NEW YORK (AP) — Action memes are shake up Wall Street once again. This shouldn’t come as a big surprise.
Ever since gangs of novice and smaller-pocketed investors began driving up the stock prices of struggling companies to breathtaking heights. three years agothe potential of no more pushes was obvious.
Some things are different this time. The biggest change from the initial supernova for GameStop stock is how familiar the 2021 experience is. That familiarity, along with some changes in the market, should make it easier for Wall Street to digest moves without danger to the overall system, experts say.
GameStop in 2021 put the capacity and resilience of securities markets to a test that “few could have predicted,” staff of the U.S. Securities and Exchange Commission said in a report later this year – there.
But some things remain firmly the same. Chief among them is the risk of losing everything that comes with the chance to make quick money playing such volatile stocks. Here’s a look at what’s happening:
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WHAT IS HAPPENING?
GameStop, the granddaddy of meme stocks, soared suddenly and sharply. It was up nearly 37% Tuesday afternoon after jumping 74% the day before. Other pandemic-era meme stocks are evolving just as radically. AMC Entertainment, the movie theater operator, jumped nearly 31% on Tuesday.
SHOULD THEY INCREASE THIS FAST?
Financial analysts and professional investors who primarily care about numbers like profits, cash flow, and interest rates would say no. GameStop’s financial outlook did not change over the weekend, ahead of its stock price’s steep rise. The video game retailer posted a small profit in its latest financial year, following five years of steep losses and substantial cost and job cuts.
SO WHAT TRIGGERED IT?
A momentum caused by buyers. Conventional wisdom holds that a stock should ultimately settle at a price that reflects the amount of cash the company generates, changes in interest rates and other factors. But in the short term, what determines the price of a stock is the amount that investors are willing to pay for it. And, for now at least, people are willing to pay much higher prices for GameStop stock.
You were supposed to say Roaring Kitty there, right?
Yes, the spark that got the momentum going may have been a person with the nickname Roaring Kitty. He was a central figure in GameStop’s initial rise, famous for wearing a red bandana and speaking bluntly. He rallied other buyers by stating on YouTube, on Reddit’s WallStreetBets forum and even during his testimony before Congress how much he liked the stock. GameStop’s stock price soared more than 1,700% in the first weeks of January 2021,
WHAT DID ROARING KITTY DO THIS TIME?
After remaining dormant since June 18, 2021, TheRoaringKitty’s X account posted a meme on Sunday evening. The photo shows a person playing a video game moving from a lying down position to an upright, alert position. Many social media users took this as a signal, and forums were quickly filled with people saying they were buying GameStop. That quickly gave way to screenshots that people said showed the profits they were making from trading GameStop.
HOW COULD THE REACTION BE SO QUICK?
It’s the new era of investing, where anyone can buy a stock commission-free just by tapping their phone a few times. It’s the culmination of years of innovation. At every step of the way, consumer advocates have welcomed the broadening of the playing field, which has allowed more people to invest in stocks and build wealth. But they also warned that easy access could encourage people to trade too quickly or too recklessly.
HOW MUCH REACTION HAS THERE BEEN, REALLY? IS THIS ALL AN EXAGGERATION?
It was manic. GameStop’s stock price fluctuated so wildly after the opening bell Monday that trading in the shares was halted nine times in just over an hour. On Tuesday, AMC Entertainment’s moves were even wilder, with its trading interrupted 18 times by early afternoon.
HOW DOES THIS COMPARE WITH 2021?
It’s not that big. Investors pumped a net $15.8 million into GameStop on Monday, as well as $37.5 million into AMC, according to data from Vanda Research. This compares to $87.5 million and $170 million, respectively, in 2021.
“Do we think more retail traders will be able to follow the trend in the coming days? Yes,” according to Marco Iachini, senior vice president of Vanda Research. “Do we think this is a repeat of 2021? No, and the chances of us reaching that stage are low.
Large hedge funds and other professional investment firms are better equipped to handle the situation this time, he said, and they could ride the wave with smaller investors before trying to exit trades before them, which could leave these smaller investors…the pocketed investors holding the risk.
WHAT ELSE IS DIFFERENT?
Meme stock companies have more shares traded on the market than in 2021, which could reduce the risks of what’s called a “short squeeze,” according to Nick Battista, director of market intelligence at tastylive, a streaming network for options traders. .
A short squeeze is a relatively rare event that can generate mind-blowing profits for those riding the wave. When investors bet that the price of a stock will fall in the future, they “short” it by borrowing shares and selling them. Later, if the price actually falls, the short sellers can buy the shares, return the borrowed shares and pocket the difference.
But when the price of a heavily shorted stock rises quickly, short sellers might scramble to get out of their trades. They can only do this by buying stocks, which can trigger a self-feeding cycle that drives prices even higher.
Such a squeeze likely contributed to GameStop’s exciting rise in 2021, but SEC staff said it was only a small fraction of the total purchases and that GameStop shares remained elevated even after short sellers exit their trades.
As of March, GameStop had approximately 305.9 million shares traded on the market, more than four times the number of shares it held in March 2021. Such growth “significantly increases the amount of activity needed to increase » for GameStop and other meme stocks. , Battista said. “Can they go higher? Of course, but it will be a more difficult task this time. »
WHAT ARE THE RISKS RELATED TO REGISTRATION?
It’s important to know that the dynamic can change just as suddenly in the other direction. It took just four weeks in 2021 for GameStop’s stock to go from under $5 to over $120. But it hasn’t reached that price yet. Even after its sharp rise in recent days, GameStop shares can still be purchased for around $42.
Or just look at Tuesday’s trading. GameStop quickly more than doubled in the morning, surpassing $64, before paring much of the afternoon’s gains and slipping back to $41.67.
After briefly hitting $390 during the summer of 2021, AMC stock was drifting below $3 last week. It’s now almost $7.
