Stocks add to gains as Reddit trades show signs of unwinding

US equities rose on Tuesday, as focus shifted from Reddit’s day traders to negotiations between Joe Biden’s administration and Republican lawmakers over a proposed $1.9tn US stimulus package.

The blue-chip S&P 500 index rose 1.2 per cent at the opening bell and the tech-heavy Nasdaq Composite climbed 1.1 per cent, ahead of earnings results from Amazon and Alphabet, Google’s parent company.

President Biden met a group of 10 mostly moderate Republicans on Monday after they proposed an alternative economic relief package worth $618bn, three times smaller than the plan wanted by Democrats.

Analysts are keeping a close eye on the size of the fiscal injection. “I think that a larger stimulus package would generate a positive response,” said Teresa Jacobsen, managing director at UBS Private Wealth Management, who added that a combination of the relief package and vaccine rollouts would allow the US economy to “bounce back this year”.

In Europe, the continent-wide Stoxx 600 index climbed 1.3 per cent in afternoon trading, while London’s FTSE 100 benchmark rose 0.7 per cent and Frankfurt’s Xetra Dax gained 1.5 per cent.

On Tuesday, some of the recent Reddit-fuelled rallies began petering out. Silver, which soared as much as 11 per cent on Monday, was down 7.4 per cent to $27.22 a troy ounce. The rush into the metal began late last week after a user on Reddit suggested buying silver to put a “squeeze” on banks.

GameStop, the stock at the centre of the battle between Redditors and Wall Street, tumbled more than 50 per cent on Tuesday to about $110 a share.

Some users of the Reddit community r/WallStreetBets expressed some nervousness at GameStop’s price fall, with one commenting: “I’m worried. Tell me not to.” But others pushed back against those waving in their positions. “Don’t be a pussy, hold,” wrote one user.

Other heavily shorted stock also fell back. Bed Bath & Beyond tumbled 16 per cent to about $25 a share, having hit $53 last week, while the Goldman Sachs index of the most shorted stocks slipped 2 per cent.

The Vix — an index that tracks expected volatility in US equities — fell back to 26, about 10 points below its high during last week’s frenetic trading.

The more upbeat mood led to a modest sell-off in haven assets such as core government debt. The yield on the 10-year US Treasury, which has risen this year on the prospect that more stimulus will feed through to higher inflation, climbed 0.03 percentage points to 1.11 per cent.

Oil neared a 12-month high “buoyed by optimism over vaccine rollouts”, said Callum Macpherson, head of commodities at Investec. Brent crude, the global benchmark, climbed more than 2 per cent to $57.85 a barrel — its highest level since late February last year.

In Asia, China’s benchmark CSI 300 index jumped 1.5 per cent, with most sectors including healthcare and industrials moving higher. Hong Kong’s Hang Seng rose 1.2 per cent and South Korea’s Kospi 200 rose 1.3 per cent.