.
So it went to its investors for more than $US1 billion on Thursday and who invested the extra capital overnight to allow Robinhood to resume offering limited dealings on these stocks on Friday.
