Stocks of GameStop – the company at the center of an online shopping frenzy that caught the imagination of the world last week – plunged another 42 percent on Thursday, to a tiny fraction of what it was just a few days ago.
It was the third jump in four trading sessions for the stock that had become the symbolic heart of an online crusade against some of Wall Street’s most discerning investors.
GameStop’s shares closed at $ 53.50, down nearly 90 percent from their high of $ 483 Thursday morning last week.
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The video game retailer’s inventory is down 84 percent this week, and the router has convinced many who favored inventory that the ride is over.
“GME is dead,” wrote one user, BoBo_HUST, on Reddit’s WallStreetBets forum using the GameStop ticker. Then the commentator wondered aloud about the prospect of one of the other so-called meme stocks, BlackBerry. “Can BB save us?”
BlackBerry, the once-dominant mobile device maker, rose 1.3 percent, a bleak ray of hope for those embroiled in a retail frenzy that had spread to other once sleepy stocks. AMC Entertainment, the pandemic-hit cinema chain that has also caught the attention of amateur investors, fell 21 percent on Thursday and is down around 47 percent for the week.
GameStop’s explosive surge – it rose over 600 percent in just a few days – was driven by a remarkable online campaign. Retail investors gathering on Reddit and other social media sites sought to “squeeze” short-selling hedge funds to take advantage of a decline in the ailing retailer’s share price.
The plan worked, and improved the long-standing balance of power on Wall Street as retailers hedge funds hurt painfully and amassed enormous profits. But those wins were largely transacted this week.
“The incredible increase in volatility has shown you that this is unsustainable,” said Julian Emanuel, chief strategist for stocks and derivatives at brokerage firm BTIG. “We’re back to your regular bull market that’s already going on.”
The broader market returned to climbing, a march that stalled after investors were annoyed by the rise in headstrong stocks over the past week. The S&P 500 rose 1.1 percent and closed at a new high.
As retailers flooded into GameStop’s stocks and other short selling, the surge forced the bottlenecked hedge funds to sell stocks they would otherwise have held to raise funds. That momentum helped drive the broader stock market down last week, bringing the S&P 500 down 1.1 percent in January.
The short squeeze was very profitable for some investors who bought these once-beleaguered stocks if they sold early enough to lock in profits. The drop in the price of GameStop stock since its intraday peak Thursday last week – just before brokerage firms began restricting trading in some of the highest-traded meme stocks – has destroyed roughly $ 30 billion in market value.
Any investor who got into the stock during the height of the excitement will face huge losses.
“It was clear to many in the market that this had gone so far and so quickly that people had to take profits when they had them,” said Steve Sosnick, chief strategist at Interactive Brokers in Greenwich, Conn. “When two-thirds of a company’s market capitalization is up in a few days, it won’t be comfortable for many owners.”
