Several individual stocks saw wild swings in prices last week, building on the volatility seen in other markets like cryptocurrencies over the past few months. Market participants have found and exposed weaknesses in hedge fund risk-management models surrounding the shorting of individual stocks, and engaged in a classic “short squeeze” but with a new level of speed.
This week begins with volatility moving into the metals market, with the price of silver seeing significant price changes. The swings in prices show the increasing impact of the growing interest in the markets developed during the pandemic. Individual investors are demonstrating the power of the masses and employing new strategies that have proven difficult for institutional investors to adapt to. Over time, markets will normalize to represent the fundamental value of these asset classes; but in the short term, prices can be pushed much further than anyone would have thought possible.
I will be watching three events closely this week that could have a meaningful impact on the direction of U.S. stocks and bonds. The Treasury refunding announcement should provide some short-term clarity on the new administration’s strategy around funding deficits. The next round of COVID-19 stimulus will be in the headlines as well, with Democrats and Republicans trying to find common ground on the size of the package. And on Friday, the monthly employment report will likely show continued challenges due to the slowdown in the economy.
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