Meme Inventory Saga Formally Over? GameStop Quick Curiosity Plunged 70% Amid $20 Billion Loss

Top line

Goldman Sachs said Wednesday that the spate of short-term interest rates that enabled an army of Reddit traders to raise a number of hedge funds out of billions of dollars has largely subsided, turning a page in the saga that briefly rocked the raging bull market.

GameStop is no longer the most shortened company on Wall Street.

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Key factors

As a percentage of stocks available for trading, GameStop’s short interest, or number of stocks sold, has dropped to roughly 45% by the 140% close in January when the company was the most-undrawn stock on Wall Street, Goldman Sachs said in a statement to customers on Wednesday.

GameStop’s short-interest slump since January 15 was the largest of the Russell 3000 companies. This makes the stationary game seller the third most popular short-stock in the index after the non-meme stocks Academy Sports and Outdoors and Gogo Inc. .

“The effects of the recent sharp fluctuations in price are both significant and inconsequential,” Goldman analysts, led by David J. Kostin, said in a separate statement on Friday, adding that short interest rates have been 100% only 15 times in 10 years. of a company’s float exceeded years.

“Experience shows that business transformations tend to take some time,” added the analyst, pointing to the activist investor retailers expect to help GameStop reverse the trend. The latest reviews have been dismissed as “absurd”.

GameStop’s shares, which rose 2% on Wednesday, are down 85% from a closing high of $ 347 on Jan. 27, bringing the company’s market cap down by about $ 20.5 billion.

Brief interest in other meme stocks, including Bed Bath & Beyond, National Beverage Corp, and AMC Networks, has also waned since the chaos fueled by Reddit, and those companies are now down about 45%, 33% and 20%, respectively, at the end January highs.

Key background

Falling prices for so-called meme stocks like GameStop, AMC, and Bed Bath & Beyond have fed Wall Street pundits who have been finding for weeks that their sky-high ratings would get a dose of reality in due course. “A flurry of odd cash orders and call options has pushed the stock price up, forcing short-covering at ever higher stock prices,” Goldman said Friday, adding that prices only continued to decline after brokers like Robinhood started trading meme- The Depository Trust & Clearing Corp. Hedge fund losses reached nearly $ 20 billion in January before falling short rates dampened retailer demand.

Crucial quote

“The GameStop saga has raised real concerns about its impact on markets as a whole – and concerns that it could disrupt the recovery,” said Brad McMillan, chief investment officer of the $ 200 billion RIA Commonwealth Financial, on Wednesday. “But at the beginning of February most of the hedge funds are still in place, GameStop shares have fallen significantly and the market has risen. The market risks known to us – and those that have surprised us – are increasingly looking less threatening. The market is reacting.”

tangent

Although the broader market took a big blow during the heightened uncertainty, stocks were back at record highs on Wednesday.

What to look for

On February 18, the House Financial Services Committee will hold a hearing to discuss recent market volatility. Goldman says topics likely to be explored will include retail investment gamification, broker-dealer capitalization, and the mechanisms of short covering.

Chief critic

“The stock markets got off to a quick start in 2021, when greed continued to overcome fear,” Morgan Stanley analysts said in a statement to customers on Monday, citing the insanity in retail, which was mainly triggered by aggressive margin debt. “When periods like this do occur, getting in the way has rarely been easy or smart. Instead, these trends usually have to run their course until they derail or simply run out.”

further reading

GameStop billionaire explains why he bought the stock for the first time – and is not buying anymore (currently) (Forbes)

Reddit merchants have lost millions through GameStop. But many refuse to quit (Forbes)

Dow jumps 150 points, stocks scrape out Trump’s impeachment negotiation (Forbes)

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