Three weeks ago, video game retailer GameStop’s stock was struggling at $18 per share as Wall Street and professional investors kept on snubbing and shorting it, as well us predicting nothing but doom for the struggling company.
All that has changed in the previous days and hours of trading and its massive performance on the stock market seems to make no sense to professional investors, regulators, and Wall Street analysts forcing them to take interest into the discussions around the company’s stock all out of the blue.
This is because GameStop’s stock has shot meteorically from $18 where it was sitting three weeks ago to doubling several times until it peaked to $347.51 this week on Wednesday, January 27, 2021.
This unexpected rise forced several trading platforms like Robinhood, E*Trade and Interactive Brokers to limit their customers from making certain trades with GameStop. The company’s stock is currently trading at $193.60, which is up an amazing 928 per cent through the first few weeks of 2021.
Questions whether the stock market is in a dangerous bubble and whether a new generation of traders should be allowed to take full advantage of all the tools and free trades available on their phones, regardless of how reckless they may seem to outsiders have been asked, and Wall Street is scratching its head for the answers.
As Wall Street and professional investors search for the answers, small traders who, who make up to 99% of the stock market, by the way, are cheering louder from the sidelines, saying the moves mean that their voices have been heard by hedge funds, Wall Street and the 1 per cent.
GameStop is not the only shorted stock that is making big moves on the stock market. Shares of movie theatre operator AMC, who moved out of the scare of bankruptcy early this week, are up 230% over the past five sessions. Speaker maker Koss Corporation has also seen its stock skyrocket more than 1,000 in five sessions. Blackberry also saw its stock pop, rising more than 140 per cent than how it traded five days ago.
Wall Street reaction
You do not make all that noise, shake up things in the stock market, and think Wall Street will not listen. It is only right that they do, and they have. However, it is not yet clear how professional traders and strategists will change their mindsets in regards to the volatility spike and loss of profits moving forward.
Benjamin Mandel, the Global Strategist of Asset Management at J.P. Morgan told Yahoo Finance:
“I will say it’s not as if it doesn’t influence your thinking at all. We (Wall Street) need to consider what signals we could be taking from this experience and this recent change. For example, ‘are we in bubble territory?’ is a question we will be asking ourselves pretty regularly over the next while.
“I think the question on everyone’s mind is, ‘is this early 2000? Are these indications that we are headed into some type of financial bubble and what the implications and when, if that pops?’ We won’t think we are at the moment, but that’s something we have to consider as we tactically shift around portfolios.
“Then I guess more subtly, is this an indication that sentiment for risk is a little bit more fragile? Maybe it’s really not about retail investors, maybe it’s just symptomatic of this idea that risk sentiment is going to be pushed around a little more in an environment where growth is not surging.”
This morning, Tesla CEO Elon Musk tweeted about the proceedings thus: “In retrospect, it was inevitable.”
O’Shaughnessy Asset Management associate Jamie Catherwood said:
“Narrative is going to play a much bigger role in all aspects of finance moving forward. Fundamentals and everything will matter, but I think Wall Street will need to kind of pay heed to what these activists are calling for and change policy accordingly.”
How did we get here?
GameStop’s stock surge is mostly attributed to discussion website Reddit, particularly members in a group called “WallStreetBets.” These discuss ideas such as the next big trade to jump on, self-deprecation, and an appreciation of both winning and losing bets, as long as they are bold. Members of this Reddit group have recently been encouraging each other to keep buying GameStop (and others like AMC) and push it ever higher, or “to the moon”.
Despite the sell-off Thursday, Wall Streeters continue to compile notes on the volatility and ponder if the business has changed for good.
GameStop image courtesy of Forbes.com. Stock prices quoted here can change anytime.