GameStop’s stock price fell more than 50% on Tuesday to about $ 110 a share. The drop also indicated that the popular WallStreetBets Reddit stock exchange discussion board – a major force behind last week’s spectacular rally in the troubled video game retailer’s shares and others’ – may be losing its magic to move the market.
GameStop’s decline followed a major cut in the short-term interest rate on the stock, which measures how much of the company’s stock has been borrowed to sell. Many had pointed to that previously high short-term interest rate, and the fact that hedge funds and others betting against the video game retailer had been pressured as one reason why GameStop’s stock had soared.
The decline may also result in significant losses for some of the individual investors who followed the positive stock market suggestions posted on it WallStreetBets, which has grown in popularity to 8 million members over the past week. Shares of GameStop hit a record high of $ 483 on Thursday.
Those stocks are now down 77% to $ 110 in less than a week, wiping out nearly $ 27 billion in market capitalization for GameStop, which had a market cap of $ 35 billion at its peak last week. On Tuesday, that market value had dropped to $ 8 billion.
Share prices of other companies boosted in WallStreetBets have also fallen sharply. Shares of movie theater chain AMC Entertainment also fell about 50% on Tuesday to about $ 6.50 each. That stock was at $ 20 last week. BlackBerry shares, which were still at $ 28 last week, also fell to $ 11 on Tuesday.
On Monday, Acting Chair of the U.S. Securities and Exchange Commission, Allison Herren Lee, told NPR that the stock market regulator was investigating several aspects of GameStop’s sudden surge in stock, including whether brokers were trading correctly and whether market manipulation. She also warned against companies trying to raise money by selling stock at prices that seemed too high by social media-driven traders and were unsustainable.
CBS MoneyWatch reported on Monday that the moderators of the WallStreetBets discussion forum recently detected a “large amount” of bot activity in the stock recommendation content posted to the group.
And on Monday, Naked Brand Group, which sells intimate apparel for both men and women, announced it had sold more than 29 million shares in a follow-up offering for $ 1.70 each, raising $ 50 million for the company. The company, which is based in Auckland, New Zealand, is in the process of closing all of its stores in favor of online sales.
Naked Brand’s shares had only traded for just 7 cents each in November. In its offering document, filed with the SEC, the company said its stock price had seen “extreme volatility” in recent weeks. It said the price swings appeared to be caused by social media chatter and “short interest” in the company, as well as other factors.
On Tuesday, shares of Naked Brand fell to 94 cents each, down 45% from Monday’s bid price. A Naked Brand spokesperson did not return a request from CBS MoneyWatch for comment.