Dow falls 200 pips in risky buying and selling as traders await a stimulus replace from Washington

Shares fell from record highs on Friday as lawmakers rushed to bridge disparities on additional measures to stimulate the coronavirus.

The Dow Jones Industrial Average fell around 200 points while the S&P 500 fell 0.7%. The Nasdaq Composite was 0.3% lower. All three indices hit new intraday highs earlier in the day after the records close in the previous session.

Leaders on Capitol Hill said they were on the verge of an agreement that would provide $ 900 billion in additional aid. The month-long talks are about to begin, and federal funds will run out on Saturday at 12:01 a.m. ET.

Senate Majority Leader Mitch McConnell, R-Ky., Said Friday that negotiations “remain productive”. “In fact, I am even more optimistic now than last night that a bipartisan, bicameral framework for a major bailout is very close,” he added.

Last-minute disputes preventing Congress from passing an aid agreement include direct payments, small business loans and an increase in unemployment insurance.

Big volume

The stock market is expected to see massive volume on Friday, as Tesla’s historic entry into the S&P 500 is expected to be based on Friday close of trading prices. There will be a rush of activity to the final bell and the S&P 500 will start trading with Tesla as a member on Monday.

With a market cap of more than $ 600 billion after rallying 700% this year, the electric car maker is named the 7th largest company in the index.

Tesla is added to the benchmark in one fell swoop, marking the biggest realignment of the S&P 500 in history. It is estimated that passive funds tracking the S&P 500 will need to buy more than $ 85 billion of Tesla, while $ 85 billion of the rest of the index will need to be sold to make room for it.

Tesla’s shares rose up to 4%, hitting an all-time high on Friday. As of 12:05 p.m. ET, more than 45 million Tesla shares have changed hands, exceeding the average 30-day volume.

Several large exchange-traded funds such as Invesco QQQ Trust (QQQ), which mirrors the Nasdaq 100, are being rebalanced alongside the S&P 500 Friday.

Meanwhile, Tesla’s inclusion coincides with a quarterly event known as Quadruple Sorcery, when options and futures expire on indices and stocks. Many expect Friday to be one of the busiest trading days of the year.

Winner Week

The key averages are on track to deliver modest gains for the week. The S&P 500 is up 0.9% this week, facing its fourth positive week in five. The Dow is up 0.2% over the period, while the tech-heavy Nasdaq outperformed the week so far, rallying 2.8%.

This week’s gains were due to optimism about a stimulus deal as well as the launch of the vaccine. On Thursday evening, Food and Drug Administration advisors overwhelmingly backed Moderna’s Covid vaccine, a major step towards FDA approval for public distribution. The first vaccinations in the US were given on Monday with the vaccine from Pfizer and BioNTech.

Investors are betting that an increase in Covid cases and disappointing economic data would force lawmakers to cement a new aid package. Unemployment claims reached their highest level since early September last week, while retail sales fell more than expected in November.

“The bad news this week is that the third wave is worsening and the economic damage from the pandemic continues to worsen,” said Brad McMillan, chief investment officer at Commonwealth Financial Network. “The good news is that policymakers are starting to contain the virus and the federal government is likely to put in place a stimulus package that will mitigate both of the main risk factors.”

McMillan said investors should expect higher volatility in the short term amid developments in the stimulus and vaccines space before the economy returns to growth in 2021. “With vaccines now available and rampant, we are at the end of the start of the pandemic and the markets are realizing that,” he added.

Subscribe to CNBC PRO for exclusive insights and analysis as well as live business day programs from around the world.

Comments are closed.