US stocks rose Tuesday, building on a strong rally in the previous session as concerns about a speculative retail frenzy continued to subside.
The Dow Jones Industrial Average rose 610 points while the S&P 500 rose 1.7% after posting its best day since November on Monday. The tech-heavy Nasdaq Composite gained 1.4% and has been gaining nearly 4% for weeks.
Successive advancement on Wall Street coincided with a sharp reversal of GameStop, the video game inventory that intrigued Wall Street with its massive short squeeze coordinated by a group of retail investors on social media. GameStop, which rose 400% last week, was down 30% on Monday and fell another 50% on Tuesday. The stock lost more than half of its value in two days.
“Inevitably, as with any tech-powered short squeeze, the Reddit missile ship ran out of fuel and is now crashing back to earth,” said Max Gokhman, director of asset allocation at Pacific Life Fund Advisors Work and Fundamentals Matters, Others Market participants will be comfortable returning to the market and that likely drove this week’s comeback rally. “
Other highly speculative investments popular with the Reddit crowd also fell. AMC Entertainment fell more than 35%. Silver futures contracts, which saw their biggest one-day jump in eleven years on Monday, fell more than 5% on Tuesday.
Investors took this as a sign that retailers’ speculative mania is subsiding, which is healthy for the overall market and investor confidence. The stock market suffered its worst week since October last week as many feared that the fierce trading activity in these greatly shortened names could be contagious and spill over to other areas of the markets.
However, some believe that this Reddit-fueled commercial frenzy has shown that the collective power of retail investors deserves special attention.
“Retail investors are a force to be reckoned with,” said Lauren Goodwin, economist and portfolio strategist at New York Life Investments. “This particular example will fade and retail investor influence will wane over time. However, I think it is prudent to expect investors to draw attention to certain stocks from time to time.”
In the meantime, investors will be following the stimulus talks in Washington after Republicans in Congress made a counter-offer against President Joe Biden’s $ 1.9 trillion stimulus plan on Sunday.
Biden met with these lawmakers on Monday when Congress Democrats passed a reconciliation law without bipartisan support. Jen Psaki, White House press secretary, described the meeting as “substantive and productive”.
Investors also waited for big earnings reports on Tuesday. Tech giants Amazon and Alphabet will publish quarterly figures after the market closes.
