Global markets followed Wall Street lower on Thursday, but investors appeared to be taking a pause after Wednesday’s tumultuous trading day.
European markets opened about 1 percent lower, following drops of 1 percent to 2 percent in the Asia-Pacific region. But futures markets were indicating New York trading would open with a measure of calm, indicating an initial drop of less than half of percent in the early session.
Investors remained concerned about whether the market could sustain its relentless rise of recent months. They also worried about whether the Biden administration would be able to pass an ambitious stimulus spending program or be forced to pare it back to get a bill through a closely contested Senate.
But some of the biggest unease stemmed from the shocking run-up in shares of companies with big brand names but uncertain prospects, like GameStop, the video game retailer; AMC, the movie theater chain; and BlackBerry, once the maker of hand-held devices that no financial professional would leave the office without. The surge pointed to frothy conditions in the market, suggesting a bunch of internet amateurs could take the reins of a market usually guided by pros.
Those pro investors who had bet that these stocks would perform poorly faced steep losses. Point72, the hedge fund run by Steve Cohen, the billionaire hedge fund manager and owner of the New York Mets baseball team, has lost nearly 15 percent this year, according to a person with knowledge of the matter.
Elsewhere, investors continued to flash warnings. Yields on U.S. Treasury bonds fell as prices rose, indicating investors were parking money in that traditional safe haven. Oil prices fell too, indicating skepticism about the global outlook. But gold price futures, like Treasury bonds considered a safe haven, also fell.
Europe
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The Stoxx Euro 600 was down 1.1 percent in early trading.
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The FTSE 100 in Britain fell 0.8 percent, the DAX in Germany was down 1 percent, and the CAC 40 in France was 0.7 percent lower.
Asia
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In Japan, the Nikkei 225 index tumbled 1.5 percent.
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China-related stocks also suffered. The Shanghai Composite Index fell 1.9 percent, while Hong Kong shares were down 2.6 percent in late trading.
The U.S. economic recovery stumbled at the end of last year, with Commerce Department data to be released on Thursday expected to show that the gross domestic product rose only about 1 percent in the final three months of 2020. That would represent a sharp slowdown from the previous quarter, when business reopenings led to a record 7.5 percent growth rate.
Looking at the quarter as a whole will obscure the full extent of the slump: Many analysts believe economic output declined outright in November and December, as rising coronavirus cases and waning government aid led consumers to pull back on spending and forced businesses to shut down, in some cases for good.
But four weeks into January, the new year looks different. Aid passed by Congress in December has begun to flow in enhanced unemployment benefits, small-business loans and direct payments to households. Two runoff elections in Georgia delivered Democratic control of the Senate, making further rounds of assistance more likely. And the rollout of coronavirus vaccines, though slower than hoped, offers the prospect that hotels, bars and other businesses hurt by the pandemic will see customers return later this year.
“That fiscal stimulus is helping push the train of the economy through the tunnel, and the light on the other side is widespread vaccination and inoculation,” said Nela Richardson, chief economist at the payroll processing firm ADP.
Separate data from the Labor Department on Thursday is expected to show that applications for unemployment fell somewhat last week but remain historically high.
The economy is still in a significant hole. The Commerce Department report is expected to show that G.D.P. ended 2020 down about 2.5 percent from a year earlier, which would make it the second-worst calendar year on record, after a 2.8 percent contraction in 2008. The economy has regained roughly three-quarters of the output lost during the collapse last spring, and only a bit more than half of the jobs.
Still, the rebound has been significantly stronger than most forecasters initially expected. In May, economists at the Congressional Budget Office estimated that G.D.P. would end the year down 5.6 percent and wouldn’t reach its pre-pandemic level until well into 2022. Now, most forecasters expect it to hit that benchmark this year.
Last year’s overall showing was “bad but not historically bad, and not as bad as what was experienced in the Great Recession, and not nearly as bad as what was expected midyear,” said Jason Furman, a Harvard economist who ran the Council of Economic Advisers under President Barack Obama.
The stronger-than-expected rebound is partly a reflection of businesses’ flexibility — retailers embraced online sales, restaurants built outdoor patios, and factories reorganized production lines to allow for social distancing. But it is also a result of trillions of dollars in federal aid, which kept households and small businesses afloat when much of the economy was shut down.
“The fiscal stimulus package was not perfect,” said Stephanie Aaronson, an economist at the Brookings Institution. “But the truth is both Congress and the Fed acted very, very quickly, and I think that did save the economy from a much worse outcome.”
GameStop One-Week Share Price
Millions of amateur stock traders collectively are taking on some of Wall Street’s most sophisticated investors. They’ve piled into trades around companies that other investors had written off, pushing stock prices to stratospheric levels.
The main focus is GameStop, the troubled video game retailer. Its stock is up 1,700 percent this month, including Wednesday’s climb of 135 percent. AMC Entertainment rose 300 percent on Wednesday, and BlackBerry is up more than 275 percent this month.
The surging shares have become detached from the factors that traditionally help establish a company’s value to investors — like growth potential or profits. But the traders who are piling in probably aren’t thinking about those fundamentals.
Instead, they are part of a frenzy that appears to have originated on a Reddit message board, WallStreetBets, a community known for irreverent market discussions, and on messaging platforms like Discord. (One comment from WallStreetBets read, “PUT YOUR LIFTOFF DIAPERS ON ITS ABOUT TO START.”) Both Tesla’s Elon Musk and the billionaire tech investor Chamath Palihapitiya have encouraged the crowd via Twitter.
