Wall Street Close: S&P 500 and Dow erase gains for the year as investors fret over retail frenzy fallout

• Major US bourses dropped on Friday as investors fret about the fall-out of the recent retail trader induced frenzy on financial stability.
• The S&P 500 and Dow both erased their gains for the year.

It was an ugly finish to the week on Wall Street with all three major indices dropping and no sector spared from the selling pressure; the S&P 500 dropped back to the 3700 mark, down 1.9% on the day and 3.3% no the week, the Dow Jones Industrial Average dropped back to the 30,000 level, also down 1.9% on the day and 3.3% on the week, while the Nasdaq 100 dropped 2.1% to back below 13,000, down 3.5% on the week. Friday’s sell off saw the S&P 500 and Dow both erase their annual gains; on the year, the S&P 500 is now down 1.1%, the Dow is down 2.0%, while the Nasdaq 100 still clings on in positive territory.

Driving the day

In terms of the major market-moving talking points of the day...

1) Retail Traders versus Hedge Funds – The Reddit retail army bravely (or foolishly, critics of the movement would argue) continued their battle against the short-selling hedge funds on Friday. GameStop, the stock at the epicenter of the retail trader social media group WallStreetBet’s focus, ended the day 68% higher (and up more than 400% on the week) after restrictions on trading GME shares were eased at a number of popular retail brokerages including Robinhood, the brokers seemingly alarmed at the public/political backlash to their decision to impose restrictions in the first place. Other retail darling stocks saw similar gains on the day, with AMC one of the most heavily traded stocks on the NYSE and gaining 53.7%. In terms of why this is hurting the stock markets so badly, head of Bianco Research Jim Bianco put it well on Twitter; “the "masters of the universe" (referring to the Hedge Funds) are not surrendering their shorts/covering. So the fear is these shorts will rise so much, leading to losses and inability to meet margin calls…. margin calls put the financial industry at risk.”

2) Vaccine disappointment - Johnson & Johnson released their final vaccine trial results o Friday; the headline efficacy of the vaccine was not as high as the Pfizer or Moderna vaccines (seeing an average of 66% efficacy globally) and showed somewhat disappointing efficacy against the South African strain of Covid-19 of around 57%. However, the vaccine was 85% effective in preventing severe disease across all global testing regions. JNJ shares dropped by nearly 3.6% on the day, seemingly a reflection of disappointment about the vaccines lower than hoped for efficacy. Still, while not as good as other vaccines, the fact that the jab reduces severe disease by 85% means that it is still going to be a very useful tool in the armoury of the global fight against Covid-19 and ought to help accelerate the global drive towards herd immunity. Note also that within the last 24 hours, Novavax has also released vaccine results which showed 89% efficacy versus the UK variant of Covid-19, although was less effective against the South African variant.

3) Vaccine nationalism – Concerns over news of further delays of vaccine deliveries to the EU on Friday, this time from Moderna, weighed on European equities on Friday and likely also US stocks. Pfizer and AstraZeneca have also delayed deliveries amid production problems at European facilities. Markets are worried about how vaccine delivery issues will further delay the post-Covid-19 economic recovery. Perhaps even more worrying is the fact that the EU looks to be moving towards a form of vaccine nationalism; the bloc has been angered by the fact that AstraZeneca refused to divert vaccines supplies from the UK to make up for the company’s production short-fall on the mainland and is now threatening exports of the Pfizer vaccine to the UK. Blocking vaccine exports to the UK would mark a serious escalation in tensions between the countries and set the stage for some form of tit for tat economic war between the two economies.