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NEW YORK: Another selling bout gripped the US stock market on Friday (Jan 29), as anxiety rises over whether the frenzy behind a rapid and meteoric surge in GameStop and a handful of other stocks will hurt. to Wall Street in general.
The S&P 500 fell 1.9 percent, giving the benchmark its biggest weekly loss since October. The Dow Jones Industrial Average and the Nasdaq each fell 2 percent.
GameStop soared nearly 70 percent, recouping much of its heavy loss from the previous day, after Robinhood said it will allow clients to start buying part of the stock again. GameStop has had a staggering 1,600 percent run over the past three weeks and has become the battlefield where swarms of smaller investors see themselves fighting an epic battle against the 1 percent.
The assault is aimed squarely at hedge funds and other Wall Street titans who had bet the struggling video game retailer’s shares would fall. Those companies are suffering heavy losses, and other investors say that prompts them to sell other shares they own to raise cash. That, in turn, helps bring down parts of the market that have nothing to do with the ongoing revolt by the cadre of smaller and novice investors.
GameStop’s manic moves and a few other previously defeated stocks have drowned out many of the other problems weighing on the markets, including the virus, vaccine launch, and potential aid to the economy.
READ: Why the rise in GameStop shares is shaking Wall Street
“Our consideration is whether this is something that has long-term influence or is contained within a handful of companies,” said Tom Hainlin, national investment strategist at US Bank Wealth Management.
Meanwhile, calls for regulators to intervene are growing louder on Capitol Hill, and the Securities and Exchange Commission says it is carefully monitoring the situation.
In this photo provided by the New York Stock Exchange, trader Ashley Lara works on the floor on January 29, 2021 (Nicole Pereira / New York Stock Exchange via AP).
“It’s seen a lot of volatility this week, so when you have some unknowns like you are seeing in the retail world, people are a little worried about the all-time highs here and it’s taking some money away,” Megan said. Horneman, director of portfolio strategy at Verdence Capital Advisors.
The S&P 500 fell 73.14 points to 3,714.24. It ended the week with a 3.2% loss, its worst week in three months. It ended January with a loss of 1.1%, its first monthly decline since October. The S&P 500 is still up 13.6 percent since the end of October.
Some of the heaviest weights on the index were Apple, Microsoft and other Big Tech stocks that have been big winners for professional and other investors over the past year.
The Dow Jones lost 620.74 points to 29,982.62, while the Nasdaq high-tech composite slipped 266.46 points to 13,070.69. The Russell 2000 Index of smaller companies fell 32.97 points, or 1.6 percent, to 2,073.64.
Other forces weighed on the market as well. Johnson & Johnson fell 3.6 percent after it said its vaccine appears to protect against COVID-19, although not as powerfully as its rivals. Analysts said the results, which would require only one injection rather than the two required by other vaccine manufacturers, fell short of expectations.
Elsewhere, investors saw spikes in virus infection in Europe and Asia, renewed travel restrictions and negotiations in Washington on President Joe Biden’s proposed $ 1.9 trillion economic aid package.
Hopes for such a stimulus to the economy have driven the S&P 500 and other major indices to record highs recently, along with enthusiasm for COVID-19 vaccines and the Federal Reserve’s promise to keep the accelerator on the ground in helping to the economy. Low interest rates from the Fed can act as steroids for stocks and other investments.
“We are still moving toward a recovery from the pandemic, much more bumpy than anyone expected,” Axi’s Stephen Innes said in a report.
Wall Street’s focus remains squarely on GameStop and other moonshot stocks. AMC Entertainment jumped 53.7% and headphone company Koss 52.5%. Following their success with GameStop, traders have been looking for other downtrodden stocks in the market where hedge funds and other Wall Street firms are betting on falling prices.
By coming together in these actions, you are causing something called a “short twitch.” In that, the price of a stock can skyrocket higher as investors who had bet on falling prices struggle to exit their trades.
Meanwhile, smaller investors have been bragging about their empowerment and saying that the financial elite are simply getting their due after years of straying from the rest of America.
“We’ve had his boot on our necks for so long (expletive) that the sudden rush of blood to our brains when we only have one * chance * to break free has made me feel … well, it has made me feel,” he wrote. user in a Reddit discussion about GameStop actions.
“I have been isolated throughout this pandemic and live in a state far from home or any sense of community,” another user replied. “I would just… give up. These last few weeks I have started to worry again; feel passionate again; wanting more again. “
Most watchers on Wall Street and other markets say they expect the smaller-pocket investors who are powering GameStop to eventually burn out. The struggling retailer is expected to continue to lose money in its next fiscal year, with many analysts saying its stock should be closer to $ 15 than $ 330.
In response, many Reddit users have said that they can hold the pressure longer than hedge funds can stay solvent, although they often use more colorful language to say that.
READ: Commentary: Investors from Reddit, GameStop and the new Occupy Wallstreet movement
This week, Robinhood and other online trading platforms restricted the trading of GameStop and other stocks that have soared recently, sparking outrage from individual investors on Twitter and other social media sites.
After easing some of the restrictions early Friday, Robinhood tightened them again throughout the day, limiting the number of GameStop shares that customers could buy. At 3:03 PM ET, they couldn’t buy more if they already had at least one share.
READ: Robinhood in the eye of the storm GameStop
The SEC said Friday that it is evaluating “the extreme volatility of the trading prices of certain stocks,” warning that such volatility can expose investors to “rapid and severe losses and undermine market sentiment.”
Jacob Frenkel, a former SEC enforcement attorney and federal prosecutor, suggested that it might have made sense for the market watch agency to suspend trading in GameStop shares for up to 10 days, under its legal authority.
Simply monitoring the situation, without SEC action, “is like putting security experts in a permanent front row seat in front of an uncontrolled roller coaster,” Frenkel said.
A compliance investigation by the agency would need to determine whether there were violations of securities laws, said Frenkel, who leads the government investigations practice at the Dickinson Wright law firm.
Both the Senate Banking Committee and the House Financial Services Committee plan to hold hearings on the GameStop controversy.
“Capital markets should be less of a casino and more of a place where people … can invest in companies that are leading the new economy,” said Rep. Brad Sherman, Democrat of California, who heads the subcommittee on financial services. on investor protection.
