From Wall Street to the White House, everyone is watching GameStop shares.
What’s happening: Stock in the left-for-dead video game retailer shot up an astonishing 135% to $347.51 on Wednesday, bringing gains since the start of January to 1,745%. In the battle between day traders coordinating on Reddit and legacy hedge funds betting GameStop shares will crash, the rag-tag internet crew is winning the day — at least for now.
It’s not just about GameStop anymore. Shares of AMC Entertainment, Nokia, Tootsie Roll Industries and the shell of a bankrupt Blockbuster also soared Wednesday as emboldened small investors looked further afield.
Earlier this week, I wrote about how the spectacle has grabbed Wall Street’s attention, forcing the old guard to reckon with how the democratization of investing through no-fee trading platforms like Robinhood is affecting market dynamics. There’s plenty more to be said on that front. But for now, there’s one big question: Just how does this episode end?
Shares of companies like GameStop and AMC Entertainment remain extremely volatile in premarket trading, leaving the immediate fate of the rally unclear. As of 7:35 a.m. ET, GameStop shares were up 37% to $475.
Outside of the United States, where stock in popular hedge-fund targets like Unibail-Rodamco-Westfield had also shot up, there were signs Thursday morning of retrenchment. Shares of the European shopping center owner shed almost 2% in Amsterdam on Thursday after gaining nearly 20% the previous session.
For the hedge funds and short sellers at the center of the melee, though, the damage is done. Melvin Capital closed out its position in GameStop this week after taking a huge loss, CNBC reports. Andrew Left of Citron Research said in a YouTube video posted Wednesday that he covered most of his GameStop shorts at “a loss of 100%.”
Watch this space: So far, many on Wall Street are viewing the GameStop saga as a somewhat isolated event. But there are some concerns that damaged Wall Street money managers may need to sell other stocks they’d been planning to hold for the long-term — say in Apple, or Target — in order to cover losses. That could ripple through the broader market, which on Wednesday had its worst day since October thanks to concerns about Covid-19 vaccination efforts and the economy.
It’s evident that investors are on edge. The VIX, a measure of stock market volatility, shot up nearly 62% on Wednesday, its third biggest one-day leap on records dating back to 2001. It retreated on Thursday but remains elevated.
Talk about whether regulators need to step in and limit this kind of behavior is also increasing — though for the folks at the Securities and Exchange Commission, it’s not a clear-cut case. Sen. Elizabeth Warren, for her part, is using the incident to renew her call for a Wall Street crackdown.
“For years, the same hedge funds, private equity firms, and wealthy investors dismayed by the GameStop trades have treated the stock market like their own personal casino while everyone else pays the price,” the Massachusetts Democrat said in a statement.