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Topline

A slew of fourth-quarter earnings (during one of the busiest reporting weeks this season) helped push the broader market higher for a second day in a row while the buying frenzy surrounding heavily shorted stocks continues to unwind.

Key Facts

Shortly after the market open, the Dow Jones industrial average was jumping 262 points, or 0.9%, while the S&P 500 the tech-heavy Nasdaq also climbed about 0.8% each.Among firms leading gains in the S&P, lab instruments company Waters Corporation and courier UPS are up 6% and 5%, respectively, after both companies posted better-than-expected fourth-quarter sales and income before the opening bell, tacking on to one of the best earnings season on record.

Uber’s stock is rising 4% after the ride-hailing service announced Tuesday it will acquire alcohol delivery company Drizly for about $1.1 billion in cash and stock. Uber said Drizly’s marketplace will keep its own app and eventually be integrated into the Uber Eats app as well.

Shares of oil giant BP are down 4% after the firm posted its first annual loss in a decade, losing $5.7 billion last year (compared to a $10 billion profit in 2019); ExxonMobil shares, meanwhile, are up 3% after a better-than-expected earnings report—despite the firm posting a $20 billion loss for 2020.

The Reddit rally, meanwhile, continues to unravel Tuesday, with GameStop shares plunging another 40%, pushing the meme stock’s market value loss up to about $13 billion since Friday; AMC shares, which managed to stay roughly flat Monday, are down a staggering 30%.

After surging 11% to an eight-year high on Monday, silver prices are down about 6% Tuesday morning after the Chicago Mercantile Exchange said it would require more collateral from traders for each futures contract purchased.

Crucial Quote 

“After experiencing pressure last week, stocks rebounded Monday and those gains are extending so far Tuesday morning. The GameStop nonsense seems to be abating as the fever around that cohort of stocks starts to break,” Vital Knowledge Media Founder Adam Crisafulli says, noting that GameStop’s short interest has declined precipitously. “Fiscal stimulus anticipation is growing as the market begins to price in a roughly $1.7 trillion bill passed via reconciliation by mid-March, and the domestic Covid headlines remain encouraging… while fourth-quarter earnings remain generally strong.”

Tangent

Despite the meme stock bust, global markets were also largely positive on Tuesday, with Japan’s Nikkei 225 ending the day up 1%, while the United Kingdom’s FTSE 100 climbs 0.6%, and Germany’s DAX Index jumps 1%.

What To Watch For

About 25% of S&P companies report earnings this week. Amazon and Alphabet headline earnings after the close. Then Spotify, eBay, PayPal and Qualcomm all report Wednesday. On the economic front, the January jobs report will be released Friday. 

Key Background

Investor sentiment took a massive hit over the “relentless option buying by retail investors taking advantage of a structural weakness in the market,” Oanda Senior Market Analyst Edward Moya said Friday, noting that the Dow’s 1,000-point plunge last week was the index’s worst weekly loss since election uncertainty tanked sentiment in late October. The S&P and Nasdaq posted similar losses. Other experts are similarly “The market is not broken, but recent events have revealed some cracks,” says Commonwealth Financial Network Chief Investment Officer Brad McMillan, noting that the dot-com boom didn’t “destroy the capital markets” despite valuations that were much loftier than they are now. 

Further Reading

Dow Jumps 250 Points, But GameStop Market Value Plunges $7 Billion As Shorts Cash Out (Forbes)

Here’s What Could Spark The Next 10% Market Correction, Bank Of America Warns (Forbes)

GameStop FOMO? 9 Investment Sages Explain Meme Stock Mania (Forbes)

Dow Plunged 1,000 Points This Week After Reddit Traders Stormed The Stock Market–What Happens Next? (Forbes)