Markets are stuck in the battle chair as another day of the retail-led feed rage on short-circuited stocks is about to come online.
In case you thought the trading frenzy was a limited battle between internet day traders and Wall Street hedge funds, video game retailer GameStop was one of the most traded stocks in the US on Wednesday, measured by value.
Amateur investors, mostly based on the Reddit group WallStreetBets, are jumping into high-short stocks, pushing prices to astronomical levels and forcing hedge funds to sell bigger, safer bets to cover losses.
Selloff is sneaking into other investments and a terrifying sentiment. Major indexes went down 2% to 3% on Wednesday and will continue to surf.
A must to read: Tendies? Diamond hands? Your guide to the jargon on WallStreetBets, the Reddit forum fueling Gamestop’s wild rise
Our call of the day comes from the US equity researchers at Jefferies, led by global equity strategist Sean Darby, with a bonus call from Sébastien Galy, a strategist at Nordea Asset Management.
The Jefferies team is clear that the stock price correction has little to do with fundamentals. Rather, what is happening is a reflection of a “shift in sentiment within some of the more overbought and speculative parts of the market.”
The group’s speculative retail index, which measures the trend deviation of assets whose value is difficult to determine, is high with 4 standard deviations. “Therefore, there is enough air to get out of the riskier financial assets,” the team said.
Darby’s team noted that the short-term concern is whether the “popping” of riskier parts of the market will create a domino effect as regular stocks are liquidated to contain losses.
Galy, of Nordic asset manager Nordea, reiterates Jefferies’ warning about a bigger sell-off. He also says it’s too early to buy the dip as there is more to come.
The big strides to cover shorts at a time of high leverage typically force more deleveraging, Galy said. This is because capital constraints due to the risk of losses on investments are increasing.
“As a result, the costs of hedging downside risk have risen sharply,” said Galy. “This risk reduction could take a few days, followed by a strong liquidity-driven recovery in US and to a lesser extent European equities.”
Galy said even a moderate Federal Reserve meeting on Wednesday failed to turn this market around, which is another sign that it may be continuing.
The buzz
Shares in GameStop GME,
hit the $ 500 level in the premarket before withdrawing. The stock was only $ 19 on the way to 2021. Fashion brand Nakd NAKD,
is another stock that is making a big leap in the premarket, up 130%.
In a Securities and Exchange Commission filing this morning, movie theater chain AMC AMC,
disclosed that convertible bond holders of the company have opted to convert the bonds into shares, as shares in the company are up about 330% since Tuesday.
Apple AAPL,
Facebook FB,
and Tesla TSLA,
posted a profit after yesterday’s close. Technology giant Apple hit $ 100 billion in quarterly sales for the first time, shattering expectations as social media company Facebook also exceeded estimates, with sales up 156% from “other revenues” – such as virtual reality headsets and video chat devices . Electric car maker Tesla reported its sixth straight quarter in profit, but it was a misunderstanding.
But if you can take your eyes off the stock market, it’s a big day in the economic field. Initial and ongoing unemployment claims are due at 8:30 a.m. EST, with approximately 875,000 people expected to file for unemployment last week. The gross domestic product figures for the fourth quarter of 2020 come at the same time, before new home sales for December are reported at 10 a.m.
After the Federal Open Market Committee decided yesterday to keep monetary policy stable, Fed Chairman Jerome Powell gave mild signals that the central bank was not yet done recovering the COVID-19-ravaged economy. “We haven’t won this yet,” he said.
The markets
It looks like another wild day on Wall Street. Yesterday’s uproar saw the Dow Jones Industrial Average DJIA,
tumble more than 630 points, and stock market futures YM00,
ES00,
NQ00,
point down, ready to resume the sale. Asian markets NIK,
HSI,
HSI,
fell across the board and European indexes SXXP,
UKX,
DAX,
PX1,
are firmly in red.
The graph
Our map of the day, from Marshall Gittler at BDSwiss, shows how the S&P 500 SPX,
the most since October 2020, and the VIX index of expected volatility saw the largest one-day increase since the COVID-19 pandemic in March 2020.
The tweet
When the sharks look for the fish. Billionaire entrepreneur and investor Mark Cuban – of “Shark Tank” fame – is rooting for Reddit’s WallStreetBets merchants.
Random reads
An Oklahoma legislator has proposed a ‘Bigfoot’ hunting season with a new bill.
Key West wants to ban people from feeding fat, wild, free-roaming chickens.
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