By Chuck Mikolajczak
NEW YORK (Reuters) - U.S. stock indexes dropped, closing out the Friday session with the biggest weekly fall since October, as investors gauged the ramifications of Johnson & Johnson's COVID-19 vaccine trial results, while a standoff between Wall Street hedge funds and small, retail investors added to volatility.
Johnson & Johnson fell 3.56% as one of the biggest weights on both the Dow and S&P500 after the drugmaker said its single-dose vaccine was 72% effective in preventing COVID-19 in the United States, with a lower rate of 66% observed globally.
The results compare to the high bar set by two authorized vaccines from Pfizer Inc/BioNTech SE and Moderna Inc, which were around 95% effective in preventing symptomatic illness in key trials when given in two doses. Moderna shares climbed 8.53% while Pfizer shares edged up 0.11%.
Worries of a short squeeze that began earlier in the week resurfaced after an army of retail investors returned to trade shares in stocks such as GameStop Corp and Koss Corp, which shot higher after brokers including Robinhood eased some of the restrictions they had placed on trading.
"The overall picture is that if there is any bad news that suggests or indicates there could be a longer hibernation period for us to be indoors and not consuming or spending that tends to set the market back and a lot of people sit on the sidelines, particularly with that news," said Sylvia Jablonski, chief investment officer at Defiance ETFs in New York.
"And then what is going on with (Gamestop) and all that stuff, people are a little afraid to trade."
The surge in volatility has led to a huge increase in volume, totaling over 20 billion shares in each of the past two sessions across U.S. exchanges for the most active trading days on record going back to 2014, according to Refinitiv data.
Volume across U.S. exchanges on Friday was 17.13 billion shares, compared with the 15.26 billion average for the full session over the last 20 trading days.
The U.S. Securities and Exchange Commission said it was closely monitoring any potential wrongdoing, to both brokerages and social media traders.
The Dow Jones Industrial Average fell 620.74 points, or 2.03%, to 29,982.62, the S&P 500 lost 73.14 points, or 1.93%, to 3,714.24 and the Nasdaq Composite dropped 266.46 points, or 2%, to 13,070.70.
All three main indexes suffered their biggest weekly fall since the end of October, as the Dow lost 3.28%, the S&P fell 3.31% and the Nasdaq declined 3.49%. For the month, the Dow dipped 2.04%, the S&P shed 1.12% and the Nasdaq gained 1.42%.
Both the S&P and Dow closed below their 50-day moving average, seen as a technical support level.
Market participants have speculated that volatility caused by the short squeezes have led to investor favorites including Apple Inc coming under pressure as hedge funds sell to cover billions of dollars in losses.
Apple shares declined 3.74% while Microsoft fell 2.92%.
Still, while concerns about rising COVID-19 cases and bumpy vaccine rollouts kept investors leery about a pullback and an increase in volatility in the near-term, the start to quarterly earnings has eased some concern about stretched stock valuations.
Of the 184 companies in the S&P 500 that have reported earnings through Friday morning, 84.2% have topped analyst expectations, well above the 75.5% beat rate for the past four quarters, according to Refinitiv data.
Honeywell International lost 3.68% after it posted a 13% fall in quarterly profit.
The first known U.S. cases of the South African COVID-19 variant, found to be partly resistant to current vaccines and antibody treatments, was detected in South Carolina on Thursday.
Data showed U.S. labor costs rose more than expected in the fourth quarter amid a jump in wages, supporting views that inflation could accelerate this year, while another report showed U.S. consumer spending fell for a second straight month in December.
Declining issues outnumbered advancing ones on the NYSE by a 2.88-to-1 ratio; on Nasdaq, a 2.38-to-1 ratio favored decliners.
The S&P 500 posted 7 new 52-week highs and no new lows; the Nasdaq Composite recorded 64 new highs and 16 new lows.
(Reporting by Chuck Mikolajczak; editing by Diane Craft)