US stock futures were lower in early trading on Friday as increased speculative trading by retail investors unsettled the market.
The average Dow Jones Industrial futures lost 140 points, or 0.5%. S&P 500 futures lost 0.6%. Nasdaq 100 futures were down 0.9%.
GameStop’s shares doubled in premarket trading after Robinhood announced it would restrict purchases of the stock and other heavily shortened names after restricting access the previous day. Robinhood raised more than $ 1 billion overnight from its existing investors and also used the banks’ credit lines to ensure that the capital was in place to start trading the volatile stocks again.
Investors are concerned that if GameStop continues to rise in such volatility, it could penetrate financial markets and cause losses at brokers like Robinhood and force hedge funds that bet against the stock to sell other stocks to raise cash. At the same time, there are fears that the GameStop mania is a sign of a bigger bubble in the market and that its dissolution could also cause turmoil and hit private investors hard. Several e-brokers took steps Thursday to curb intentional buying of highly speculative names.
“Between calling for hearings and reports in Washington, Robinhood was forced to not only draw on its credit lines but also raise $ 1 billion from existing investors. The whole situation continues to undermine market confidence,” said Adam Crisafulli, founder of Vital Knowledge, note in a Friday.
It’s been a volatile week on Wall Street. The Dow lost more than 600 points on Wednesday and suffered its worst sell-off in three months. Then the blue chip benchmark rallied 300 points on Thursday amid a broad market rally. All three major averages have lost at least 1% this week.
The market also saw its highest trading volume in years as the mania heated up. On Wednesday, the total market volume reached more than 23.7 billion shares, surpassing the level at the height of the financial crisis in 2008. On Thursday, there was also extremely strong trading with more than 19 billion shares that changed hands.
A wave of retailers motivated each other on the red-hot WallStreetBets Reddit forum to pile into the most hated names of hedge funds, resulting in massive short-bruising of stocks. GameStop is up more than 900% in January, while AMC Entertainment is up over 300% this month.
“This smaller capitalization rally would likely destabilize and lead to inefficiencies,” Christopher Harvey, senior equity analyst at Wells Fargo, said in a note. “Stocks are ultimately fundamentals – and reversals can be very painful, both up and down.”
Strong corporate earnings continued to roll after Thursday’s bell. Payment giants Visa, Mondelez, Western Digital and Skyworks Solutions rose in expanded trading after reporting better-than-expected earnings and sales for their quarterly results.
Caterpillar, Chevron, Eli Lilly and Honeywell all report profits before the bell on Friday.
In the vaccines space, biotech company Novavax announced Thursday that its coronavirus vaccine was more than 89% effective against Covid-19 in its UK Phase 3 clinical trial.
Subscribe to CNBC PRO for exclusive insights and analysis as well as live business day programs from around the world.