Egged on by the message boards, these traders are rushing to buy options contracts that will profit from a rise in the share price. And that trading can create a feedback loop that drives the underlying share prices higher, as brokerage firms that sell the options have to buy shares as a hedge.
As more traders snap up options, the brokers have to buy up more shares, driving the astounding rise in the company’s stock prices. GameStop began the year at $19 and ended trading on Wednesday at nearly $348.
Another reason the shares are rising so quickly is that, until recently, they were heavily targeted by big investors who bet the stocks would decline by taking on short positions. As the shares surge, the shorters also have to buy the stock in order to cut their losses, and that triggers a so-called short squeeze — a sudden spike in a share’s value.
Gabe Plotkin, the hedge fund trader whose Melvin Capital was shorting GameStop, confirmed to CNBC on Wednesday that he had exited his position after having to raise a $2.75 billion bailout from Citadel and his former boss, Steve Cohen, amid the short squeeze. Mr. Plotkin’s other short bets appear to be suffering, possibly because they are being targeted by traders — Melvin and Mr. Plotkin are often pilloried on the message boards.
Jen Psaki, the White House press secretary, said Wednesday that the Biden administration’s economic team was “monitoring the situation” surrounding the volatile trading in some stocks.
Officials at the Securities and Exchange Commission and elsewhere are closely watching internet chat rooms for signs of potential market manipulation, though they can do only so much without clear signs of fraud. If a big group of traders simply decides to buy options on a stock at the same time, out in the open, proving malfeasance may be difficult.
The government is scheduled to offer its latest snapshot of the labor market's health on Thursday morning when it releases its weekly report on claims for unemployment insurance.
The figures have remained below the staggering levels of last spring, when the coronavirus started its march across the map. But at nearly one million new state claims a week, they continue to dwarf previous records. Analysts surveyed by Bloomberg expect the figures to show that claims decreased slightly last week.
Although the Conference Board reported on Tuesday that consumer confidence edged up in January, views of the labor market’s health dropped. The percentage of respondents saying jobs are “plentiful” declined, and the share saying that “jobs are hard to get” rose.
The outlook for the longer term is somewhat more positive.
“Everything goes back to the health crisis,” said Rubeela Farooqi, chief U.S. economist for High Frequency Economics. “Once you get most of the population vaccinated, that’s a completely different picture.”
The $900 billion pandemic relief bill signed into law last month has provided a bridge of support, but provisions specifically extending relief to jobless workers are scheduled to expire in mid-March.
President Biden has proposed a $1.9 trillion emergency relief package that includes a $400 weekly unemployment insurance supplement, although Republicans and a handful of Democratic lawmakers have balked at the cost of the overall proposal.
As shares of GameStop, the video game retailer, have surged amid a wave of speculative investment by small investors, Point72, the hedge fund run by the Mets owner Steve Cohen, has lost nearly 15 percent this year, according to a person with knowledge of the matter.
GameStop’s sudden rally — the shares jumped 135 percent on Wednesday alone and are up more than 1,700 percent this year — has taken a toll on some large investors who had bet against the stock. The losses at Point72, which manages nearly $19 billion in assets, stem in part from the firm’s investment in Melvin Capital, a hedge fund that had a massive bet against GameStop.
As the shares rose, Melvin was saddled with sudden losses and had to accept $2.75 billion in rescue capital from two outside investors. One of the rescuers was Point72, which already had roughly $1 billion under management with Melvin, said two people with knowledge of the relationship, and added $750 million to help stabilize Melvin this week.
Because Melvin was investing money on Point72’s behalf, Point72’s results have also been hurt by the recent turmoil, said those people.
Point72’s losses are the first clear indication of the ripple of effect of Melvin’s recent troubles, which have been a cause of concern for both Wall Street and the baseball community. Stocks faced their worst performance since October on Wednesday in part because investors are worried that other large funds could be facing losses as well.
And late Tuesday night, Mr. Cohen faced questions on Twitter over the potential impact of the Melvin losses on the Mets, which he purchased for about $2.5 billion in November.
“Why would one have anything to do with the other,” Mr. Cohen replied in a post on Twitter.
A spokesman for Mr. Cohen said he was not available for comment.
Eric Bolling, a former Fox News personality whose weekly talk show for the Sinclair Broadcast Group showcased his friendly relationship with former President Donald J. Trump, is leaving the broadcasting network, he said on Wednesday.
Mr. Bolling said that he planned to return to television shortly, but that he would wait to share details about his new job until after his Sinclair program, “America This Week,” ends on Saturday. He is also starting a podcast next month with the former Green Bay Packers quarterback Brett Favre.
Hired by Sinclair in 2019 to expand its current-affairs programming, Mr. Bolling was one of a handful of conservative-leaning hosts granted interviews with Mr. Trump during his tenure in the White House. His show aired on Sinclair stations in dozens of local markets.
Sinclair gained attention for mandating that its affiliates air segments from pro-Trump commentators, including a former Trump campaign aide, Boris Epshteyn. In October, Sinclair was forced to edit an episode in which Mr. Bolling spread misinformation about the coronavirus and questioned the utility of lockdowns and face masks.
“Eric has decided to pursue other professional opportunities,” Sinclair said in a statement on Wednesday. “We wish Eric the best in his future endeavors.”
Mr. Bolling was a co-host of “The Five” on Fox News. He left the network in 2017 after denying allegations that he had sent lewd messages to colleagues. He later became a prominent national advocate for curbing opioid abuse after the death of his son, who had taken a pill laced with fentanyl.
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