Reddit-Fueled Meme Stocks Are Tanking Hard—GameStop Losses Near $20 Billion While Dow Jumps Another 500 Points
A slew of fourth-quarter earnings (during one of the busiest reporting weeks this season) and developments on the fiscal stimulus front helped push the broader market higher for a second day in a row while the buying frenzy surrounding heavily shorted stocks took a massive turn for the worse.
The Dow Jones industrial average jumped 476 points, or 1.6% Tuesday, while the S&P 500 and the tech-heavy Nasdaq climbed about 1.4% and 1.6%, respectively–nearly recouping all their losses from the Reddit-fueled mayhem.
Among firms leading gains in the S&P, lab instruments company Waters Corp. and courier UPS ticked up 8% and 3%, respectively, after both companies posted better-than-expected fourth-quarter sales and income before the opening bell, tacking on to one of the best earnings season on record.
Uber’s stock climbed 7% after the ride-hailing service announced Tuesday morning it will acquire alcohol delivery company Drizly for about $1.1 billion in cash and stock. Uber said Drizly’s marketplace will keep its own app and eventually be integrated into the Uber Eats app as well.
Shares of oil giant BP fell 6% after the firm posted its first annual loss in a decade, losing $5.7 billion last year (compared to a $10 billion profit in 2019); ExxonMobil shares, meanwhile, added nearly 2% after a better-than-expected earnings report—despite the firm posting a $20 billion loss for 2020.
The Reddit rally, meanwhile, continued to unravel Tuesday, with GameStop shares plunging another 60%, pushing the meme stock’s market value loss up to about $18 billion since a high on Wednesday; AMC shares, which managed to stay roughly flat Monday, fell a staggering 40%.
After surging 11% to an eight-year high on Monday, silver prices slipped about 6% Tuesday morning after the Chicago Mercantile Exchange said it would require more collateral from traders for each futures contract purchased.
“Trading is back to normal,” Oanda Senior Market Analyst Edward Moya said Tuesday. “The Reddit army is retreating as some retail traders are scrambling to the sidelines, and risk appetite is returning as the retail trading mania ends, the U.S. turns a key corner in the fight against Covid, and as Democrats inch closer towards a fresh Covid relief bill.”
Despite the meme stock bust, global markets were also largely positive on Tuesday, with Japan’s Nikkei 225 ending the day up 1%, while the United Kingdom’s FTSE 100 climbed 0.8%, and Germany’s DAX Index 1.6%.
What To Watch For
About 25% of S&P companies report earnings this week. Amazon and Alphabet headline earnings after the close. Then Spotify, eBay, PayPal and Qualcomm all report Wednesday. On the economic front, the January jobs report will be released Friday.
Investor sentiment took a massive hit over the “relentless option buying by retail investors taking advantage of a structural weakness in the market,” Moya said Friday, noting that the Dow’s 1,000-point plunge last week was the index’s worst weekly loss since election uncertainty tanked sentiment in late October. The S&P and Nasdaq posted similar losses. Other experts are similarly inclined. “The market is not broken, but recent events have revealed some cracks,” says Commonwealth Financial Network chief investment officer Brad McMillan, noting that the dot-com boom didn’t “destroy the capital markets” despite valuations that were much loftier than they are now.
Dow Jumps 250 Points, But GameStop Market Value Plunges $7 Billion As Shorts Cash Out (Forbes)
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GameStop FOMO? 9 Investment Sages Explain Meme Stock Mania (Forbes)
Dow Plunged 1,000 Points This Week After Reddit Traders Stormed The Stock Market–What Happens Next? (Forbes)